Mohammad earns $40,000 per year as an accountant for a bank in
Columbus Mississippi. He learns that a branch of the bank is opening
in Honolulu Hawaii, and the accounting position at that location pays
$35,000. Keeping in mind that the cost of living is not lower in
Hawaii (in fact, it is higher), why might the salary be lower in Hawaii
than Mississippi?
O living in Hawaii compensates for the lower salary
O banks in Hawaii must be more competitive than those in Mississippi
O wages and salaries exhibit mean reversion over time
O labor markets are not competitive and labor is not mobile
