Data and Code for: Location, Location, Location

Abstract:

We use data from the Longitudinal Employer-Household Dynamics program to study the causal effects
of location on earnings. Starting from a model with employer and employee fixed effects, we estimate
the average earnings premiums associated with jobs in different commuting zones (CZs) and different
CZ-industry pairs. About half of the variation in mean wages across CZs is attributable to differences in
worker ability (as measured by their fixed effects); the other half is attributable to place effects. We
show that the place effects from a richly specified cross sectional wage model overstate the causal
effects of place (due to unobserved worker ability), while those from a model that simply adds person
fixed effects understate the causal effects (due to unobserved heterogeneity in the premiums paid by
different firms in the same CZ). Local industry agglomerations are associated with higher wages, but
overall differences in industry composition and in CZ-specific returns to industries explain only a small
fraction of average place effects. Estimating separate place effects for college and non-college workers,
we find that the college wage gap is bigger in larger and higher-wage places, but that two-thirds of this
variation is attributable to differences in the relative skills of the two groups in different places. Most of
the remaining variation reflects the enhanced sorting of more educated workers to higher-paying
industries in larger and higher-wage CZs. Finally, we find that local housing costs at least fully offset local
pay premiums, implying that workers who move to larger CZs have no higher net-of-housing
consumption.

<br>This replication archive contains all code for the project, and the public-use portion of the data. These data come primarily from the public use microdata files of the American Community Survey, 2010-2018.<br>