Three essays on local labor markets

An important stream of research in urban economics documents large cross-city variation in prices, wages, and other attributes and seeks to provide theoretical explanations for these observations. Standard economic theory predicts that this variation in the vector of prices will affect decision-making by rational individuals, including decisions relevant to local labor markets.;The dissertation research is aimed at understanding the importance of location-specific attributes---such as local wages, local prices (e.g., real estate prices), and commuting times---in studying labor market outcomes.;Although the idea that cross-city variation can be beneficial in studying labor market behavior has been considered before, e.g., in Mincer (1962), who uses city-level measures of women's labor force participation and their husbands' income to identify female labor supply, and in Beeson (1991), who documents a large location-specific variation in the returns to schooling, in general ideas from the urban-regional economics literature have received little attention in labor economics.;My dissertation considers three aspects of labor markets in particular: (1) earnings functions and returns to education, (2) labor supply elasticities, and (3) the labor force participation of married women. My research shows that when empirical work in labor economics is conducted at the national level, it is possible to miss key features of labor market behavior.;Chapter 1 studies whether location-specific price variation likely affects statistical inference and theoretical interpretation in the empirical implementation of human capital earnings functions. This is a joint work with Dan Black and Lowell Taylor. We demonstrate, in a model of local labor markets, that the "return to schooling" is a constant across locations if and only if preferences are homothetic---a special case that seems unlikely to generally pertain. Examination of U.S. Census data (for 1980, 1990, and 2000) provides persuasive evidence that the return to a college education, relative to a high school education, does indeed vary widely across cities, e.g., in 1990 the return in Houston is 0.54 while in Seattle it is only 0.33. We provide theoretical reasons to suspect that the returns to education are relatively lower in expensive high-amenity locations, and present evidence consistent with this prediction. Finally, we raise concerns about standard empirical exercises in labor economics which treat the returns to education as a single parameter.;Chapter 2 describes a simple model to demonstrate that the effects of wage and non-labor income on labor supply will typically differ by location. My co-authors, Dan Black and Lowell Taylor, and I show, in particular, that the derivatives of the labor supply with respect to non-labor income and the wage will be independent of price only when labor supply takes a form based on an implausible separability condition. Empirical evidence from 1990 Census Public Use Micro Sample (PUMS) suggests that the basic correlations---between labor supply and non-labor income and between labor supply and the wage---differ across cities. Importantly, from our perspective, the anticipated negative relationship between non-labor income and female labor supply is substantially more pronounced in cities with inexpensive housing than in cities with expensive housings.;I continue to study differences in women's labor supply behavior across local labor markets in Chapter 3. Using Census Public Use Micro Sample (PUMS) data for 1980, 1990 and 2000 I document a little-noticed feature of U.S. labor markets---that there is wide variation in the labor market participation rates and annual work hours of Local Labor Markets white married women across urban areas. This variation is also large among sub-groups, including those with children and those with different levels of education. Among the explanations for this variation one emerges as particularly important: married women's labor force participation decisions appear to be very responsive to commuting times. There is a strong empirical evidence demonstrating that labor force participation rates of married women are negatively correlated with commuting time. What is more, the analysis shows that metropolitan areas which experienced relatively large increases in average commuting time between 1980 and 2000 also had slower growth of labor force participation of married women. This feature of local labor markets may have important implications for policy and for further research. (Abstract shortened by UMI.)...