Agglomeration and skills: explaining regional wage disparities in Colombia

Regional wage gaps persist, and understanding them is crucial for policy design and for comprehending phenomena such that agglomeration. This article analyzes regional wage differences in Colombia by incorporating the composition of skills and specialization patterns into the analysis. To do this, wage equations are estimated, and decomposition techniques are implemented to assess the importance of these factors. The results suggest that both skills and specialization patterns are relevant to the magnitude of the regional wage gap, though in different ways. For skills, the key factor is the differences in composition between cities, while in the case of specialization, the critical element is the return it generates on wages. This analysis serves as a crucial input for public policy formulation aimed at reducing adjustments and structural skill gaps among different cities in Colombia.