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Do inter-city differences in intra-city wage differentials have any interesting implications?

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  • Kim, Dongsoo
  • Liu, Feng
  • Yezer, Anthony

Abstract

Recent research has related characteristics of cities to differences in the distribution of wages across workers with different skill levels. We demonstrate that these differences in wage differentials arise naturally as a compensating variation in Rosen's theoretical model of inter-city wages. For example, if the income elasticity of demand for housing services is less than unity, cities with higher house prices will have smaller money wage differentials between low and high skill workers. This result has no implications for differences in either absolute or relative real productivity or welfare of unskilled workers. Similarly, changes in the amenity of an urban area may result in changes in relative wages of skilled and unskilled workers with no implications for real productivity or welfare differentials. Empirical tests in which housing cost differentials are added as a determinant of inter-city differences in an intra-urban wage differential model provide empirical confirmation of the theoretical expectations. It appears that intra-urban money wage differentials, differences in the quality of life, and variation in the cost of living in each city are jointly determined variables just as Rosen's model of inter-city wage differentials predicts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 66 (2009)
Issue (Month): 3 (November)
Pages: 203-209

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Handle: RePEc:eee:juecon:v:66:y:2009:i:3:p:203-209

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Compensating differentials Quality of life Effects of agglomeration;

References

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  1. Stuart S. Rosenthal & William C. Strange, 2003. "Geography, Industrial Organization, and Agglomeration," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 56, Center for Policy Research, Maxwell School, Syracuse University.
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  4. Phimister, Euan, 2005. "Urban effects on participation and wages: Are there gender differences?," Journal of Urban Economics, Elsevier, Elsevier, vol. 58(3), pages 513-536, November.
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  11. Bartik, Timothy J. & Smith, V. Kerry, 1987. "Urban amenities and public policy," Handbook of Regional and Urban Economics, Elsevier, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 31, pages 1207-1254 Elsevier.
  12. Enrico Moretti, 2003. "Human Capital Externalities in Cities," NBER Working Papers 9641, National Bureau of Economic Research, Inc.
  13. Wheeler, Christopher H., 2006. "Cities and the growth of wages among young workers: Evidence from the NLSY," Journal of Urban Economics, Elsevier, Elsevier, vol. 60(2), pages 162-184, September.
  14. Black, Dan & Gates, Gary & Sanders, Seth & Taylor, Lowell, 2002. "Why Do Gay Men Live in San Francisco?," Journal of Urban Economics, Elsevier, Elsevier, vol. 51(1), pages 54-76, January.
  15. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  16. Wheeler, Christopher H., 2004. "On the distributional aspects of urban growth," Journal of Urban Economics, Elsevier, Elsevier, vol. 55(2), pages 371-397, March.
  17. Gyourko, Joseph & Kahn, Matthew & Tracy, Joseph, 1999. "Quality of life and environmental comparisons," Handbook of Regional and Urban Economics, Elsevier, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 37, pages 1413-1454 Elsevier.
  18. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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Citations

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Cited by:
  1. David Albouy & Bert Lue, 2014. "Driving to Opportunity: Local Rents, Wages, Commuting Costs and Sub-Metropolitan Quality of Life," NBER Working Papers 19922, National Bureau of Economic Research, Inc.
  2. Elvery, Joel A., 2010. "City size and skill intensity," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 40(6), pages 367-379, November.
  3. Larson, William & Liu, Feng & Yezer, Anthony, 2012. "Energy footprint of the city: Effects of urban land use and transportation policies," Journal of Urban Economics, Elsevier, Elsevier, vol. 72(2), pages 147-159.

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