Regional Evolutions

Abstract

IN 1987, the unemployment rate in Massachusetts averaged 3.2 percent, three percentage points below the national rate. Only four years later, in 1991, it stood at 9.0 percent, more than two points above the national rate. For firms taking investment decisions and for unemployed workers thinking about relocating, the obvious question is whether and when things will return to normal in Massachusetts. This is the issue that we take up in our paper. However, instead of looking only at Massachusetts, we examine the general features of regional booms and slumps, studying the behavior of U.S. states over the last 40 years. We attempt to answer four questions. When a typical U.S. state over the postwar period has been affected by an adverse shock to employment, how has it adjusted? Did wages decline relative to the rest of the nation? Were otherjobs created to replace those jobs destroyed by the shock? Or did workers move out of the state? Our interest in these questions extends beyond regional economics. Blocs of countries, notably those in the European Community, are increasingly eliminating barriers to the mobility of goods and factors and moving toward adopting a common currency. Once these institutional changes are in place, economic interactions among these countries will more closely resemble those of U.S. states. This paper offers at least a We thank Rachel Friedberg, Jae Woo Lee, and especially Bill Miracky for research assistance. We thank Timothy Bartik,

Unemployment and mortality: Evidence from the PSID

“…First, as pointed out by Blanchard and Katz (1992), local economic shocks are typically dealt with by large out-migrations. Second, measurement of mortality rates can change substantially because of migration.…”

The Rise and Fall of Regional Inequalities

“…Blanchard and Katz (1992) show that in the US there is such an adjustment process working through interregional migration. In Europe, however, there is very little migration across countries despite large intercountry wage differences.…”

Cities and Labor Market Dynamics

“…Blanchard and Katz (1992) argue that labor mobility-not firm mobility or firm entry and exit-is the primary mechanism for adjustment to regional business cycles. Similarly, Topel (1986) finds worker mobility in response to local labor demand shocks to be significant in explaining wage differentials.…”

“…Kennan and Walker, 2011) find lifetime income prospects to be a key determinant of household migration choices; extrapolating from this one would expect local labor conditions to be importance to aggregate migration flows. But studies of aggregate migration do not find a clear positive relationship between population growth and local average wages (see, e.g., Blanchard and Katz, 1992;Greenwood, 1975, or Greenwood andSexton, 2012). Under the notion of spatial equilibrium proposed by Roback (1982), prices in the labor and housing markets account for differences in local amenities.…”