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Regional Wage Convergence and Divergence: Adjusting Wages for Cost-of-Living Differences

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After decades of convergence, the economic fortunes of U.S. regions appeared to diverge in the early 1980s as measured by both per capita income and wages. This study examines that phenomenon by looking at the effect of relative price-level controls on the convergence/divergence of regional wages. The authors find that once prices are factored in, relative wage rates continue to converge across regions due to rising covariance between price and wage levels. The results also confirm that the trend in regional wage variation can be traced to declining differences in labor market valuations of worker attributes rather than to shifts in the regional composition of the workforce.

Suggested citation: Eberts, Randall, and Mark Schweitzer. “Regional Wage Convergence and Divergence: Adjusting Wages for Cost-of-Living Differences,” Federal Reserve Bank of Cleveland, Economic Review, vol. 30, no. 2, pp. 26-37, 06.01.1994.

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