The U.S. Structural Transformation and RegionalConvergence: A Reinterpretation

We present a joint study of the U.S. structural transformation (thedecline of agriculture as the dominating sector) and regional convergence(of southern to northern average wages).We find empiricallythat most of the regional convergence is attributable to the structuraltransformation: the nationwide convergence of agricultural wages tononagricultural wages and the faster rate of transition of the southernlabor force from agricultural to nonagricultural jobs. Similar resultsdescribe the Midwest’s catch-up to the Northeast (but not the relativeexperience of the West). To explain these observations, we constructa model in which the South (Midwest) has a comparative advantagein producing unskilled labor–intensive agricultural goods. Thus itstarts with a disproportionate share of the unskilled labor force andlower per capita incomes. Over time, declining education/trainingcosts induce an increasing proportion of the labor force to move outof the (unskilled) agricultural sector and into the (skilled) nonagriculturalsector. The decline in the agricultural labor force leads to anincrease in relative agricultural wages.[...]