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Determination of the urban wage premium in Ecuador

Abstract:

This paper, in closing the knowledge gap for developing countries, aims to estimate the urban wage premium (UWP) in Ecuador for different types of workers by using instrumental variables to address the endogeneity issue. The results show that for formal workers, the wage elasticity is 0.05/0.12 with respect to cantonal population/population density, and 0.049/0.088 with respect to the number of firms/firm density. These estimates are higher than those for informal and self-employed workers. Workers located in metropolis and big cities earn wages 9.6% and 7% higher than those workers located in small towns, respectively. Some cities stand as exceptions because they offer low UWP although they have large populations. This discrepancy could be related to poverty and the disorganized urban growth that cities in developing countries face.