Because of their different geographical distribution, US households are exposed to different levels and trends in cost of living. One contribution of this paper is to document that, as a consequence, the conditional difference between the wage of skilled workers and of unskilled workers is significantly lower in real terms than in nominal terms and has grown less. In 2000, the level of the college premium is 60% in nominal terms and only 51% in real terms. More importantly, the increase in the college premium between 1980 and 2000 in real terms is significantly smaller than the increase in nominal terms. Specifically, at least 22% of the documented increase in the college premium between 1980 and 2000 is accounted for by differences in the cost of living.
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InequalityPDF Thumbnail
DP2010-07_moretti.pdf