Wage trickle down versus rent trickle down: How does an increase in college graduates affect wages and rents?

Jung Hyun Choi, Richard K. Green and Eul Noh

Journal of Regional Science, 2021, vol. 61, issue 5, 887-915

Abstract: We extend the Rosen–Roback spatial equilibrium model to show that increasing city‐level college share affects welfare distribution by changing both wages and housing costs heterogeneously across individuals with different education levels. Using the Panel Study of Income Dynamics (PSID) from 1980 to 2013, we confirm that high‐skilled workers gain greater benefits from living in cities with a rising college share, as the increase in their wage premiums outweighs their rent growth. However, the increased earnings of the unskilled are completely offset by higher housing rents. In response to the college graduate influx, housing wealth also increases significantly more for college graduates, further widening the welfare gap. The increased welfare gap is greater in cities where housing supply is inelastic.

Date: 2021
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