Journal of Regional Analysis & Policy
Spatial equilibrium models rely on migration to arbitrage away differences in utility across locations net of moving costs, where remaining differences in wages and rents reflect the compensating differentials related to site-specific amenities. Recent refinements to the spatial equilibrium model focus upon the prospect of disequilibrium in amenity markets. Amenity market disequilibrium implies over- or under-compensation (incomplete compensation) across some locations, which suggests a role for these factors in subsequent migration. This paper follows the theoretical and empirical approach of Clark, Herrin, Knapp, and White (2003). An intercity wage regression is estimated where fixed effects capture the impact of site characteristics on wages. We then regress the fixed effects on a comprehensive vector of site attributes, where the residuals capture incomplete compensation in wages. The derived measures of incomplete compensation are included in a binary logit model of migration. The results provide further evidence that incomplete compensation for site characteristics is a significant factor in migration decisions, and the findings are consistent with tendencies toward spatial equilibrium.