CONVERGENCE OF STATE PER-CAPITA INCOMES - AN EXAMINATION OF ITS SOURCES

This paper examines the sources of regional convergence in per capita incomes over the last four decades. Growth in per capita income is dec omposed into two major components: (1) growth in employment rates and (2) growth in wage rates per worker. Using annual data from the Bureau of Economic Analysis and the Bureau of Labor Statistics, the paper fi nds that the observed convergence in per capita incomes of states was largely due to convergence in employment rates; wage rates either did not converge or did so weakly. Employing an instrumental variables tec hnique, the paper finds that rapid growth in the work force with relat ively low levels of human capital in initially poor states was a depre ssing influence on wage rate growth in these states, and was a major r eason for the relatively slow convergence in per capita incomes.