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The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets

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  • Gyourko, Joseph
  • Tracy, Joseph
Abstract
A new test of the compensating wage differential model is proposed. The logic behind Jennifer Roback's model, which shows how differences in nonproduced amenities may be reflected in intercity wage differentials, is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined. Differences in local fiscal conditions are shown to play important roles in explaining the variance in intermetropolitan wages. Copyright 1989 by University of Chicago Press.

Suggested Citation

  • Gyourko, Joseph & Tracy, Joseph, 1989. "The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1208-1231, October.
    • Handle: RePEc:ucp:jpolec:v:97:y:1989:i:5:p:1208-31
    DOI: 10.1086/261650
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    1. Duncan, Greg J & Holmlund, Bertil, 1983. "Was Adam Smith Right after All? Another Test of the Theory of Compensating Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 366-379, October.
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    3. John M. Abowd & Orley C. Ashenfelter, 1981. "Anticipated Unemployment, Temporary Layoffs, and Compensating Wage Differentials," NBER Chapters, in: Studies in Labor Markets, pages 141-170, National Bureau of Economic Research, Inc.
    4. Greg J. Duncan, 1976. "Earnings Functions and Nonpecuniary Benefits," Journal of Human Resources, University of Wisconsin Press, vol. 11(4), pages 462-483.
    5. Charles Brown, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(1), pages 113-134.
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