What is place premium in economics?

April 16, 2018 12:15 am | Updated 01:00 am IST

This refers to the additional income that a person can earn by moving from a place where wages paid for his labour are low to another place where they are higher. So people with similar skills can earn vastly different incomes over their lifetimes depending on their location. In a world that allows for free movement of people across borders, the place premium will gradually narrow down as a result of migration in search of better wages. The place premium explains the mass movement of people from less developed regions to more developed ones where real wages are much higher.

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