Heterogeneous skills, migration, and commuting

This paper analyses the effect of skill heterogeneity on regional patterns of production and housing in the presence of pecuniary externalities within a general‐equilibrium framework. The analysis allows for interregional commuting. Low‐skilled workers choose to live and work in the periphery, the medium‐skilled commute to the core, and the highly‐skilled live and work in the core. At the regional level, individual choices imply that the average skill level of employees is higher in the core regions than in the peripheral regions. In particular, in the peripheral regions, the average skill level of employees is lower than the average skill level of residents, some of whom commute to the core.