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Abstract

This paper examines the relationship between annual hours worked and rural residence for a sample of working-age (18-64 years) householders using 1993 Panel Study of Income Dynamics data. The basic question we address is whether and to what extent failure to account for rural residential choice biases the measured effect of rural residence on labor market outcomes. Results from a single equation model that assumes rural residence is exogenous finds no statistically significant relationship between annual hours worked and living in a rural area. By contrast, a simultaneous model that accounts for the possibility that rural residence is a choice indicates that rural people worked 307 hours more than urban people, all else being equal. A Smith-Blundell test for exogeneity of rural residence suggests that rural location should be treated as a choice variable. Study findings highlight the importance of testing, and if necessary, correcting for endogeneity of rural residence if we are to obtain accurate measures of the effect of living in a rural location on individual behavior and well-being.

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