Amenities and Fringe Benefits: Omitted Variable Bias

ABSTRACT. If labor is fairly mobile, as it is in the United States, one would expect that households would move from less desirable areas toward more desirable areas until all areas are equally desirable. The way that areas become equally desirable is through the impact of movers on wages and rents (and possibly "endogenous " disamenities, such as congestion or pol-lution). That is, as people move to desirable areas, they will increase the demand for land (raising rents) and increase the supply of labor (lowering wages); in equilibrium, the wage and rent "compensation " for the niceness of an area reveals, in dollar terms, just how nice the area is. Blomquist, Berger, and Hoehn 1988 demonstrated the empirical importance of such amenity compensation in estimates of the "quality-of-life " in urban areas. However, those authors were unable to include fringe benefits, which are about 40 percent of explicit wage payments, in their wage compensation. This matters greatly as amenities are seen here to be even more important than previously thought and the regional implications are pronounced, with the West and Southeast looking "better " when fringe benefits are in-cluded and the East North Central and Northeast looking substantially "worse." • Professor Philip E. Graves teaches economics at the University of Colorado, Boul