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Wages, Rents and Heterogeneous Moving Costs

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Author Info
Douglas J. Krupka () (IZA)
Kwame Donaldson () (Georgia State University)

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Abstract

The model of compensating differentials in regional labor markets was developed by Roback (1982). The model interprets regional differences in constant quality wages and rents as compensating firms and residents for inter-regional differences in amenities. The model assumes that the costs of relocating to a new city are zero. The results hold in the presence of moving costs for the marginal migrant. This paper extends the Roback model to allow for moving costs which vary among a city’s residents and businesses. This modification of the model generates new interpretations of regional differences in rents and (to a lesser extent) wages. The importance of amenities is retained, but housing supply becomes the main other determinant of regional rents. Housing supply was for the most part ignored in the literature following on Roback’s initial insight. The new perspective also provides a bridge between the neo-classical perspective implicit in Roback’s approach and the newer literature on agglomeration economies.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3224.

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Length: 27 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:iza:izadps:dp3224

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Related research
Keywords: compensating differentials; quality of life; housing supply; amenities; capitalization;

Find related papers by JEL classification:
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Krupka, Douglas J., 2008. "On Amenities, Natural Advantage and Agglomeration," IZA Discussion Papers 3598, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Mercedes Teruel-Carrizosa & Agustí Segarra-Blasco, 2008. "Immigration and Firm Growth: Evidence from Spanish cities," Working Papers XREAP2008-11, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2008. [Downloadable!]
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