Convergence of labor productivity across the US states

Abstract

Most studies of labor productivity convergence among US states base their analyses on state-level GDP per worker. Such aggregated analysis may hide important information about the role of sectors, and changes in the sectoral composition of these economies, in explaining economy-wide convergence results. Using highly disaggregated data for the period 1987–2015 from the US Bureau of Economic Analysis, we examine sectoral unconditional convergence in labor productivity in the US states. Our results demonstrate a general slowing down in the rate of convergence of labor productivity in the latter years of this period. The sectoral analysis also indicates that manufacturing was the primary driver of convergence during the 1987–1997 period, which had the highest rate of convergence; the role of this sector, however, has diminished in recent years. Several factors—such as the decline in interstate migration, rising housing costs in major cities, agglomeration, and structural changes in the US economy that have reduced the role of manufacturing—may have contributed to the rise in the labor productivity differential among US states.