Working Paper No. 10-09

The Effect of Amenities on Local Wage Distribution
Craig Kerr
November 2010

ABSTRACT

This paper imposes structure on the model presented in Roback (1988) by employing Elickson's (1971) single-crossing condition and predicts that local wage distributions will contract with an improvement in amenities. The range of estimated amenity-wage gradients across the wage distribution 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 in 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 it commonly employed in urban models, namely, that amenities are luxury goods.

JEL classification: D31; J31; R13; Q51
Keywords: Amenities; Amenity Capitalization; Wage Distribution;

DOWNLOAD PAPER