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The Relationship between Location Choice and Earnings Inequality

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  • Peter McHenry

    ()
    (Department of Economics, College of William and Mary)

Abstract

This paper provides new empirical evidence about how workers’ locations affect measurements of earnings inequality (and their changes over time) in the United States. Part of the inequality observed in any given U.S. sample is due to the fact that workers with different skills (and therefore earnings) are not distributed symmetrically across locations that are more and less productive (and therefore pay higher and lower wages). In particular, I estimate that a significant and rising proportion of the college wage premium is due to college graduates living in and moving toward higher-paying locations than high school graduates. Furthermore, I assess the impact of location on real wage inequality (adjusting for local costs of living). The higher wages that college graduates enjoy as a result of their location choices are mostly counterbalanced by higher costs of living. From this, I infer that college graduates choose to live in more economically productive labor markets than do workers with less education, but college graduates are not necessarily more capable of exploiting locational wage differences for their own advantage.

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File URL: http://economics.wm.edu/wp/cwm_wp112.pdf
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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 112.

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Length: 35 pages
Date of creation: 21 Feb 2011
Date of revision:
Handle: RePEc:cwm:wpaper:112

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Keywords: Earnings inequality; Migration; Regional labor markets;

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  1. Wheeler, Christopher H., 2006. "Cities and the growth of wages among young workers: Evidence from the NLSY," Journal of Urban Economics, Elsevier, vol. 60(2), pages 162-184, September.
  2. Dan Black & Natalia Kolesnikova & Lowell Taylor, 2009. "Earnings Functions When Wages and Prices Vary by Location," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 21-47, 01.
  3. E. D. Gould, 2007. "Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 477-506.
  4. Edward L. Glaeser & Albert Saiz, 2003. "The Rise of the Skilled City," Harvard Institute of Economic Research Working Papers 2025, Harvard - Institute of Economic Research.
  5. Ofer Malamud & Abigail Wozniak, 2008. "The Impact of College Graduation on Geographic Mobility: Identifying Education Using Multiple Components of Vietnam Draft Risk," Working Papers 0811, Harris School of Public Policy Studies, University of Chicago.
  6. Autor, David & Dorn, David, 2009. "Inequality and Specialization: The Growth of Low-Skill Service Jobs in the United States," IZA Discussion Papers 4290, Institute for the Study of Labor (IZA).
  7. DuMond J.M. & Hisch, B.T. & Macpherson, D.A., 1996. "Wage Differentials Across Labor Markets and Workers: Does Cost of Living Matter?," Working Papers 1996_08_01, Department of Economics, Florida State University.
  8. Christopher R. Berry & Edward L. Glaeser, 2005. "The divergence of human capital levels across cities," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 407-444, 08.
  9. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  10. Abigail Wozniak, 2010. "Are College Graduates More Responsive to Distant Labor Market Opportunities?," Journal of Human Resources, University of Wisconsin Press, vol. 45(4), pages 944-970.
  11. Peter McHenry, 2010. "The Geographic Distribution of Human Capital: Measurement of Contributing Mechanisms," Working Papers 92, Department of Economics, College of William and Mary.
  12. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
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