Local Labor Markets and the Evolution of Inequality

US labor markets have experienced rising inequality over the past 30 years—as evidenced by an increased gap in wages earned by high-skill workers (e.g., college graduates) and low-skill workers (e.g., high school graduates). Empirical evidence documenting this evolution of inequality comes from studies that assess wage-education gradients at the national level. But of course people work in local labor markets that differ in important ways. We provide a theoretical framework for evaluating inequality changes when individuals work in local labor markets, and we give an empirical reassessment of inequality changes in light of the insights that emerge from our framework.