# **1. Introduction**

Workers earn higher wages in bigger cities. One explanation is the learning advantages that bigger cities provide, as well as the larger array of opportunities for workers to match with a firm. However, an alternative explanation for the higher observed wages is the sorting of more skilled workers into bigger cities. We know workers in bigger cities exhibit higher educational attainment and tend to work in occupations that demand more skills. Yet, we continue to know little about the contribution of internal migration to the sorting of more skilled workers into bigger cities.

Recent studies that examine differences in skills between workers in big and small cities rely on rich administrative worker-level panel data that follow workers throughout their careers (Combes, Duranton, Gobillon, and Roux, 2012, Carlsen, Rattsø, and Stokke, 2016, Matano and Naticchioni, 2016, De la Roca and Puga, 2017). However, sorting may take place prior to entering the labor force as more skilled individuals may leave their small towns upon college graduation and move to a big city to commence their job search and career. Furthermore, sorting may occur even earlier as high-ability high school graduates may move to a big city to pursue a college degree and remain there after graduation to work. The sorting of skilled individuals into big cities can, therefore, occur prior to labor market entry and may be a dynamic process.

In this paper we study the dynamic sorting that leads to differences in skills across cities of different sizes and its consequences on estimated agglomerative effects for work, college, and high school city, using rich administrative data for young college-educated workers in Colombia. For college graduates who work as employees in the formal sector of the economy, we observe their wages, as well as their college, degree, and major. We also observe a rich set of background characteristics, including parental income and education, as well as individual scores in the mandatory national high school exit exam, Saber 11, which measures academic readiness for higher education (or ‘ability,’ for short.). Importantly, we observe the location of an individual’s high school, college, and work sites.

Existing evidence for developed countries shows an important role for the pre-labor market sorting of more educated and skilled individuals into big cities. Ahlin, Andersson, and Thulin (2017) find that individuals with higher grades in high school and more educated parents sort into bigger cities in Sweden, largely as a result of attending college there.<sup>1</sup> Winters (2011) finds that us cities with a high share of college graduates tend to attract more undergraduates who end up developing local human capital and remaining there after graduation. In the closest study to ours, Suhonen (2013) shows that the positive earnings gap between Helsinki and smaller cities in Finland among young college graduates can be fully explained by students’ pre-university characteristics such as high school grades and parental education. Meanwhile, Bosquet and Overman (2019) show the significant role of birthplace on adult wages in the uk, which accounts for 4.2% or two thirds of the 6.8% raw elasticity of wages with respect to city size. They conclude that lifetime immobility explains much of the correlation between birthplace and current city size: in their sample of Britons, 43.7% of workers live in the same place where they were born.

> 1Ahlin, Andersson, and Thulin (2017) focus on urban vs. rural differences in Sweden and do not investigate the consequences of such sorting on wages.

1