Intra-urban wage variation, employment location, and commuting times

Theory predicts that within a metropolitan area, employers located where th ere is difficult commuting will have to compensate their workers with appro priately higher wages. This should hold whether one is comparing central ci ty work locations with those at the fringe. or simply differences between s uburban "edge cities." In the longer run, if employers are concerned primar ily with labor costs, firm mobility should equalize wages or else agglomera tion economies must exist to sustain the differences. Using microdata from the 1990 census for 2 large metropolitan areas in the U.S., wage equations are estimated for urban workers allowing for different wage levels dependin g on zone of employment. The results show that observationally equivalent w orkers have wages that vary substantially across employment zones within a metro area, and that this variation is strongly and significantly correlate d with the average commute time of the workers employed in that zone. These results hold across several different econometric specifications. Wages an d average travel times also are found to be highly correlated with the aggr egate number of workers in each zone. but are not affected by zone employme nt specialization. Thus there is inconclusive evidence as to whether wage/c ommuting cost differences result from equilibrium agglomeration effects or from a disequilibrium distribution of employment. (C) 2001 Academic Press.