Explaining Canadian Regional Wage Differentials

We explore the potential of a human capital model augmented with controls for industry and occupation in explaining Canadian regional wage differentials. We place our approach in a broader theoretical context by first reviewing the literature on potential explanations for regional wage differences and also on the related issues of migration, population growth, industrial location, and agglomeration economies. We then estimate an econometric model using subprovincial wage data from the Statistics Canada Labour Force Survey. A striking finding is that subprovincial wage differences, including the urban-rural divide, can be explained by our model, but that the differences between broad regions defined by provincial boundaries cannot.