Abstract
This study develops a wage decomposition methodology to analyze regional wage disparities across U.S. counties, decomposing wage differentials into factor bias, sector bias, and specialization effects, seeing how urbanization and local tax burdens can affect them. Using 2016 and 2021 county-level wage and employment data, we examine how regional industry composition, wages, and specialization contribute to wage differences. The results show that sector bias, reflecting regional industry composition, strongly correlates with the wage differential, especially in metropolitan areas. Factor bias is more influential in urban regions, while specialization effects are more significant in rural counties. Local tax burdens significantly affect the wage differential, particularly in factor bias in metropolitan areas, but have minimal impact on sector and specialization effect. These findings highlight the role of a region’s industrial mix in creating wage differences and the limited role of local tax burdens.