Earnings Functions When Wages and Prices Vary by Location
AbstractEconomists generally assume, implicitly, that "the return to schooling" is invariant across local labor markets. We demonstrate that this outcome pertains if and only if preferences are homothetic-a special case that seems unlikely. Our theory predicts that returns to education will instead be relatively low in expensive high-amenity locations. Our analysis of U.S. data provides support for this contention; returns to college are especially low in such cities as San Francisco and Seattle. Our findings call into question standard empirical exercises in labor economics that treat the returns to education as a single parameter. (c) 2009 by The University of Chicago.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Labor Economics.
Volume (Year): 27 (2009)
Issue (Month): 1 (01)
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Other versions of this item:
- Dan Black & Natalia Kolesnikova & Lowell J. Taylor, 2007. "Earnings functions when wages and prices vary by location," Working Papers 2007-031, Federal Reserve Bank of St. Louis.
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