IDEAS home Printed from https://ideas.repec.org/a/spr/anresc/v72y2024i1d10.1007_s00168-022-01188-w.html
   My bibliography  Save this article

Amenities and wage premiums: the role of services

Author

Listed:
  • Kangoh Lee

    (San Diego State University)

  • Chung-Yi Tse

    (University of Leicester)

Abstract

This paper studies amenities and wage premiums in a service economy where individuals with different skills choose cities with different amenities and choose occupations to produce different services, namely the high-quality service or the low-quality service. Workers with higher skills have stronger preferences for amenity and choose the high-amenity city. Within each city, workers with higher skills choose to produce the high-quality service, and workers with lower skills choose to produce the other. Workers with higher skills are willing to sacrifice more wages to live in the high-amenity city. As a result, the price of the high-quality service, relative to the price of the low-quality service, is lower in the high-amenity city, because the wage equals the price times skill or productivity. The wage of a worker with a given skill in the high-quality service sector, relative to the wage of a worker in the low-quality service sector, or the wage premium, is thus lower in the high-amenity city. A quantitative analysis shows that the wage premium is about 3% lower when amenity is 10% higher. However, the average wage of high-quality service workers over that of low-quality service workers may be lower or higher in the high-amenity city due to skill concentration in the high-amenity city.

