The effect of amenities on local wage distributions

• DOI: 10.1007/s12076-017-0183-0
• Publication Date: 2017-02-27T07:18:30Z
• Authors: Craig Kerr
• Keywords: Amenity; Capitalization

This paper predicts that local wage distributions will contract with an improvement in amenities by imposing structure on the standard model of amenity capitalization with multiple worker types (Roback in Econ Inq 26(1):23–41, 1988). The added structure is Ellickson’s (Am Econ Rev 61(2):334–339, 1971) single-crossing condition, which assumes that the willingness to accept higher housing prices for better amenities increases with income. The model predicts that under empirically plausible conditions, workers at the upper end of the wage distribution will earn less in locations with better amenities while those at the lower end will actually earn more.