Natalia A. Kolesnikova

Earnings Functions When Wages and Prices Vary by Location

Economists generally assume, implicitly, that “the return to schooling” is invariant across local labor markets. We demonstrate that this outcome pertains if and only if preferences are homothetic—a special case that seems unlikely. Our theory predicts that returns to education will instead be relatively low in expensive high‐amenity locations. Our analysis of U.S. data provides support for this contention; returns to college are especially low in such cities as San Francisco and Seattle. Our findings call into question standard empirical exercises in labor economics that treat the returns to education as a single parameter.

The Role of Location in Evaluating Racial Wage Disparity

AbstractA 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 codesJ31, J71, R23

Local Price Variation and the Income Elasticity of Demand for Lottery Tickets

The cost of living varies as much across locations as it does over time. We demonstrate the importance of considering locational cost of living differences in empirical models of the demand for state lotteries. Previous research has shown that the nominal-income elasticity of demand for lottery tickets is less than one, suggesting that individuals and geographic regions with lower incomes tend to have a greater percentage of their income allocated toward lottery ticket purchases than do wealthier individuals and geographic regions. We first provide a conceptual framework that reveals that real-income elasticities generally will be different from nominal-income elasticities. We then reestimate traditional cross-sectional models of lottery demand using a sample of metropolitan statistical areas. We find that the magnitude of income elasticity estimates is smaller when local cost of living is omitted from empirical models, especially in the case of instant lottery games.

The Labor Supply of Married Women: Why Does it Differ Across U.S. Cities?

Using Census Public Use Micro Sample (PUMS) data for 1980, 1990 and 2000, this paper documents 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 white married women across urban areas. This variation is also large among sub-groups, including women with children and those with different levels of education. Among the explanations for this variation one emerges as particularly important: married womens 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.

Local Price Variation and the Tax Incidence of State Lotteries

This paper explores the seemingly innocuous practice of ignoring the local price vector in empirical models of lottery demand. We argue using consumer theory that local consumption prices should be included and that the failure to consider local prices results in income elasticity of lottery demand estimates that are biased downward. Using a sample of MSAs, we find that, in accordance with our theory, local prices are a significant determinant of lottery sales and the income elasticity of demand for lotteries is greater in magnitude when the local price vector is considered. The degree of lottery regressivity is thus overstated when local prices are omitted. One notable finding is that the tax incidence of lotteries changes from regressive to progressive once the local price vector is included.