Occupational Compensation Survey

Does Proximity Link
Job Markets? Some

Comparisons

Between Occupations

and Areas

BY ANTHONY J. BARKUME_

In terms of job market integration, metropolitan areas
present workers with a wide range of employment pros-
pects. As the Nation has grown and suburbanization has
increased, defining the boundaries between adjacent met-
Topolitan areas, especially in the densely populated Eastern
seaboard, has become increasingly difficult. The Washing-
ton, DC and Baltimore metropolitan areas, for example,
are designated by the Bureau of the Census as distinct met-
ropolitan statistical areas (MSA's), even though only 45
miles separate their central cities. In many cases (includ-
ing Baltimore and Washington, DC) the Federal Govern-
ment designates a Consolidated Metropolitan Statistical
Area (CMSA) as the combined total area of two (or more)
MSA's.

How integrated are occupational job markets in adja-
cent MSA’s? Where MSA's are combined into a CMSA
because of their proximity, should the CMSA be defined as
the relevant job market? This article focuses on these ques-
tions, using occupational pay data produced by the Area
Wage Survey (AWS) over the years 1976-91.' The AWS
program collected information on wages and salaries for
occupations in which local economic conditions were im-
portant in the occupational pay determination of Federal
workers and contractors. Pay data for 30 of these occupa-
tions are examined.

Determining labor markets
Is it possible to establish whether adjacent metropolitan
areas are part of the same labor market? One way is to

“Anthony J. Barkume is an economist in the Compensation Research and
Program Development Group, Bureau of Labor Statistics, Telephone (202)
606-7527.

examine the similarities in changes in pay rates for occu-
pations common to any two adjacent MSA’s.? When pay
rates in adjacent areas vary in a similar way, this may indi-
cate that the rates are determined in the same, or in a larger,
job market?

Consider a hypothetical case of construction laborers who
work in city A and city B. When a construction boom in
city A raises wages of construction laborers in that city,
jobs for construction workers in both city A and city B would
be part of the same job market if this development caused
wages for construction workers in city B to rise by the same
percentage as in city A.‘ This result would be expected to
occur if the two cities were in the same job market.

However, observation of actual employment relationships
suggests that labor markets do not function in such a fluid
manner for many reasons, including difficulties in learn-
ing about job opportunities, long-term employment rela-
tionships, and other factors which inhibit mobility between
jobs. Nevertheless, a positive and statistically significant
correlation between pay rates often indicate a degree of in-
terdependence in occupational wage developments in adja-
cent areas.

Area Wage Survey data

Using Area Wage Survey data for Boston, New York,
and San Francisco for 1961-73, George Stigler and Robert
Sherwin analyzed the interdependence of pay rates for reg-
istered industrial nurses and accounting clerks between large
metropolitan areas. Although AWS data were not specifi-
cally designed to produce time series comparisons, the pro-
gram did periodically measure pay for jobs having the same
occupational specifications over time.

Compensation and Working Conditions December 1996 34

HT


Following Stigler and Sherwin's approach in using Area
Wage Survey data to analyze labor market interdependence
for particular occupations, the author examined Area Wage
Survey data for four pairs of adjacent MSA's which were
surveyed annually from 1976 to 1991.

The correlation analysis recognized that inflation and
economy-wide productivity improvements greatly increased
the money wages of most jobs in the economy between 1976
and 1991, and that a positive correlation between pay of
any two jobs could be simply due to inflation over this pe-
Tiod. To remove the effects of economy-wide movements
in inflation and general productivity improvements from
the occupational pay data, each occupational pay statistic
was divided by average hourly earnings (AHE) with the
same month and year as the survey reference date for that
occupational pay.> The result of this was relative wages
which could be compared across areas. For example, Area
Wage Surveys were conducted in Chicago in May 1976 and
in July 1990 as well as in intervening years. Therefore,
each Chicago occupational pay statistic for May 1976 was
divided by $4:86 (the AHE for May 1976) and each Chi-
cago pay statistic for July 1990 was divided by $9.99 (the
AHE for July 1990).6

Of the 30 occupations being compared, the only one for
which a positive and statistically significant correlation was
found among all four pairs of metropolitan areas was that
of registered industrial nurse.” (See table 1.) Drawing from
evidence contained in a larger unpublished study of occu-
pational pay linkages this result seems to reflect a national
system of pay linkages among registered industrial nurses."
In the larger unpublished study, all possible correlation in
the pay of nurses among 14 MSA's selected from through-
out the U.S. (55 correlations in all) were examined; only
one of these comparisons did not show a positive and sta-
tistically significant correlation. (Application of the same
Procedure to pay data in the other 29 occupations showed
that none of these other occupations showed the same ex-
tensive pattern of pay linkages.)

In 24 of the other 30 occupations, there was a positive
and statistically significant correlation between the relative
Pay rate measures in at least 1 pair of adjacent metropoli-
tan areas, but not in all 4 areas. These differences between
areas perhaps can be traced to the presence or absence of
common employing industries in both of the adjacent met-
Topolitan areas. Another possible explanation of the area-
specific differences by occupation may be that, generally,
only establishments with 50 or more employees were in-
cluded in the AWS program, If establishments in a particu-
lar pair of adjacent areas were owned by the same com-
pany, a common company pay policy in all establishments
could produce a high positive correlation among wages of
the different establishments.

