Working from home, productivity and the spatial diffusion of urban wage premiums
This paper examines urban wage premiums in Sweden using population-wide matched employer–employee data covering the period 2016–2023, while tracking city-specific experience and job changes back to 1986. The results indicate that large and dense cities continue to benefit from agglomeration advantages after the pandemic.
Focusing on different groups of workers, we find a particularly high earnings premium from starting to work in the centre of Stockholm city for workers with high-skilled work-from-home (WFH) jobs. Relative to working in small cities, towns, or rural areas, these workers receive an initial earnings premium of around 4%, with the earnings gap increasing to about 24% after ten years. This dynamic effect is driven by a higher accumulated value of work experience and job changes in the centre of Stockholm city.
The results also reveal a substantial dynamic earnings premium from working in the centre rather than in the more peripheral areas of Stockholm city for workers with high-skilled WFH jobs (21%). We further find a positive, though smaller, dynamic earnings premium for workers with high-skilled WFH jobs who start working in the centres of Gothenburg and Malmö (7
13%). These findings suggest that a WFH-induced increase in the supply of labour to high-productivity locations can raise aggregate productivity in the economy and contribute to the geographical diffusion of large-city wage premiums to the outskirts of metropolitan areas, as well as to smaller cities, towns, and rural areas hosting WFH residents.
