Hanushek, Eric A. 1981. "Alternative Models of Earnings Determination and Labor Market Structures." Journal of Human Resources 16(2):238-259.

There are three distinct research traditions in the analysis of individual earnings determination: human capital, or earnings function, analyses; aggregate wage analyses; and labor demand analyses. An important and incongruous aspect of each is the treatment of geographical differences in labor markets. This paper first investigates the magnitude and character of geographical wage differentials. The sizable differences discovered there are then related to the existing, and highly simplified, models of labor market differences. While the two major classes of models (compensating differentials and labor demand) differ significantly in assumptions and implications, it is impossible to distinguish adequately between them. There appears to be a clear need for more structural analyses of labor market operations.

The author is Professor of Economics and Political Science and Director, Public Policy Analysis, University of Rochester.
* Helpful comments on previous versions were provided by Robert Evenson. Gary Fields. Richard Nelson, Randall Olsen, Walter Oi, John Quigley, Paul Schultz. and Kenneth Wolpin.

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