Are Worker\u27s Wages Driven by National or Local Factors?

Previous studies of the linkage of national and regional labor markets have focused on aggregate employment growth and migration. By focusing on the separate effects of national and regional labor market economic conditions on wages, this study differs from much of the previous literature. In particular, this paper will extend the previous literature in two key directions. First, it will explore whether local economic activity and location-specific amenities have different effects on metropolitan and nonmetropolitan area wages. Second, it will determine whether these effects on workers varied by education level between metro and nonmetro workers. These issues will be explored using 1988-1993 National Longitudinal Survey of Youth data merged with local labor market measures of amenities and economic conditions. In this preliminary draft, we explore the differential impact of amenities and local economic conditions on wages for metropolitan versus nonmetropolitan workers. Our findings suggest that there are differences in returns to human capital when comparing metro and nonmetro workers. Moreover, compensating differentials for location-specific amenities, and local labor market conditions also appear to depend on metropolitan versus nonmetropolitan residence. Future research will extend the model to consider addition variations for skilled and unskilled workers