The real magic of the model is trade-off between wages and amenities, and what that does to economic growth. In our simple model, we see higher income households are more likely to relocate to (or stay in) nicer places. But, they are also willing to accept a lower wage to do so. The result is a remarkable outcome.
Places with better amenities do tend to have higher income households, and of course all the benefits that accrue to them. But for a business looking for workers, the nice place will offer a wage advantage over less attractive locations.
This result has great meaning, for it means improving quality of place reduces business costs on the most costly of inputs; human capital. So, as we think about attracting business to Indiana, we ought to get better at thinking through these simple models.
Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and a professor of economics at Ball State University. Contact him at firstname.lastname@example.org.