Peer Review for Mehlika by Chris

Mehlika,

I really like the topic and think it addresses an important question. I did some studying of urban economics previously and found the topic very interesting (although we didn't focus on the impact of agglomeration on wages).

Comments:

The purpose of the project is to understand the impact of agglomeration on wage dispersion. The goal is to assess how much of wage inequality among regions and industries agglomeration can explain.

You mention you plan on following the methodology of Chen et al. (2017). Is their data on wages the same type of wage measurement you have? I believe you mention that you have the cost of an employee to a firm. Do you know what is all included in that measure besides wages? I'm not too familiar with European labor markets but in the US I think this would include things such as the cost of participating in the retirement savings plans and other similar items, and how would you take into account these costs potentially varying across firms so that you can isolate the wage bill. For example, with the (fantastic...) health care structure of the US, I believe firms benefit from larger scale when negotiating health care plans (e.g. General Motors). If there's low pass through to employees, then wages may not differ as much between firms, but the cost of an employee might.

One thing that Jonathan mentioned in his review was more discussion of why firms choose to agglomerate. Giulia, Silva and Strange (2017) find that different types of firms agglomerate for different reasons. Since you are looking into within industry wage dispersion, this may be worth looking into to take into account the differences. The authors also discuss the impact of coagglomeration. Ellison, Glaeser and Kerr (2010) provide a background discussion on coagglomeration forces.

When discussing some of the shortcomings of the specific instruments you're considering, could you add some description of what the critique of these instruments is and what specific implications they would have in the context of your project. For example, if the Bartik instrument isn't appropriate for you question, what in the context of your question would be the reason why?

Overall, I think its a great project and look forward to seeing the results!