The Influence of Neighborhood Characteristics on Wages and Labor Supply in an Urban Context : The Case of a Latin-American City

Using data from Medellín, the second-largest city in Colombia, in this paper, we assess how a set of neighborhood characteristics determines wages, and labor supply for workers in the city. We use GIS data to measure the quality of the environments in which workers live. The paper focuses on the impact of the following set of characteristics on labor supply and wages: availability of public transportation, crime levels, and density of economic activity. The empirical methodology consists of the estimation of linear equations for wages and worked hours, controlling the selection of individuals within the neighborhoods observed. In order to do this, in a first stage we estimate a probabilistic model of neighborhood selection from which selection correction terms are obtained; in a second stage, these correction terms are included in the linear equations for wage and worked hours. Additionally, we control the sample selection as well. We found that the endogeneity of the location decision tends to overestimate the magnitude of the effect of neighborhood characteristics on labor market outcomes. Nevertheless, the effect of some characteristics was still significant and important after we controlled the possibility of selection into neighborhoods