Person or Place? Parametric and semiparametric estimates of intrametropolitan earnings variation

J. B. Engberg and T. Kim

Institute for Research on Poverty Discussion Papers from University of Wisconsin Institute for Research on Poverty

Abstract: Some scholars have attributed earnings differences among locations to labor market conditions ("place effects") whereas others have focused on the skill level of residents ("person effects"). We estimate a variety of selection models in an effort to detect differences in labor market conditions while controlling for differences in skill levels. We maintain the assumption that there are no barriers to mobility within a metropolitan area for highly educated white men, which implies that intra-urban differences for this group reflect sorting by skill and earnings rather than real wage differences for equally productive workers. This prediction allows us to reject several conventional parametric selection models. We estimate a semiparametric selection model that yields strong evidence that, for less educated white men, the apparent suburban earnings premium is due to sorting rather than labor market differences.

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