This research quantifies productivity-related agglomeration benefits arising from the concentration of employment in Australia. 

Clustering of jobs in cities can improve labour productivity by reducing the costs of exchanging goods and services, labour and ideas, and may allow for better matching of skills to jobs, which in turn may produce higher wages as firms compete for skilled labour. However, cities also typically have higher house prices, which reduce entry and ongoing affordability, and greater pollution and other wellbeing detriments such as crime and noise which may reduce productivity. 

The research found that agglomeration effects appear to be localised, with some evidence that proximity to nearby employment concentration has a positive impact on the wages of higher-income earners, but this effect appears to disappear over wider area. Areas with more spatially concentrated industries tend to experience additional wage. Broadly a doubling of economic specialisation, relative to the state as a whole, is associated with a further 4–10 per cent increase in wages. In addition, a doubling of employment density raises wages by 1 to 4 per cent.

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AHURI Final Report 366