WAGES, RENTS, AND AMENITIES: DIFFERENCES AMONG WORKERS AND REGIONS

What explains persistent regional earnings differences? This paper argues that regional differences in amenities can account for the wage differences; in contrast, cost of living variations do not account for wage differences, but actually exacerbate them. This conclusion results from a model in which variations in rents and wages are equalizing differences for amenity differences. Empirical results are consistent with the model.