DETERMINATION OF THE URBAN WAGE PREMIUM IN ECUADOR

Abstract

This paper aims to determine the urban wage premium in Ecuador. It estimates two wage equations with the nominal and real wage, using instrumental variables to control endogeneity. Four indicators are applied to measure up the urban premium: area, classification by size of a city, cantonal population, and number of firms per capita. The latter is used for the first time and proves to be a better measure to reflect the urban premium. The results show that workers located in metropolis and big cities earn wages 14% and 4% higher than those workers located in small towns, respectively. The wage elasticity is 0.03% with respect to cantonal population, and 0.06% with respect to the number of firms.