| dc.description.abstract | This thesis considers the fact and sources of wage inequality across cities within the national boundary by investigating some essential deviations from a perfect world or a perfect economy. In general, equalized factor prices (or wage) gradually driven by the free mobility of labor and capital in long-run equilibria, are based on some crucial conditions that do not divert from what they are supposed to be in a perfect world. Wage inequality across cities may arise due to realized deviations where ‘perfect world’ collapses in some sense. Widely documented deviations and their impacts on spatial wage differentials in literature are mainly centering on differences in four dimensions with respect to city attributes. They are differences in local composition of skills, differences in local returns to skill, differences in costs of living and locational amenities, and differences in local labor market conditions. For each of these, this paper focuses on three main questions: how it works theoretically on wages, how large effect it shows from the empirical evidence and how to assess its relative importance regarding different settings. Theoretically, these deviations are mainly rooted in the heterogeneity of workers and firms, the existence of externality and scale economies, heterogeneous space, and imperfect mobility. Firstly, workers are different in human capital and firms are different regarding the goods they produce, whereby the local composition of skills could differ from city to city. Secondly, the presence of increasing urban returns are taking forms of interactions in labor markets, linkages among production chains and knowledge spillovers, which generate productivity gains at the corporate level and an urban wage premium. In addition, differences in endowments across cities could also affect local efficiency of production. Thirdly, against a homogeneous space, differences in locational amenity and consumption opportunities across cities deflate inequality in nominal wages regarding local welfare incidence on individual utility. Finally, in the face of the nontrivial costs of moving and institutional interventions, mobility of workers and firms are imperfect and spatial adjustment take time for absorbing shocks to the local economy and for relocating resources efficiently across areas. Empirically, anecdotal evidence indicates that the differences in skills across cities could be the main reason for wage inequality across cities, with at least half of the spatial wage differences explained by spatial ability bias. Yet, arguments on estimated causal effects of higher level of local educational attainments or the human capital externality effect on wages still has a lack of consensus. The role of local externalities and economies of scale in explaining wage differences manifests itself in apparent the wage premium that is accrued on an urban scale and is consistently showing up regardless of the use of different datasets. On the other hand, the extent to which differences in local endowment advantages could explain spatial wage disparities depends on the geographical discrepancies of the national territory. Furthermore, real wage inequality that is deflated appropriately by a local consumption price index is modest in some cases and substantively justified by preferences for locational amenity and consumption opportunities. Regarding labor mobility, wages are more flexible in the context where workers evidently respond to spatial wage differentials. For this reason, residuals of measured wage inequality across cities, conditional on education, experience, cost of living, amenities or consumption externalities, and scale externalities, are plausibly explained by local shocks or business cycle effects in most cases for the US. Alternatively, for countries with lower mobility of labor, unexplained portions of inequality, after correcting for observed sources, are probably ascribed to segmented markets caused by differing local welfare-systems, imperfections within the housing market, such as rents controls or absence of laws protecting landlords’ property, along with other labor regulations. Differences in estimates of specific effects on wage differentials across countries could be ascribed to different datasets. More importantly, differences in the geographic environment, the demographic factors, as well as economic organizations, influences the relative importance of explanatory variables. In general, cities featured as educated, large, coastal, sunny and mild are more likely to be prosperous and render relatively favorable wages. More importantly, a long-run equilibrium concept might justify the wage inequalities across cities as spatially economic efficiency, while potential disequilibrium could caution a true spatial disparity or the lack of efficient adjustment mechanisms; whereby, rationales of both equity and efficiency for government intervention in the economy are challenged. | eng |