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Area Disparities in Britain: Understanding the Contribution of People vs. Place Through Variance Decompositions

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  • Stephen Gibbons
  • Henry G. Overman
  • Panu Pelkonen

Abstract

type="main" xml:id="obes12043-abs-0001"> This article considers methods for decomposing wage variation into individual and group specific components. We discuss the merits of these methods, which are applicable to variance decomposition problems generally. The relative magnitudes of the measures depend on the underlying variances and covariances, and we discuss how to interpret them, and how they might relate to structural parameters of interest. We show that a clear-cut division of variation into area and individual components is impossible. An empirical application to the British labour market demonstrates that labour market area effects contribute very little to the overall variation of wages in Britain.

Suggested Citation

  • Stephen Gibbons & Henry G. Overman & Panu Pelkonen, 2014. "Area Disparities in Britain: Understanding the Contribution of People vs. Place Through Variance Decompositions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(5), pages 745-763, October.
    • Handle: RePEc:bla:obuest:v:76:y:2014:i:5:p:745-763
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    File URL: http://hdl.handle.net/10.1111/obes.2014.76.issue-5
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