Nagamachi, Kohei

This paper provides one explanation of why there is observed a positive correlation between skill premium and income of regions. In doing so, this paper provides a model of self-organized sorting and skill premium with a continuum of heterogeneous individuals and that of industries or tasks within a production process. It is found that the positive correlation merges through the interaction between the location-occupation choice by individuals and regional comparative advantage. The spatial equilibrium, sorting, and product differentiation play a key role in determining the way how such interaction works.