Migration and implicit amenity markets: does incomplete compensation matter?

We first develop an empirical approach for generating measures of wage over or under compensation (incomplete compensation) for location attributes. We then devise a method to test whether migration is influenced by incomplete compensation in wages for location characteristics. An intercity wage regression is estimated where fixed effects capture the impact of site characteristics on wages. We then regress the fixed effects on a comprehensive vector of site attributes, where the residuals from this stage capture incomplete compensation in wages. The derived measures of incomplete compensation are included in a standard microdata-based discrete choice model of migration. The results suggest that incomplete wage compensation for site characteristics matters in migration decisions, and the findings are consistent with tendencies toward spatial equilibrium in the distribution of population.