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The Relationship between Location Choice and Earnings Inequality

Author

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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 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.

Suggested Citation

  • Peter McHenry, 2012. "The Relationship between Location Choice and Earnings Inequality," Working Papers 118, Department of Economics, College of William and Mary.
    • Handle: RePEc:cwm:wpaper:118
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    File URL: http://economics.wm.edu/wp/cwm_wp118.pdf
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    References listed on IDEAS

    as
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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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