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Jobs or Amenities? Location Choice and the Measurement of US Wage Inequality

The growth in wage inequality in the United States over the last 30 years has been the subject of a substantial body of social science research, but only recently has there been study on how this relates to the increasing concentration of college educated workers within certain, expensive MSAs. When considering measures of inequality in light of this fact, the question arises as to whether they should be controlled for local price levels, perhaps substantially lessening the magnitude of the growth. This question hinges on whether workers are being driven to locate in these areas because of strong job demand or the desire to live with the amenities these areas provide. I develop a model of the spatial labor market that yields insights on how this can be tested using information on local college wage premiums. While using a male-only sample suggests skill demand as the driving factor, this finding is much attenuated in a sample pooled across gender. Ongoing research using structural econometric techniques will yield more insight.