Theory predicts that within a metropolitan area, employers located where there is
difficult commuting will have to compensate their workers with appropriately higher
wages. This should hold whether one is comparing central city work locations with those
at the fringe, or simply differences between suburban ‘‘edge cities.’’ In the longer run, if
employers are concerned primarily with labor costs, firm mobility should equalize wages
or else agglomeration economies must exist to sustain the differences. Using microdata
from the 1990 census for 2 large metropolitan areas in the U.S., wage equations are
estimated for urban workers allowing for different wage levels depending on zone of
employment. The results show that observationally equivalent workers have wages that
vary substantially across employment zones within a metro area, and that this variation
is strongly and significantly correlated with the average commute time of the workers
employed in that zone. These results hold across several different econometric specifications. Wages and average travel times also are found to be highly correlated with the
aggregate number of workers in each zone, but are not affected by zone employment
specialization. Thus there is inconclusive evidence as to whether wagecommuting cost
differences result from equilibrium agglomeration effects or from a disequilibrium
distribution of employment