Macroeconomics Commons^™

Amenities And The Labor Earnings Function, Philip E. Graves, Robert L. Sexton

PHILIP E GRAVES

Desirable locations are, other things equal, expected to be characterized by a mix of higher rents or lower wages. That is, if one area is more attractive than others, inmigration would occur, driving up the demand for land (hence raising rents) and increasing the supply of labor (hence lowering wages). The in-movement will continue until utility is the same across locations in equilibrium. Failing to hold constant amenities in the traditional earnings functions employed by labor economists will result, then, in omitted-variable bias if worker characteristics (years of schooling, union membership, and so on) are correlated with amenities. By way …