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The Wage Gap between Metropolitan and Non-metropolitan Areas

  • Bonggeun Kim

In the literature on measured wage inequality, only one recent study, by Glaeser and Mare(2001), has focused on the enormous wage gap between urban and non-urban workers in the United States. In the present paper, I replicate and extend Glaeser and Mare's original empirical work, and I present a new interpretation of the evidence based on my re-estimation. Contrary to Glaeser and Mare's theory that urban employment induces more rapid skill acquisition, I find that wage growth is no greater for urban workers than for non-urban workers. I show that both the original and extended empirical patterns can be fully explained by a simple spatial equilibrium model that incorporates two highly plausible phenomena: (1) a compensating wage differential for the higher cost of living in cities and (2) a dynamic tendency for more able workers to gravitate to cities once they discover that they belong in the "big leagu

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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 189.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:189
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  1. Marianne E. Page & Gary Solon, 2003. "Correlations between Brothers and Neighboring Boys in Their Adult Earnings: The Importance of Being Urban," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 831-856, October.
  2. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  3. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  6. George Johnson, 1983. "Intermetropolitan Wage Differentials in the United States," NBER Chapters, in: The Measurement of Labor Cost, pages 309-332 National Bureau of Economic Research, Inc.
  7. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  9. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
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