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Clustering Of Ability In The US

Part II of a two part series looking at ability and income.Part Ifocused on ability income payoffs by occupation and ability’s contribution to income inequality. Part II examines the geographical distribution of ability and the degree to which ability income payoffs are distorted by cost of living differences by state.

Summary:Part I of this study of looked at “ability” as measured by the difference between what someone makes and what the average wage they would be expected to earn based on primary determinants of income: age, education, occupation, gender and race (“AEOSR” wage). Two main findings were that income payoffs to ability varied by occupation, and, the existence of ability significantly contributes to income inequality. This essay analyzes the distribution of ability by state. My measure of ability shows geographic concentrations. I examine whether this result is being partially caused by cost of living (“COL”) differences that may affect wage levels. The data suggest COL is …

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