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Labor-Market Adjustment in Open Economies: Evidence from U.S. States

Authors:
Publication Date:
Jan 1999
Project Programs:
Future of Work

In this paper we analyze whether regional economic integration across U.S. states conditions local labor-market adjustment. We examine the mechanisms through which states absorb changes in labor supplies and whether industry production techniques are similar across states. There are two main findings. First, states absorb changes in employment primarily through changes in production techniques that are common across all states and through changes in the output of traded goods, with the former mechanism playing the larger role. In contrast, state-specific changes in production techniques, which are one indication of state-specific changes in relative factor prices, account for relatively little factor absorption. Second, industry production techniques are very similar across states, especially for neighboring states and states with similar relative labor supplies. Both sets of results are consistent with productivity-adjusted FPE across either all states or groupings of related states.

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