DP4438 Cities and Cultures

Author(s): Gianmarco Ireo Paolo Ottaviano , Giovanni Peri

Publication Date: June 2004

Keyword(s): cultural diversity , productivity , wages , metropolitan areas

JEL(s): F10 , O40

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4438.asp

We investigate the existence of wage premium due to cultural diversity across US cities. Using census data from 1970 to 1990, we find that at the urban level richer diversity is systematically associated with higher average nominal wages for white US-born males. We measure cultural diversity in a city using the variety of languages spoken by city-residents. While the positive correlation between wages and diversity survives a battery of robustness checks, it seems to be larger once foreign cultures have been assimilated. Finally, instrumental variable estimation hints at causation going from diversity to wages. Comparing real and nominal wages across cities, we interpret these results as evidence that diversity enhances productivity.