Knowledge economy, internal migration, and local labour markets

The spatial concentration of knowledge-intensive activities can generate multiplicative effects at the local level. This paper examines how employment growth in knowledge-intensive and tradable sectors affects wage, days worked, and internal migration of non-tradable workers in Italy. We leverage matched employer-employee data (2005–2019) to track individuals across jobs and locations. Our empirical strategy combines a two-step estimation with a shift-share instrument to disentangle the roles of worker sorting and local spillovers. We find that knowledge sector expansion increases the number of days worked locally and attracts non-tradable workers. It also raises nominal wages, but only when sorting is not accounted for, suggesting selective inflows of more productive workers into knowledge hubs. However, rising local living costs offset nominal wage gains, leading to lower real wages.