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Wages, Rents, And Heterogeneous Moving Costs

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  • DOUGLAS J. KRUPKA
  • KWAME N. DONALDSON

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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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2012.00475.x
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 844-864

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:844-864
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Find related papers by JEL classification:
  • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
  • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
  • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
  • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial 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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Cited by:

  1. John Winters, 2013. "Differences in quality of life estimates using rents and home values," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(2), pages 377-409, October.
  2. Christian A. L. Hilber, 2011. "The Economics Implications of House Price Capitalization: A Synthesis," SERC Discussion Papers 0091, Spatial Economics Research Centre, LSE.
  3. Winters, John V. & Li, Yu, 2015. "Urbanization, Natural Amenities, and Subjective Well-Being: Evidence from U.S. Counties," IZA Discussion Papers 8966, Institute for the Study of Labor (IZA).
  4. Douglas J. Krupka, 2009. "Location-Specific Human Capital, Location Choice And Amenity Demand," Journal of Regional Science, Wiley Blackwell, vol. 49(5), pages 833-854.
  5. Jeffrey Thompson, 2011. "Costly Migration and the Incidence of State and Local Taxes," Working Papers wp251, Political Economy Research Institute, University of Massachusetts at Amherst.
  6. Oswald, Andrew J. & Wu, Stephen, 2009. "Well-being across America," IZA Discussion Papers 4600, Institute for the Study of Labor (IZA).
  7. Krupka, Douglas J., 2008. "On Amenities, Natural Advantage and Agglomeration," IZA Discussion Papers 3598, Institute for the Study of Labor (IZA).
  8. Teruel Carrizosa , Mercedes & Segarra Blasco , Agustí, 2009. "Immigration and Firm Performance: a city-level approach," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 15, pages 111-137.
  9. 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.
  10. Christian A. L. Hilber, 2011. "The economics implications of house price capitalization a survey of an emerging literature," LSE Research Online Documents on Economics 58596, London School of Economics and Political Science, LSE Library.
  11. Kopmann, Angela & Rehdanz, Katrin, 2014. "Underestimated Benefits from Periphery: Internal Migration and Subjective Well-being," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100382, Verein für Socialpolitik / German Economic Association.

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