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Components of City-Size Wage Differentials, 1973-1988

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It has long been noted that workers in large cities are more highly paid than their rural counterparts. In studying this phenomenon, most researchers control for differences in work-force attributes between cities, but do not investigate whether these attributes are priced differently in cities of varying size. This paper examines the empirical regularity in the 1973-1988 Current Population Surveys to see if city-size-related wage differentials arise from intercity differences in wage structures. The authors find that higher economic rewards for education, experience, and other skills in larger cities account for the bulk of the earnings disparity, and that recent changes in these differentials mainly reflect diverging returns to skills.

Suggested citation: Beeson, Patricia E., and Erica L. Groshen. “Components of City-Size Wage Differentials, 1973-1988,” Federal Reserve Bank of Cleveland, Economic Review, vol. 27, no. 4, pp. 10-24, 10.01.1991.

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