Essays in the economics of local labour markets

This dissertation examines various aspects of the geographic segmentation of economic activity across local labour markets. In Chapter 1, I present a methodological improvement to traditional methods of selection bias correction. Selection bias plagues many empirical studies that exploit variation across regions or cities, due to the residential sorting of individuals. Using machine learning tools I develop a semi-parametric method which relaxes the strong assumptions and restrictions imposed by more traditional methods. Through numerical experiments I show that this method tends to outperform more traditional methods and more flexibly corrects for selection bias. Using this improved methodology in Chapter 2, I correct for selection bias in estimating the returns to education at the State level using the 1990 US Census. I confirm the general pattern of an upward bias in the returns to a college education as found by previous studies, but my results depart significantly from those obtained using more traditional means of selection correction. My findings indicate that traditional methods overstate the upward bias in the returns to a college education, and conversely, understate the upward bias in the returns to an advanced degree. These results confirm the importance of using the improved methodology outlined in Chapter 1 of this dissertation. In Chapter 3, I analyse the cross-city wage effects resulting from workers having the opportunity to find relatively high paying unionised jobs. I examine, and separately identify, two distinct channels of effects; the wage bargaining channel whereby workers with relatively high alternative employment opportunities can negotiate higher wages, and the wage emulation channel whereby firms pay higher wages to stave off unionisation. I build a novel model of union formation and wage setting which informs the empirical methodology employed. Specifically, I use Bartik style shift-share instruments to deal with issues related to endogeneity. I find evidence in favour of substantial spillover effects: average hourly earnings would be 2 percentage points higher had the composition of union work remained at its 1980 level. Furthermore, I find substantial heterogeneity across sub-populations in the role played by union spillovers in wage fluctuations.Arts, Faculty ofVancouver School of EconomicsGraduat