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Why Haven’t Regional Wages Converged?

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  • Jason L. Saving

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.

Suggested Citation

  • Jason L. Saving, 2017. "Why Haven’t Regional Wages Converged?," Working Papers 1711, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:1711
    DOI: 10.24149/wp1711
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    More about this item

    Keywords

    regional wage convergence; fiscal federalism;

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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