Historical evidence suggests that the differential growth rates at the state level are being driven by sectoral shifts in nonmanufacturing.  The historical evidence also suggests that these sectoral shifts are part of what is driving faster wage growth for unskilled workers.

For personal capital income, migration matters during the period of heaviest labor market shuffling 1940-1943)  but after that the direct effects of the political economy of war spending are driving the behavior of capital income. (8/x)

I decompose these “negative multipliers” into the portion explained by the direct fiscal shock of the war and the portion explained by across state migration.  Statistically speaking about half of the slower growth in nonmanufacturing income is being driven by migration. (7/x)

Personal capital income (from interest, dividends rent) and state level corporate profits also both grow more slowly in response to war spending. (6/x)

The attached figure shows how WWII affected the US economy at the state level.  The war was a positive, short run, shock to manufacturing income growth.  However, in the long run, the war was a negative, permanent, shock to nonmanufacturing income growth at the state level. (5/x)

The basic point of the paper is made by Figure 1.  This shows the relationship between WWII contract spending and the change in income from 1940-1947.  States that received less war spending were more likely to experience outmigration and faster growth in incomes. (3/x)

I am on the job market this year and this and my JMP establishes both the role of migration and the role of “capital repression” during WWII in the post-war state level convergence and the Great Compression (1/x)

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