The Effect of Amenities on Local Wage Distributions and the Migratory Response to Racial Wage Disparity

Kerr, Craig Aaron

Graduate Thesis Or Dissertation

The Effect of Amenities on Local Wage Distributions and the Migratory Response to Racial Wage Disparity Public Deposited

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/1r66j118d

Abstract

This study predicts that local wage distributions will contract with an improvement in amenities by imposing structure on the standard model of amenity capitalization (Roback, 1988). The added structure is Elickson's (1971) single-crossing condition, which assumes that the willingness to accept higher housing prices for better amenities increases with income. The prediction is verified empirically by estimating the amenity-wage gradient at separate wage quantiles. The variation in estimated gradients across wage quantile reveals the misleading nature of the average amenity-wage gradient, which is generally estimated in the literature. Workers at the lower end of the wage distribution are shown to earn more in locations with better amenities while those at the higher end are shown to earn less. In addition, both the implicit price paid for amenities and the implicit share of income spent on amenities are shown to increase substantially with wage level. The latter provides the first empirical evidence of an assumption that is commonly employed in urban models, namely, that amenities are luxury goods. In the final chapter, the idea of workers factoring in location-specific attributes to their location choice is applied to black workers facing unexplained wage disparity. I estimate the unexplained wage gaps between black and white workers at the MSA level in 1989 and 1999. Consistent with Becker's (1957) theory and the empirical results of Charles and Guryan (2008), I find that the unexplained wage gaps are greater in MSA's with a larger proportion of black residents but that this relationship has weakened over time. Surprisingly, I show that both black and white workers are less likely to leave MSA's with greater unexplained wage gaps and are more likely to choose MSA's with greater gaps conditional on migrating.

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