Location, Location, Location
The Surprising Science Behind Place and Power
Introduction: More Than Just a Real Estate Mantra
We've all heard the famous real estate mantra—"location, location, location"—but few realize how deeply this concept permeates virtually every aspect of our lives, from the wages we earn to the way our brains function. The phrase itself has a contested history: while often attributed to British real estate tycoon Lord Harold Samuel, evidence suggests it appeared in a 1926 Chicago Tribune classified ad urging salesmen to focus on a property "close to Rogers Park" 9 .
Did You Know?
The concept of "location effects" explains approximately 50% of earnings differences across geographic regions, according to recent economic research 1 .
But beyond its catchy repetition lies a profound scientific truth: location operates as a hidden architect of our reality, shaping everything from economic outcomes to neurological processes. Recent research has revealed that location effects are far more complex than we imagined, with surprising implications for how we live, work, and organize our societies.
This article explores the multidisciplinary science of location, examining how place influences human outcomes through economics, neuroscience, and technology—and why understanding these mechanisms is crucial for addressing some of our most pressing societal challenges.
Key Concepts and Theories: Why Place Matters
In economic terms, location creates what researchers call "spatial inequality"—the dramatic differences in outcomes based on geographic location. A groundbreaking 2025 study published in the American Economic Journal analyzed linked employer-employee data to study the causal effects of location on earnings in the United States.
The researchers found that worker skills explain approximately half of observed earnings differences across commuting zones (geographic areas where people live and work), while observable characteristics understate this effect. Perhaps most surprisingly, industry composition explains little of average place effects, contradicting conventional wisdom about why some regions prosper while others decline 1 .
Beyond individual outcomes, location plays a crucial role in business strategy. Professor Juan Alcácer of Harvard Business School emphasizes that companies often make geographic expansion decisions based on short-term thinking rather than long-term strategy.
The Mechanics of Place: How Location Effects Work
Measuring Location Effects
Quantifying location's influence requires sophisticated methodological approaches. Researchers use linked employer-employee data to disentangle the effects of firms versus locations on wages. This approach reveals that sorting across firms biases traditional "movers" designs—methods that track people who change locations to measure place effects.
By estimating models with both employer and employee effects, then aggregating to the commuting zone level, researchers can more accurately predict earnings changes for movers after accounting for firm sorting 1 .
The Role of Commuting Zones
Commuting zones (CZs) have emerged as a crucial geographic unit for analyzing location effects. These regions, defined by patterns of home-work transportation, represent functional economic units rather than arbitrary political boundaries. By studying patterns across commuting zones, researchers can identify how economic opportunities cluster in specific geographic areas while excluding others—a phenomenon economists call "spatial misallocation" 1 .
Visualization of commuting patterns in a metropolitan area
A Key Experiment: Unraveling Location's Causal Effects
Methodology: A Novel Approach to Spatial Economics
The landmark 2025 study "Location, Location, Location" published in the American Economic Journal: Applied Economics employed a rigorous methodological approach to isolate location's causal effects on earnings. The research team, consisting of David Card, Jesse Rothstein, and Moises Yi, utilized linked employer-employee data covering millions of American workers across multiple decades 1 .
Their approach involved several innovative steps:
- Estimating worker and firm effects: Using statistical models that separate individual productivity characteristics from employer-specific wage premiums
- Aggregating to commuting zones: Mapping these effects to geographic areas based on commuting patterns rather than political boundaries
- Tracking movers: Analyzing how earnings change when workers move between different commuting zones while controlling for firm effects
- Accounting for sorting biases: Developing statistical techniques to address the fact that certain types of workers tend to sort into specific locations
| Factor | Contribution to Earnings Variation | Key Findings |
|---|---|---|
| Worker Skills | ~50% | Observable characteristics understate skill differences |
| Firm Effects | Significant but varying | Sorting across firms biases traditional movers designs |
| Pure Location Effects | Substantial residual | Remain significant after accounting for skills and firms |
| Industry Composition | Minimal | Explains little of average place effects |
Results and Analysis: Surprising Findings About Place and Pay
The study's results revealed several counterintuitive patterns about how location affects earnings:
Perhaps the most surprising finding concerned real consumption patterns. The researchers discovered that higher nominal wages in prosperous commuting zones were largely offset by higher costs of living. Workers who moved to higher-wage areas typically experienced equal or lower real consumption—a crucial distinction that helps explain why geographic mobility has declined despite apparent economic incentives 1 .
