Larger and higher‐earnings zones have much higher housing costs, enough so to more than completely offset their larger effects on nominal earnings; thus, movements to larger or to higher earnings locations mean reductions in real income

Location, Location, Location. David Card Jesse Rothstein Moises Yi. US Census, CES 21-32, Oct 2021. https://www2.census.gov/ces/wp/2021/CES-WP-21-32.pdf

Abstract: We use longitudinal data from the LEHD to study the causal effect of location on earnings. We specify a model for log earnings that includes worker effects and fixed effects for different commuting zones (CZs) fully interacted with industry, allowing us to capture potential impacts of local specialization. Building on recent work on firm‐specific wage setting, we show that a simple additive model provides a good approximation to observed changes in log earnings when people move across CZ’s and/or industries, though it takes a couple of quarters for migrants to fully realize the gains of a move. We also show that the earnings premiums for different CZ‐industry pairs are nearly separable in industry and CZ, with statistically significant but very small interaction effects. Consistent with recent research from France, Spain and Germany, we find that two thirds of the variation in observed wage premiums for working in different CZs is attributable to skill‐based sorting. Using separately estimated models for high and low education workers, we find that the locational premiums for the two groups are very similar. The degree of assortative matching across CZs is much larger for college‐educated workers, however, leading to a positive correlation between measured returns to skill and CZ average wages or CZ size that is almost entirely due to sorting on unobserved skills within the college workforce.