Abstract
Michael K. Lettau (1994) "Wage
Adjustment in Local Labor Markets: Do the Wage Rates in All
Industries Adjust?"
Previous research finds that an increase in a local area's
labor demand increases the area's total employment and
average wage rate relative to U.S. total employment and the
U.S. average wage rate. This paper extends previous research
by exploring heterogeneity within an area's labor market. I
combine data from County Business Patterns with data from the
Current Population Survey to estimate employment and average
hourly earnings for 166 U.S metropolitan areas, disaggregated
by 37 industries. I test whether an increase in an area's
overall labor demand increases the wage rate of an industry
with constant labor demand located in the area. And, if so,
does employment for the industry in the area decrease?
The empirical findings are summarized as follows.
The average hourly earnings of an industry with constant
labor demand increases with an increase in labor demand among
other industries located in the same area. However, the
average hourly earnings of all industries in an area do not
increase uniformly with an increase in the area's overall
labor demand.
The magnitude of the increase in an industry's average hourly
earnings in an area, given an increase in labor demand for
another industry located in the same area, depends on the
similarity of the two industries' distribution of
occupations.
Even though the average hourly earnings of an industry with
constant labor demand increases with an increase in the
area's overall labor demand, employment for the industry only
slightly decreases or actually increases. Under the structure
of a model in which all industries compete for an area's pool
of workers, this suggests that an area's labor demand is
quite inelastic.
Last Modified Date: July 19, 2008
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