Interregional wage disparities, relocation costs, and labor mobility in Canada

Abstract

This paper evaluates possible reasons why interregional wage differences might persist over long periods of time, such as a century or more. A general equilibrium model of interacting regions is developed which can consider explanations including interregional differences in production costs, changes in relocation (migration) costs, and differences in interregional transfer payments. Implications from the model are tested using panel microdata from the Canadian Labour Market Activity Surveys of 1989 and 1990. Key findings are that younger, better educated, native English-speaking workers, who presumably have better information and lower mobility costs, appear to have the smallest interregional wage differences. Thus, because the extent of spatial wage dispersion varies across workers with different characteristics, changes in the pattern of spatial wage disparities over time may be in part a demographic phenomenon.