Wages, Housing Prices, and Commutes
27 Pages Posted: 19 Sep 2013 Last revised: 29 Aug 2014
Date Written: August 28, 2014
Whereas economic theory suggests that, all else equal, workers should be willing to accept disamenities such as higher housing costs and longer commutes only if they are compensated with higher wages, little is known about the magnitude of these compensating differentials. In this paper I address this gap in the literature by estimating an empirical model of the relationship between wages, housing prices, and commutes that addresses the simultaneous determination of these variables. The results from the empirical models suggest that the wage premia associated with high housing costs and long commutes are substantial. Furthermore, results from baseline models reveal that estimates of these compensating differentials are seriously biased if endogeneity is not addressed.
Keywords: Compensating Differentials, Housing Costs, Commute Times
JEL Classification: J3, R3
Suggested Citation: Suggested Citation