| Migration Pattern | Change in Nominal Earnings | Change in Real Consumption | Percentage of Movers |
|---|---|---|---|
| To higher-wage CZs | Increase | Equal or decrease | 62% |
| To lower-wage CZs | Decrease | Equal or increase | 38% |
Scientific Importance: Rethinking Spatial Policy
The study's findings have profound implications for economic policy. Traditionally, regional development policies have focused on attracting specific industries or firms. However, if industry composition explains little of average place effects, as the study suggests, such approaches may be misguided.
Instead, policies focused on human capital development and cost of living reduction might be more effective at improving regional outcomes 1 .
The research also helps explain the decline in geographic mobility observed in many advanced economies. If moving to higher-wage areas doesn't improve real consumption, workers have little economic incentive to relocate—even when nominal wage differences appear substantial. This suggests that addressing regional inequality may require more targeted approaches than simply encouraging migration.
The Scientist's Toolkit: Researching Location Effects
Studying location effects requires specialized methodological tools and data sources. The field has advanced significantly in recent years thanks to new research infrastructures and analytical techniques.
| Research Tool | Function | Example Applications |
|---|---|---|
| Linked Employer-Employee Data | Connecting workers to firms and locations | Measuring firm versus location effects on wages |
| Commuting Zone Definitions | Defining functional economic regions | Analyzing economic patterns across geographic units |
| Fixed Effects Models | Statistical control for unobserved factors | Isolating causal effects of location changes |
| Cost of Living Indices | Adjusting for geographic price differences | Comparing real consumption across areas |
| Spatial Analytics Software | Analyzing geographic patterns | Identifying clusters and spatial inequalities |
Beyond these technical tools, location researchers often employ interdisciplinary approaches drawing from economics, sociology, geography, and urban planning. This multidisciplinary perspective is essential for understanding the complex ways that place influences human outcomes.
Neuroscience Connections
Recent research in neuroscience has revealed how location affects brain function. In one study, neurologists found that patients with brain damage in location-processing regions experienced fundamental changes to their sense of self—raising profound questions about how place shapes identity 3 .
Geographic Information Systems
Modern GIS technology allows researchers to visualize and analyze spatial relationships in unprecedented detail, enabling more sophisticated studies of how location influences economic and social outcomes across different scales and contexts.
Conclusion: The Future of Location Science
The science of location has evolved far beyond its real estate origins to become a multidisciplinary field with profound implications for how we understand human society. Research has revealed that place effects are more complex and counterintuitive than we previously imagined—higher wages in certain locations often don't translate to better living standards, industry composition explains less than we thought, and the very concept of location extends beyond physical geography to include neurological and social dimensions.
Future Research Frontiers
- Technology's impact: How remote work and digital technologies are changing the economic value of physical location 5
- Environmental factors: How climate change and environmental conditions interact with geographic inequality
- Global comparisons: How location effects operate differently across various national contexts
- Policy evaluations: Which interventions most effectively address spatial inequalities without reducing mobility
As technology continues to evolve, the concept of location itself may transform. Augmented reality technologies already allow us to overlay digital information onto physical spaces, changing how we experience place 5 . Blockchain technology enables secure property transactions and fractional ownership models that could democratize access to valuable locations 5 . And remote work technologies are untethering many knowledge workers from specific geographic locations—potentially reshaping urban landscapes and regional economies.
Emerging technologies are changing how we experience and value location
Despite these technological changes, the fundamental importance of location seems unlikely to disappear. As the research shows, place continues to shape our opportunities, identities, and experiences in profound ways. Understanding these mechanisms isn't just an academic exercise—it's essential for creating more equitable and prosperous societies. As we continue to unravel the surprising science behind "location, location, location," we may discover that where we are continues to shape who we can become.