Suggested Citation

  • Kangoh Lee & Chung-Yi Tse, 2024. "Amenities and wage premiums: the role of services," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 72(1), pages 37-63, January.
    • Handle: RePEc:spr:anresc:v:72:y:2024:i:1:d:10.1007_s00168-022-01188-w
    DOI: 10.1007/s00168-022-01188-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00168-022-01188-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00168-022-01188-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jan K. Brueckner & David Neumark, 2014. "Beaches, Sunshine, and Public Sector Pay: Theory and Evidence on Amenities and Rent Extraction by Government Workers," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 198-230, May.
    2. Donald R. Davis & Jonathan I. Dingel, 2019. "A Spatial Knowledge Economy," American Economic Review, American Economic Association, vol. 109(1), pages 153-170, January.
    3. Nathaniel Baum-Snow & Ronni Pavan, 2013. "Inequality and City Size," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1535-1548, December.
    4. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    5. 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, January.
    6. Enrico Moretti, 2013. "Real Wage Inequality," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 65-103, January.
    7. Jorge De La Roca & Diego Puga, 2017. "Learning by Working in Big Cities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 106-142.
    8. Rebecca Diamond & Enrico Moretti, 2021. "Where is Standard of Living the Highest? Local Prices and the Geography of Consumption," NBER Working Papers 29533, National Bureau of Economic Research, Inc.
    9. Nathaniel Baum-Snow & Ronni Pavan, 2012. "Understanding the City Size Wage Gap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 88-127.
    10. Lee, Sanghoon, 2010. "Ability sorting and consumer city," Journal of Urban Economics, Elsevier, vol. 68(1), pages 20-33, July.
    11. Brueckner, Jan K. & Thisse, Jacques-Francois & Zenou, Yves, 1999. "Why is central Paris rich and downtown Detroit poor?: An amenity-based theory," European Economic Review, Elsevier, vol. 43(1), pages 91-107, January.
    12. Chang-Tai Hsieh & Esteban Rossi-Hansberg, 2023. "The Industrial Revolution in Services," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 3-42.
    13. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-2348, August.
    14. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    15. David H. Autor & David Dorn, 2013. "The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market," American Economic Review, American Economic Association, vol. 103(5), pages 1553-1597, August.
    16. Ali Hortaçsu & Chad Syverson, 2015. "The Ongoing Evolution of US Retail: A Format Tug-of-War," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 89-112, Fall.
    17. Sanghoon Lee & Jeffrey Lin, 2018. "Natural Amenities, Neighbourhood Dynamics, and Persistence in the Spatial Distribution of Income," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 663-694.
    18. Glaeser, Edward L., 2008. "Cities, Agglomeration, and Spatial Equilibrium," OUP Catalogue, Oxford University Press, number 9780199290444, Decembrie.
    19. Di Addario, Sabrina & Patacchini, Eleonora, 2008. "Wages and the City. Evidence from Italy," Labour Economics, Elsevier, vol. 15(5), pages 1040-1061, October.
    20. Carlsen, Fredrik & Rattsø, Jørn & Stokke, Hildegunn E., 2016. "Education, experience, and urban wage premium," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 39-49.
    21. Henderson, J V, 1974. "Optimum City Size: The External Diseconomy Question," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 373-388, Part I, M.
    22. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    23. Jan K. Brueckner & Jacques-François Thisse & Yves Zenou, 1999. "Why is central Paris rich and downtown Detroit poor?," Post-Print hal-04103047, HAL.
    24. David Albouy, 2016. "What Are Cities Worth? Land Rents, Local Productivity, and the Total Value of Amenities," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 477-487, July.
    25. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    26. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    27. Rosenthal, Stuart S. & Strange, William C., 2008. "The attenuation of human capital spillovers," Journal of Urban Economics, Elsevier, vol. 64(2), pages 373-389, September.
    28. Robert W. Helsley & William C. Strange, 2014. "Coagglomeration, Clusters, and the Scale and Composition of Cities," Journal of Political Economy, University of Chicago Press, vol. 122(5), pages 1064-1093.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kemeny, Thomas & Storper, Michael, 2020. "Superstar cities and left-behind places: disruptive innovation, labor demand, and interregional inequality," LSE Research Online Documents on Economics 103312, London School of Economics and Political Science, LSE Library.
    2. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    3. Jordy Meekes & Wolter H. J. Hassink, 2023. "Endogenous local labour markets, regional aggregation and agglomeration economies," Regional Studies, Taylor & Francis Journals, vol. 57(1), pages 13-25, January.
    4. Galster, George C. & Osland, Liv, 2024. "Educational and gender heterogeneity of the rural-urban earnings premium: New evidence from Norway," Regional Science and Urban Economics, Elsevier, vol. 105(C).
    5. Fredrik Carlsen & Stefan Leknes, 2022. "For whom are cities good places to live?," Regional Studies, Taylor & Francis Journals, vol. 56(12), pages 2177-2190, December.
    6. Antonio Accetturo & Alberto Dalmazzo & Guido Blasio, 2014. "Skill Polarization In Local Labor Markets Under Share-Altering Technical Change," Journal of Regional Science, Wiley Blackwell, vol. 54(2), pages 249-272, March.
    7. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 349-404, Elsevier.
    8. Cunningham, Chris & Patton, Michaela C. & Reed, Robert R., 2016. "Heterogeneous returns to knowledge exchange: Evidence from the urban wage premium," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 120-139.
    9. Koster, Hans R.A. & Ozgen, Ceren, 2021. "Cities and tasks," Journal of Urban Economics, Elsevier, vol. 126(C).
    10. repec:osf:socarx:wnd8t_v1 is not listed on IDEAS
    11. Eckert, Fabian & Hejlesen, Mads & Walsh, Conor, 2022. "The return to big-city experience: Evidence from refugees in Denmark," Journal of Urban Economics, Elsevier, vol. 130(C).
    12. Tom Kemeny & Michael Storper, 2024. "The Changing Shape of Spatial Income Disparities in the United States," Economic Geography, Taylor & Francis Journals, vol. 100(1), pages 1-30, January.
    13. Eisenbarth, Anthony & Chen, Zhou Fu, 2022. "The evolution of wage inequality within local U.S. labor markets," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-2.
    14. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 171-245, Elsevier.
    15. Bieri, David S. & Kuminoff, Nicolai V. & Pope, Jaren C., 2023. "National expenditures on local amenities," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    16. Pan, Liqun & Mukhopadhaya, Pundarik & Li, Jing, 2019. "The changing texture of the city-size wage differential in Chinese cities – Effects of skill and identity," China Economic Review, Elsevier, vol. 53(C), pages 191-210.
    17. Kemeny, Tom & Storper, Michael, 2022. "The changing shape of spatial inequality in the United States," SocArXiv wnd8t, Center for Open Science.
    18. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Why do wages grow faster in urban areas? Sorting of high potentials matters," CPB Discussion Paper 377.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Gilles Duranton & Diego Puga, 2020. "The Economics of Urban Density," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 3-26, Summer.
    20. Katja Gehr & Michael Pflüger, 2025. "Cities, Aggregate Welfare, and Growth," CESifo Working Paper Series 11716, CESifo.
    21. ANDREOLI Francesco & PELUSO Eugenio, 2017. "So close yet so unequal: Spatial inequality in American cities," LISER Working Paper Series 2017-11, Luxembourg Institute of Socio-Economic Research (LISER).

    More about this item

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:anresc:v:72:y:2024:i:1:d:10.1007_s00168-022-01188-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.