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Unbalanced Productivity Growth in US States: Evidence from Factor Prices

Despite being located within a well integrated economy such as the US, its states exhibit considerable heterogeneity, both in the composition of output and in sectoral labor productivity growth. In this paper, we examine the sources of uneven labor productivity growth across sectors in US states. In particular, we use the dual growth accounting framework to compare the relative roles of multi-factor productivity growth and factor accumulation in goods versus services from 1980 to 2007. We find that states exhibit a wide range of productivity growth rates with the goods sector showing much larger gaps. Underlying these gaps are large variations in wage growth and real user cost growth. Since 1998, the real user cost declines at almost two per cent annually. Incorporating human capital into the analysis makes wage growth and, hence, productivity growth lower, and on average negative in the last ten years. Scaling up the analysis to the national level, we also find that there are large differences between the growth rates of primal based measures of marginal product of capital and our calculations of real user cost growth. The anomalous behavior of particular industries such as mining and real estate services, and the declining relative price of investment goods can only partially explain these patterns..

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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2012-04.

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Handle: RePEc:lsu:lsuwpp:2012-04
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  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. Kalemli-Ozcan, Sebnem & Reshef, Ariell & Sørensen, Bent E & Yosha, Oved, 2006. "Why Does Capital Flow to Rich States?," CEPR Discussion Papers 5635, C.E.P.R. Discussion Papers.
  3. Todd Schoellman & Sean Mulholland & Robert Tamura & Chad Turner, 2010. "How Important are Human Capital, Physical Capital and Total Factor Productivity for Determining State Economic Growth in the United States, 1840-2000," 2010 Meeting Papers 839, Society for Economic Dynamics.
  4. Dean Baker, 2007. "Behind the Gap Between Productivity and Wage Growth," CEPR Reports and Issue Briefs 2007-05, Center for Economic and Policy Research (CEPR).
  5. Margarida Duarte & Diego Restuccia, 2007. "The Role of the Structural Transformation in Aggregate Productivity," Working Papers tecipa-300, University of Toronto, Department of Economics.
  6. Henderson, Daniel J. & Polachek, Solomon & Wang, Le, 2011. "Heterogeneity in Schooling Rates of Return," IZA Discussion Papers 5662, Institute for the Study of Labor (IZA).
  7. Shekhar Aiyar & Carl-Johan Dalgaard, 2004. "Total Factor Productivity Revisited: A Dual Approach to Development Accounting," EPRU Working Paper Series 04-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Thomas Barnebeck Andersen & Jeanet Bentzen & Carl-Johan Dalgaard & Pablo Selaya, 2009. "Lightning, IT Diffusion and Economic Growth across US States," Discussion Papers 09-18, University of Copenhagen. Department of Economics.
  9. Robert S. Chirinko & Daniel J. Wilson, 2007. "State Investment Tax Incentives: A Zero-Sum Game?," CESifo Working Paper Series 1895, CESifo Group Munich.
  10. Gasper A. Garofalo & Steven Yamarik, 2002. "Regional Convergence: Evidence From A New State-By-State Capital Stock Series," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 316-323, May.
  11. Holtz-Eakin, Douglas, 1993. "Solow and States: Capital Accumulation, Productivity, and Economic Growth," National Tax Journal, National Tax Association, vol. 46(4), pages 425-39, December.
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