Mar 5, 2011
Why are high (real) wages bad?
Have you ever wondered why real wages (incomes corrected for local prices) are so low in NY and London and so high in Geneva? Turns out the Glaeser book (see my previous posts here and here) has an answer. It suggests real wages are an effective tool for assessing urban amenities. If places have unusually low real wages, the quality of life must be high as people are willing to accept low real wages for the privilege of living there. If places have unusually high real wages, then something is wrong with those places... Hence, places with high housing prices relative to income must be pleasant. Glaeser provides empirical evidence from the US. Nine of the top ten most expensive cities are in coastal California, such as San Diego. Honolulu is the tenth. The cities with the highest real wages are Anchorage (Alaska), Detroit and Dallas. International empirical evidence anyone?