TY - JOUR
T1 - Location and the effect of demographic traits on earnings
AU - Gabriel, Stuart A.
AU - Rosenthal, Stuart S.
N1 - Funding Information:
We thank John Engberg, Jeff Groger, David Green, and anonymous referees for helpful comments. Gabriel acknowledges financial support from the Faculty Research Fund of the USC Marshall School of Business. Rosenthal acknowledges financial support from the Social Science Research Council of Canada (SSHRC) and the Real Estate Institute of British Columbia.
PY - 1999/7
Y1 - 1999/7
N2 - With mobile workers and competitive markets, equilibrium nominal wage rates rise with the local cost of living but fall with the value of local amenities. Earnings and wage regressions that ignore such effects may suffer from omitted variable bias because observed education and demographic attributes affect both worker skill levels and locations choice. Geographic fixed effects can be used to control for unobserved locational attributes provided that their scope is at least as narrow as the underlying labor markets, but not so narrow as to introduce simultaneity problems arising from the endogenous choice of location on the basis of income. Estimates from the 1985-1989 American Housing Survey suggest that SMSA-level fixed effects control for unobserved locational attributes without introducing simultaneity problems. In addition, failure to control for location leads to biased estimates of the effect of important demographic characteristics.
AB - With mobile workers and competitive markets, equilibrium nominal wage rates rise with the local cost of living but fall with the value of local amenities. Earnings and wage regressions that ignore such effects may suffer from omitted variable bias because observed education and demographic attributes affect both worker skill levels and locations choice. Geographic fixed effects can be used to control for unobserved locational attributes provided that their scope is at least as narrow as the underlying labor markets, but not so narrow as to introduce simultaneity problems arising from the endogenous choice of location on the basis of income. Estimates from the 1985-1989 American Housing Survey suggest that SMSA-level fixed effects control for unobserved locational attributes without introducing simultaneity problems. In addition, failure to control for location leads to biased estimates of the effect of important demographic characteristics.
KW - Compensating variations
KW - Location effects
KW - Returns to labor
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U2 - 10.1016/S0166-0462(99)00008-3
DO - 10.1016/S0166-0462(99)00008-3
M3 - Article
AN - SCOPUS:0032799566
VL - 29
SP - 445
EP - 461
JO - Regional Science and Urban Economics
JF - Regional Science and Urban Economics
SN - 0166-0462
IS - 4
ER -