Why Haven’t Regional Wages Converged?

Jason Saving

No 1711, Working Papers from Federal Reserve Bank of Dallas

Abstract: Regional wage convergence has long been predicted across the United States as barriers to factor mobility have fallen, yet there is little evidence (apart from a brief period in the 1970s and 1980s) that convergence has actually occurred. Why not? I reexamine this issue by developing a model in which fiscal policy differences across states endogenously impact labor supply across jurisdictions. I find that states whose safety nets are relatively generous will tend to drive out workers, raising wages for those who remain while also prompting net outmigration to less generous states. This suggests that regional wage convergence requires not only free factor mobility but also the coordination of fiscal policy across jurisdictions.

Keywords: regional wage convergence; fiscal federalism (search for similar items in EconPapers)
JEL-codes: H73 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-12-18
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:1711

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DOI: 10.24149/wp1711

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