Area Disparities in Britain: Understanding the Contribution of People vs. Place Through Variance Decompositions

19 Pages Posted: 27 Aug 2014

See all articles by Stephen Gibbons

Stephen Gibbons

London School of Economics & Political Science (LSE) - Department of Geography and Environment

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Panu Pelkonen

University of Sussex - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: October 2014

Abstract

This article considers methods for decomposing wage variation into individual and group specific components. We discuss the merits of these methods, which are applicable to variance decomposition problems generally. The relative magnitudes of the measures depend on the underlying variances and covariances, and we discuss how to interpret them, and how they might relate to structural parameters of interest. We show that a clear‐cut division of variation into area and individual components is impossible. An empirical application to the British labour market demonstrates that labour market area effects contribute very little to the overall variation of wages in Britain.

Suggested Citation

Gibbons, Stephen and Overman, Henry G. and Pelkonen, Panu, Area Disparities in Britain: Understanding the Contribution of People vs. Place Through Variance Decompositions (October 2014). Oxford Bulletin of Economics and Statistics, Vol. 76, Issue 5, pp. 745-763, 2014, Available at SSRN: https://ssrn.com/abstract=2487611 or http://dx.doi.org/10.1111/obes.12043

Stephen Gibbons (Contact Author)

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
[44] (0)20 7955 6245 (Phone)
[44] (0)20 7955 7773 (Fax)

HOME PAGE: http://www.lse.ac.uk/people/s.gibbons@lse.ac.uk/

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6581 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Panu Pelkonen

University of Sussex - Department of Economics

Mantell Building
Falmer
Brighton, Sussex BNI 9RF
United Kingdom

HOME PAGE: http://www.sussex.ac.uk/economics/people/peoplelists/person/258681

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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