Regional Wage Differential and the Social Returns to Education: A Hierarchical Approach

Bernardo L. Queiroz, University of California, Berkeley

Regional wages have a strong relationship with regional characteristics. The literature presents two main explanations: first, the human capital model shows how inequalities in the level and distribution of human capital across regions affect local wages; and second, how the structure of local labor markets influence wage differentials and wage inequality. The objective of this study is to analyze regional wage differentials in the Brazilian state of Minas Gerais and present a different methodology to study these differences, Hierarchical Linear Models. More specifically, the aim is to examine the contribution of personal attributes and regional characteristics to the variability of regional wages in Minas Gerais. The basic hypothesis of this paper is that regions with a larger stock of human capital will have higher wages in comparison to regions with smaller stocks and that workers will benefit positively from this concentration of human capital in a particular region.