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Real Wages, Amenities and the Adjustment of Working Hours Across Regional Labour Markets

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  • Teresa Schlüter
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    Abstract

    This article establishes a link between the traditional labour economics and the urban economics literature by analyzing differences in working hours across regional labour market areas in the UK. Using a real wage index reflecting skill adjusted earnings net of quality adjusted house prices in Britain and panel data on working hours the effect of regional real wages on labour supply is assessed. The identification strategy relies on workers who move across 157 labour market areas in Britain and includes individual fixed effects. The main finding is that working hours are significantly higher in labour market areas that offer lower real wages. Decreasing real wages by £1000 results in an increase of working hours of 0.3 %. Real wage differentials can be seen as a proxy for the local amenity level. I can replicate my finding including a set of amenities instead of the real wage index. The effect is mainly due to labour supply decisions of low skilled workers who work significantly longer hours in low real wage areas than high skilled workers. This indicates that low skilled workers are willing to increase their labour supply in order to afford living in high amenity areas.

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    File URL: http://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercdp0130.pdf
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    Bibliographic Info

    Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0130.

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    Date of creation: Mar 2013
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    Handle: RePEc:cep:sercdp:0130

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    Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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    1. Alan Manning, 2000. "Labour supply, search and taxes," LSE Research Online Documents on Economics 20202, London School of Economics and Political Science, LSE Library.
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    8. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
    9. Mark B. Stewart & Joanna K. Swaffield, 2008. "The Other Margin: Do Minimum Wages Cause Working Hours Adjustments for Low-Wage Workers?," Economica, London School of Economics and Political Science, vol. 75(297), pages 148-167, 02.
    10. Blundell, Richard & Brewer, Mike & Francesconi, Marco, 2007. "Job Changes and Hours Changes: Understanding the Path of Labour Supply Adjustment," IZA Discussion Papers 3044, Institute for the Study of Labor (IZA).
    11. Sousa-Poza, Alfonso & Ziegler, Alexandre, 2003. "Asymmetric information about workers' productivity as a cause for inefficient long working hours," Labour Economics, Elsevier, vol. 10(6), pages 727-747, December.
    12. John M. Quigley & Steven Raphael, 2004. "Is Housing Unaffordable? Why Isn't It More Affordable?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 191-214, Winter.
    13. Zavodny, Madeline, 2000. "The effect of the minimum wage on employment and hours," Labour Economics, Elsevier, vol. 7(6), pages 729-750, November.
    14. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
    15. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C110-C116, 03.
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