Pay linkages were not observed in any of the areas for
peripheral equipment operator, machine tool operator, mo-
tor vehicle mechanic, drafter, or truckdriver. It should be
noted, however, that these are not low-wage jobs relative to
most of the other occupations considered in these compari-
sons,

Also shown in table 1 is the percent of positive and sta-
tistically significant correlation found in each area for the
30 occupational comparisons. To provide a benchmark for
the average of positive and statistically significant correla-
tions obtained without regard to proximity, the same proce-
dures were applied to data for 14 MSA's throughout the U.S.
Thirty-eight percent of the benchmark comparisons yielded
a statistically significant positive correlation. The percent-
age of significant pay linkages were highest for the Los
Angeles-San Diego area (52 percent) and for the Chicago-
Milwaukee area (53 percent). Linkages in the Baltimore-
Washington, DC area were quite low at 17 percent.

‘These results suggest that proximity can generate greater
pay linkage, but does not guarantee it. This is especially
true of the Baltimore-Washington, DC area, the results of
which do not support the proposition that the Baltimore-
Washington, DC CMSA could adequately define the job
market for most of the occupations examined in this study.

—Endnotes—

? The Bureau initiated area wage surveys in the late 1940s to provide pay
data for clerical and blue-collar jobs common to a wide variety of industries
within a metropolitan area. Over time, occupational coverage in the AWS
program was expanded. In 1991, the AWS program was replaced by the
Occupational Compensation Survey program.

? See George Stigler and Robert Sherwin, “The Extent of the Market,”
Journal of Law and Economics, October 1985, pp. 555-585,

» Stigler and Sherwin proposed that their analysis could be applied to the
study of any market—not just occupations in adjacent areas. Although most
of their analysis focused on price fluctuations in wholesale commodity mar-
kets, the authors did use Area Wage Survey data from 1961-73 to investigate
labor market linkages between several large metropolitan areas (New York,
Boston, and Los Angeles) for accounting clerks and registered industrial nurses.

* Wage levels for an occupation may be different in the two cities because
of corresponding differences in local amenities, taxes, or public services, but
relative wages between the cities would not change if they exist in the same.
job market.

+ More specifically, the occupational pay series was divided by a 3-month
centered moving average as of that date, so as to minimize the effects of pos-
sible month-to-month volatility in the AHE at cyclical tuming points.

* Besides improving comparisons over time, dividing pay data by the

35 Compensation and Working Conditions December 1996

contemporaneous AHE also tends to improve comparability of the data re-
Ported in the same year across areas, The Area Wage Surveys were conducted
at different times of the year in different areas. In a period of high inflation,
money wages might increase by a substantial amount between the beginning
‘and end of the year. Dividing by the contemporaneous AHE is equivalent to
‘assuming that money wages in occupational pay increase at the same rate
within the year as the AHE.

7 Conclusions about the statistical significance of the correlations were
made using a conventional t-test for correlations with small samples, specify-
ing a5 percent significance level. See, for example, Ya-lun Chou, Statistical
Analysis with Business and Economic Applications, Holt Rinehart, and Win-
ston, 1968, p. 618.

Some correlations designated as statistically significant have smaller mag-
nitudes than other correlations not so designated. This occurs because the
number of pay comparisons varies across occupations (up toa maximum of
17); the smaller the number of comparisons, the larger the correlation must be
tobe judged statistically significant.

* Anthony J. Barkume and Aaron Cushner, “Co-movements in Locality
Pay: Some Implications for Priorities in Data Collection and Some Findings
from the Area Wage Surveys,” unpublished paper, March 1996, Copies of
this paper are available upon request from the authors,

nen |



‘Table 1. Correlations between wages by occupation, 1976-011

Adjacent metropolitan areas
‘Occupations
Washington’ | LosAngeles/ | — Chicago/ Pittsburgh’
Baltimore San Diego Milwaukee Cleveland
Ragistered industrial nurse 0.871 0.937 0.953 0.579
Tool and die maker +335 49 569 559
+593 O41 872 561
912 363 979 469
809 795 509 222
560 517 691 038
+536 B62 729 - 429
+381 732 +151 886
461 732 031 808
287 862 904 044
-636 690 888 204
743 . 668 122
172 468 866 7
063 716 407 833
020 244 B46 537
+202 +306 528 769
~.609 038, +237 518
+146 826 426 -500
7461 +273 AIT 685,
254 393 637 401
236 879 A26 =113
+382 282 539 159
066, +573 +230 861
337 +222 +031 639
178 -704 805 -.374
387 489 461 489
.090 147 107 A
=196 195 281 446
275 “113 22 +413
302 +343 32 ~670
16.6 51.7 53.3 400

* Positive and statistically significant correlations are
Printed in bold face.

NOTE: Dash indicates no available data for that oc-

Compensation and Working Conditions December 1996 36