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The Relationship between Location Choice and Earnings Inequality

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  • Peter McHenry

    (Department of Economics, College of William and Mary)

Abstract

This paper provides new empirical evidence about how workers’ locations affect measurements of earnings inequality (and their changes over time) in the United States. Part of the inequality observed in any given U.S. sample is due to the fact that workers with different skills (and therefore earnings) are not distributed symmetrically across locations that are more and less productive (and therefore pay higher and lower wages). In particular, I estimate that a significant and rising proportion of the college wage premium is due to college graduates living in and moving toward higher-paying locations than high school graduates. Furthermore, I assess the impact of location on real wage inequality (adjusting for local costs of living). The higher wages that college graduates enjoy as a result of their location choices are mostly counterbalanced by higher costs of living. From this, I infer that college graduates choose to live in more economically productive labor markets than do workers with less education, but college graduates are not necessarily more capable of exploiting locational wage differences for their own advantage.

Suggested Citation

  • Peter McHenry, 2011. "The Relationship between Location Choice and Earnings Inequality," Working Papers 112, Department of Economics, College of William and Mary.
    • Handle: RePEc:cwm:wpaper:112
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    File URL: http://economics.wm.edu/wp/cwm_wp112.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Earnings inequality; Migration; Regional labor markets;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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