an article by Dan A Black (University of Chicago, NORC, and IZA, Chicago, USA), Natalia Kolesnikova (University of Mississippi, USA), Seth G Sanders (Duke University, Durham, USA) and Lowell J Taylor (Carnegie Mellon University, NORC, and IZA, Pittsburgh, USA) published in IZA Journal of Labor Economics volume 2 Number 2 (this article May 2013)
Abstract
A standard object of empirical analysis in labor economics is a modified Mincer wage function in which an individual's log wage is a function of education, experience, and race. We analyze this approach in a context where individuals live and work in different locations (thus facing different housing prices and wages). Our model justifies the traditional approach, but with the important caveat that the regression should include location-specific fixed effects. Empirical analysis of men in U.S. labor markets demonstrates that failure to condition on location causes us to significantly overstate the decline in black-white wage disparity over the past 60 years.
JEL classification: J31, J71, R23
Full text (PDF 19pp)
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