Abstract

This paper examines the degree to which real wages have converged in Alabama over the last thirty-seven years. The increase in government transfers, improvement in information technology and possibly, other government assistance programs would suggest that, wages in spatially dispersed counties within nation-state should become similar over time. However, the interrelation between business cycles, migration, employment structure and changes in per capita earnings over time reduces this possibility. To test the convergence hypothesis, comparable county-level real wage data are obtained from the U.S. Bureau of Economic Analysis and analyzed using cross-section and time series techniques. Particularly, two hypotheses are tested: (1) whether real wages in poor economies (rural counties) are catching up with real wages in rich economies (urban counties), and (2) whether adjacency to urban areas has an effect on the transition from low wages to high wages for rural workers in Alabama. The results differ across the different measurement techniques, but in general, the findings do not confirm the convergence hypothesis within the different sub-periods, but rather patterns of fluctuating coherence. Similarly, the proximity hypothesis is rejected suggesting that, rural workers residing in counties that are contiguous to urban areas have not benefited from the potential spillover effect.

Key words: Real wages, convergence, divergence, unit root tests, time series, cross-section analysis.