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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,

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Notes: Center Discussion Papers are preliminary materials circulated to stimulate discussion and critical comments. Terms of use: Documents in EconStor may CONVERGENCE ACROSS STATES AND REGIONS AbstractIn this paper we examine the growth and dispersion of personal income in U.S. states and regions since 1880 and relate the patterns for individual states to the behavior of regions. Then we analyze the interplay between net migration and economic growth. We study the evolution of gross state product since 1963 and relate the behavior of aggregate product to productivity in eight major sectors. The overall evidence weighs heavily in favor of convergence: poor states tend to grow faster in terms of per capita income and product and within sectors as well as for state aggregates. The rate of convergence is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2% per year.We apply the same framework to patterns of convergence across 73 regions of seven European countries since 1950. The process of convergence within European countries is similar to that for the UnitedStates. In particular, the rate of convergence is again about 2% per year.KEY WORDS: Convergence, Gniwth, Migration, Regional EconomicsAn important economic question is whether poor countries or regions tend to converge toward rich ones. We want to know, for example, whether the poor countries of Africa, South Asia, and Latin America will grow faster than the developed countries, whether southern Italy will become like the north, whether and how fast the eastern regions of Germany will attain the prosperity of the western regions, and-· -in an historical context-how the American south became nearly as well off as the north.Although some economic theories predict convergence, the empirical evidence has been a subject of debate. We add to the evidence in this study by extending our previous analysis of economic growth across the U.S. states (Barro and Sala-i-Martin [1990]). We examine the growth and dispersion of personal income since 1880 and relate the patterns for individual states to the behavior of regions. Then we analyze the interplay between net migration and economic growth. We study the evolution of gross state product since 1963 and relate the behavior of aggregate product to productivity in eight major sectors. The overall evidence weighs heavily in favor of convergence: poor states tend to grow faster in terms of per capita income and product and with...

Following a recession, the aggregate labor market is slack-employment remains below normal and recruiting efforts of employers, as measured by help-wanted advertising and vacancies, are low. A model of matching friction explains the qualitative responses of the labor market to adverse shocks, but requires implausibly large shocks to account for the magnitude of observed fluctuations. The incorporation of wage stickiness vastly increases the sensitivity of the model to driving forces. I develop a new model of the way that wage stickiness affects unemployment. The stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement. Sticky wages neither interfere with the efficient formation of employment matches nor cause inefficient job loss. Thus the model provides an answer to the fundamental criticism previously directed at sticky-wage models of fluctuations.

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