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The Relationship between Location Choice and Earnings Inequality

  • Peter McHenry

    ()

    (Department of Economics, College of William and Mary)

This paper provides new empirical evidence about how workers’ locations affect inequality in earnings and costs of living. I find that young college graduates grow up and choose to live in locations that have smaller effects on their own wages and higher costs of living, relative to locations of their less-educated peers. Consequently, young college graduates’ migration behavior actually decreases earnings inequality, at least in the short-run. In addition, college graduate movers choose destinations with higher average wages (for all workers) and tend to be more responsive to local labor demand shocks. I infer from these observations that college graduates choose to live in more economically productive labor markets than do workers with less education. I argue that young college graduates accept relatively low wages and high costs of living in exchange for local learning opportunities in large, dense cities.

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File URL: http://economics.wm.edu/wp/cwm_wp118.pdf
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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 118.

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Length: 44 pages
Date of creation: 09 Apr 2012
Date of revision:
Handle: RePEc:cwm:wpaper:118
Contact details of provider: Postal: P.O. Box 8795, Williamsburg, VA 23187-8795
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Fax: (757) 221-2390
Web page: http://www.wm.edu/economics/

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  1. 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, 01.
  2. Ofer Malamud & Abigail Wozniak, 2008. "The Impact of College Graduation on Geographic Mobility: Identifying Education Using Multiple Components of Vietnam Draft Risk," Working Papers 0811, Harris School of Public Policy Studies, University of Chicago.
  3. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
  4. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  5. Edward L. Glaeser & Albert Saiz, 2003. "The rise of the skilled city," Working Papers 04-2, Federal Reserve Bank of Philadelphia.
  6. Christopher R. Berry & Edward L. Glaeser, 2005. "The divergence of human capital levels across cities," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 407-444, 08.
  7. Wheeler, Christopher H., 2006. "Cities and the growth of wages among young workers: Evidence from the NLSY," Journal of Urban Economics, Elsevier, vol. 60(2), pages 162-184, September.
  8. E. D. Gould, 2007. "Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 477-506.
  9. Peter McHenry, 2010. "The Geographic Distribution of Human Capital: Measurement of Contributing Mechanisms," Working Papers 92, Department of Economics, College of William and Mary.
  10. DuMond J.M. & Hisch, B.T. & Macpherson, D.A., 1996. "Wage Differentials Across Labor Markets and Workers: Does Cost of Living Matter?," Working Papers 1996_08_01, Department of Economics, Florida State University.
  11. Autor, David & Dorn, David, 2009. "Inequality and Specialization: The Growth of Low-Skill Service Jobs in the United States," IZA Discussion Papers 4290, Institute for the Study of Labor (IZA).
  12. Abigail Wozniak, 2010. "Are College Graduates More Responsive to Distant Labor Market Opportunities?," Journal of Human Resources, University of Wisconsin Press, vol. 45(4), pages 944-970.
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