This paper investigates the trend of the wage inequality and the metropolitan wage premium in the United States during the 1980s. Two distinct sets of literature documented that the wage inequality between skilled and unskilled workers and the metropolitan wage premium have risen significantly during the decade. When we combine these two sets of evidence and consider the interaction between skill and location, however, the increasing trends of the skill wage gap and the metropolitan wage premium almost disappear. Most of the dynamic changes are picked up by the interaction term, an extra metropolitan wage premium for skill, which rises significantly over the decade. As a partial explanation we find an increasing trend of the skill wage inequality across industries and occupations within metropolitan areas relative to non-metropolitan areas. This finding suggests that the skill biased technology alone may not sufficiently explain the growing wage inequality and it can be interpreted as a metropolitan specific phenomenon to an extent. (The rest is omitted.)

Executive Summary

I. Introduction

II. Literature Review

III. A Spatial Equilibrium Model
1. Labor Supply across Areas
2. Labor Demand across Areas

IV. CPS Data and Empirical Results
1. Data
2. Difference-in-Difference-in-Difference Results

V. Robustness Check
1. Census Data and Results
2. A Time Series Graph

VI. Conclusion and Discussion

References
Appendix