Economy Wide Spillovers From Booms: Long Distance Commuting and the Spread of Wage Effects

Since 2000, US real average wages have either stagnated or declined while Canadian average wages increased by almost 10%. We investigate the role of the Canadian resource boom in explaining this difference. We construct a model of wage setting that allows for spillover effects of a resource boom on wages in non-resource intensive locations and formulate an empirical specification based on that model. A key feature of this (and other) resource booms was the prevalence of long distance commuting - working in a resource location but residing in another community. The core idea in our model is that the expansion of the value of the commuting option during the boom allowed non-commuters to bargain higher wages. We find that wages do rise in areas with more long distance commuting. Combining these spillover effects with bargaining spillover effects in resource boom locations, we can account for 49% of the increase in the real mean wage in Canada between 2000 and 2012. We find similar effects of long distance commuting on wages in the US but the resource boom was less salient in the US and the effect on wages was one-tenth of that in Canada. Our results have implications for other papers measuring the impacts of resource booms on wages in surrounding areas. Our main finding is that long-distance commuting can integrate regions in a way that spreads the benefits and costs of a boom across the economy.