Amenities and wage premiums: the role of services

Kangoh Lee () and Chung-Yi Tse
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Kangoh Lee: San Diego State University

The Annals of Regional Science, 2024, vol. 72, issue 1, No 3, 37-63

Abstract: Abstract This paper studies amenities and wage premiums in a service economy where individuals with different skills choose cities with different amenities and choose occupations to produce different services, namely the high-quality service or the low-quality service. Workers with higher skills have stronger preferences for amenity and choose the high-amenity city. Within each city, workers with higher skills choose to produce the high-quality service, and workers with lower skills choose to produce the other. Workers with higher skills are willing to sacrifice more wages to live in the high-amenity city. As a result, the price of the high-quality service, relative to the price of the low-quality service, is lower in the high-amenity city, because the wage equals the price times skill or productivity. The wage of a worker with a given skill in the high-quality service sector, relative to the wage of a worker in the low-quality service sector, or the wage premium, is thus lower in the high-amenity city. A quantitative analysis shows that the wage premium is about 3% lower when amenity is 10% higher. However, the average wage of high-quality service workers over that of low-quality service workers may be lower or higher in the high-amenity city due to skill concentration in the high-amenity city.

JEL-codes: J2 J3 R1 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00168-022-01188-w

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