Real wages, amenities and the adjustment of working hours across local labour markets

Abstract

High prices that are not offset by equally high incomes are often seen as an affordability problem. To get by, poorer workers in these areas might have to work longer hours. Alternatively, lower real wages might indicate a more desirable place to live and induce high‐income people to trade off cash for leisure time. Both interpretations suggest a link between real wages and an individual's labour supply choice. Using panel data, I observe how working hours change, when workers move place. I find that working hours increase by 0.42% for a 10% decrease of local real wage. The effect is stronger for low‐skilled workers at the bottom of the wage distribution, indicating an affordability mechanism that might further exacerbate inequality.