Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities?

30 Pages Posted: 27 Feb 2017

See all articles by Matthew E. Kahn

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Date Written: February 2017

Abstract

Public finance theories of the median voter’s preferences and local public sector rent extraction posit that liberal cities and high amenity cities will feature a larger, better paid local public sector. Compensating differentials theory predicts that real wages will be lower in beautiful states and localities. Using both Federal and California city level administrative micro data, I study public sector compensation across space. At the Federal level, California workers are only paid 9% more than observationally identical workers in Alabama. Given the high California home prices, such workers are paying for the California amenities. Within California, beach cities hire more workers but pay them less in real terms. Liberal cities both pay public sector workers more and employ more of them. Liberal cities have much larger per-capita pension liabilities.

Suggested Citation

Kahn, Matthew E., Is Local Public Sector Rent Extraction Higher in Progressive Cities or High Amenity Cities? (February 2017). NBER Working Paper No. w23201. Available at SSRN: https://ssrn.com/abstract=2924291

Matthew E. Kahn (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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