Knowledge economy, internal migration, and the effect on local labour markets

Knowledge-intensive activities may generate significant multiplicative effects at the local level. In particular, inflows of workers in knowledge-related sectors may contribute to make local labour markets more attractive for other kind of workers as well. This paper assesses how the employment growth and inflow of workers in knowledge-intensive sectors affect wage, employment, and probability of outmigration of local workers in other sectors. We focus on Italy during the 2005-2019 period, taking advantage of matched employer-employee social-security data, which allows to track workers’ histories across jobs and locations. To address the identification concerns of sorting and idiosyncratic shocks, we implement a two-step procedure combined with a shift-share IV strategy. We separately identify the contribution of sorting and spillovers to labour market outcomes. Our results suggest that the employment growth and inflow of workers in knowledge-intensive sectors have multiplicative effects on employment, increasing the number of days worked by local workers, and they also seem to reduce the probability of outmigration. Nominal wages of localworkers seem unaffected, while house prices increase producing a negative effect on local real wages.