There have been a wealth of studies on sub-national income convergence in past few decades. The literature, however, suffers from several deficiencies, such as theoretically weak units of observation (virtually all studies employed either state or BEA region, rather than metropolitan area--the functional economic space--as the spatial unit of observation), failure to control for the effects of inter-regional differentials in productivity growth and industry composition, and failure to distinguish between different measures of convergence.
This research investigates income and earnings convergence among 315 metropolitan areas in the U.S. between 1969 and 1995, utilizing the most recent data series for metropolitan areas from the Bureau of Economic Analysis' Regional Economic Information System. It employs the Seemingly Unrelated Regression technique, benchmarked by Ordinary Least Squares (OLS) and White heteroskedasticity-adjusted OLS estimates, to study cross-metropolitan income and earnings convergence in both relative terms low-income or earnings regions growing at higher rates) and absolute terms (e.g., low-income or earnings regions growing by larger amounts). Interactive specifications were performed to test regime shifts and magnitude differences in income and earnings convergence among metropolitan areas of different size strata and different BEA regions.
The major findings include: (1) Between 1969 and 1995, metropolitan income levels, measured by per capita pre-transfer real income, have diverged, while earnings levels, as measured by per wage and salary job real earnings, have converged; (2) Disaggregated by individual two-year period, metropolitan income levels diverged primarily between the mid 1970s and late 1980s, with a convergence tail observed in the early 1970s and a reversal of divergence in the early 1990s. On the other hand, cross-metropolitan earnings distributions exhibited more fluctuations over time, marked by three distinct convergence phases; (3) Disaggregated by metropolitan size strata, income divergence was more pronounced among large areas than that among small and medium areas, and earnings levels converged among small and medium areas but diverged among large areas; (4) Disaggregated by BEA regions, income levels converged among metropolitan areas in the Plains and Rocky Mountains regions, while earnings levels diverged among metropolitan areas in the New England and Mid East regions; and (5) The widening cross-metropolitan distributions in wealth levels (per capita dividends, interests, and rents) and employment-to-population ratios (low-earnings metropolitan areas having experienced faster population growth than job growth) appear to be the explanatory factors to the income divergence amid earnings convergence observation. There are also regime shift and magnitude differences in income and earnings convergence across metropolitan areas of different size stratum and multi-state BEA region.
This research contributes to the urban and regional economic literature in several ways. First, the research, the first of its kind, provides a comprehensive analysis of income and earnings convergence of metropolitan areas in the U.S. between 1969 and 1995. Second, it enhances the understanding of the dynamics of metropolis-based regional economic growth and change. Third, it demonstrates the distinction and the connection between relative and absolute convergence. Finally, it identifies the strengths and weaknesses of various measures of convergence.