Skills and Spatial Sorting

Although, spatial sorting is of great interest for policy makers -- it has consequences on education, skills and inequality -- no overarching theoretical framework of spatial sorting exists. In the present study we propose a simple and analytically solvable spatial general equilibrium model of spatial sorting, where heterogeneously skilled and located workers simultaneously choose their level of education and spatial location. We derive the asymptotic optimality conditions for empirical likelihood of sorting and education under a large deviations optimality criterion. We also present higher-order properties of empirical likelihood. The structural model is estimated econometrically for EU-27 using individual level panel data for 2004-2013.