Spatial wage differentials and agglomeration externalities: Evidence from Indonesian microdata

This paper examines the sources of labor wage differentials and investigates human capital externalities across Indonesian districts. Based on microdata individual workers from 2006 to 2015, we show that, in addition (labor) characteristics, regional endowments agglomeration forces play an important role explaining variations Indonesia The results spatial proximity firms each other, market pooling, knowledge spillovers. We further found strong evidence positive externalities, particularly agglomerated regions. These findings suggest that skills are tools can be exploited by policymakers boost local productivity vis-à-vis reducing income/wage inequality.