Complete Issue

Contributing Authors

Editor's Introduction
by Thomas A. Garrett pp. 1

Local Price Variation and Labor Supply Behavior
by Dan A. Black, Natalia Kolesnikova, and Lowell J. Taylor pp. 2-14

In standard economic theory, labor supply decisions depend on the complete set of prices: wages and the prices of relevant consumption goods. Nonetheless, most theoretical and empirical work in labor supply studies ignores prices other than wages. We address the question of whether the common practice of ignoring local price variation in labor supply studies is as innocuous as generally assumed. We describe a simple model to demonstrate that the effects of wage and nonlabor income on labor supply typically differ by location. In particular, we show that the derivative of the labor supply with respect to nonlabor income is independent of price only when labor supply takes a form based on an implausible separability condition. Empirical evidence demonstrates that the effect of price on labor supply is not a simple “up-or-down shift” that would be required to meet the separability condition in our key proposition.

Regional Aggregation in Forecasting: An Application to the Federal Reserve’s Eighth District
by Kristie M. Engemann, Rubén Hernández-Murillo, and Michael T. Owyang pp. 15-29

Hernández-Murillo and Owyang (2006) showed that accounting for spatial correlations in regional data can improve forecasts of national employment. This paper considers whether the predictive advantage of disaggregate models remains when forecasting subnational data. The authors conduct horse races among several forecasting models in which the objective is to forecast regional- or state-level employment. For some models, the objective is to forecast using the sum of further disaggregated employment (i.e., forecasts of metropolitan statistical area (MSA)-level data are summed to yield state-level forecasts). The authors find that the spatial relationships between states have sufficient predictive content to overcome small increases in the number of estimated parameters when forecasting regional-level data; this is not always true when forecasting state- and regional-level data using the sum of MSA-level forecasts.

The Economic Impact of a Smoking Ban in Columbia, Missouri: An Analysis of Sales Tax Data for the First Year
by Michael R. Pakko pp. 30-40

In January 2007, an ordinance took effect in Columbia, Missouri, banning smoking in all bars, restaurants, and workplaces. This paper analyzes data for sales tax collections at eating and drinking establishments from January 2001 through December 2007, including the first twelve months of the smoking ban. The analysis accounts for trends, seasonality, general business conditions, and weather. The findings suggest that the smoking ban has been associated with statistically significant losses in sales tax revenues at Columbia’s bars and restaurants, with an average decline of approximately 3½ to 4 percent. Businesses that serve only food show no statistically significant effects of the smoking ban. Those that serve food and alcohol, or alcohol only, show significant losses with estimates in the range of 6½ to 11 percent (with the larger losses associated with bars). Some individual businesses within each category may have been unaffected, whereas others are likely to have incurred much greater losses.

Urban Decentralization and Income Inequality: Is Sprawl Associated with Rising Income Segregation Across Neighborhoods?
by Christopher H. Wheeler pp. 41-57

Existing research shows an inverse relationship between urban density and the degree of income inequality within metropolitan areas; this information suggests that as urban areas spread out, they become increasingly segregated by income. This paper examines this hypothesis using data covering more than 165,000 block groups within 359 U.S. metropolitan areas for the years 1980, 1990, and 2000. The findings indicate that income inequality—defined by the variance of the log household income distribution—does indeed rise significantly as urban density declines. This increase, however, is associated with rising inequality within block groups as cities spread farther from their central core. The extent of income variation between different block groups, by contrast, shows virtually no association with population density. Accordingly, little evidence supports the notion that urban sprawl is systematically associated with greater residential segregation of households by income.