The dissertation research described in this proposal explores the intersection of labor economics and urban/regional economics. The work is motivated by two key observations: (1) Theoretical work in urban economics provides good reasons to expect price variation across locations, and empirical evidence verifies that this variation is substantial. (2) Standard economic models of labor market behavior, such as human capital investment, labor supply, or discrimination, are derived under the assumption (implicit or explicit) that individuals face the same prices. More importantly, empirical work based on these models nearly always uses data from national data sources, but ignore the fact the individuals live and work in local labor markets and thus face different local prices.
The researcher proposes to revisit standard theories of the returns to education, labor supply, and racial discrimination in models that recognize that people live in different locations and thus face different prices. She then intends to evaluate the likely empirical importance of these theoretical insights. The empirical work will entail evaluations of local labor markets, and thus will require the use of very large data sets. The researcher is requested funding from the National Science Foundation to support her use of the long-form files of the U.S. Census at the Michigan Research Data Center.
Intellectual Merit
Preliminary theoretical work, presented in this proposal, shows how local price variation is likely to affect important objects of study in labor economics, including the return to education and labor force participation. Preliminary empirical work demonstrates that there are indeed very large differences in the measured returns to education across cities in the U.S., and also substantial systematic differences in female labor supply. It is quite possible that if researchers ignore this variation, resulting empirical work will lead to serious misunderstandings. There appears to be little literature on this issue.
Broader Impacts
Empirical labor economics is an important enterprise, providing key inputs to policy analysis on such important issues as the impact of income taxes, the advisability of subsidizing education, and the analysis of welfare policy. The research outlined in this proposal holds promise of improving our ability to conduct this valuable research.
