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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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    Cited by:

    1. Stef Proost & Jacques-Francois Thisse, 2017. "What Can Be Learned from Spatial Economics?," HSE Working papers WP BRP 167/EC/2017, National Research University Higher School of Economics.
    2. Gibbons, Steve & Overman, Henry G. & Patacchini, Eleonora, 2015. "Spatial Methods," Handbook of Regional and Urban Economics, Elsevier.
    3. Bosquet, Clément & Overman, Henry G, 2016. "Why does birthplace matter so much? Sorting, learning and geography," CEPR Discussion Papers 11085, C.E.P.R. Discussion Papers.
    4. Philipp Ehrl, 2014. "A breakdown of residual wage inequality in Germany," Working Papers 150, Bavarian Graduate Program in Economics (BGPE).
    5. ., 2014. "Planning and economic performance," Chapters,in: Urban Economics and Urban Policy, chapter 5, pages 104-126 Edward Elgar Publishing.
    6. Licia Ferranna & Margherita Gerolimetto & Stefano Magrini, 2016. "Urban Governance Structure and Wage Disparities across US Metropolitan Areas," Working Papers 2016:26, Department of Economics, University of Venice "Ca' Foscari".
    7. Jeffrey Zax, 2016. "Provincial valuations of human capital in urban China, inter-regional inequality and the implicit value of a Guangdong hukou," ERSA conference papers ersa16p693, European Regional Science Association.
    8. Andros Kourtellos & Alex Lenkoski & Kyriakos Petrou, 2017. "Measuring the Strength of the Theories of Government Size," University of Cyprus Working Papers in Economics 11-2017, University of Cyprus Department of Economics.
    9. ., 2014. "Urban policies," Chapters,in: Urban Economics and Urban Policy, chapter 8, pages 185-218 Edward Elgar Publishing.

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