Interstate Differentials in Wages and Unemployment.

Over the six-year period 1970-1975, the structure of unemployment rates (based on the Current Population Survey) in the 27 largest states remained remarkably stable (see Table 1). Such persistency in interstate unemployment differentials invites investigation: why haven't the equilibrating forces of relative wages and worker mobility eliminated the unemployment differentials among the states? The research presented here is an initial exploration which seeks not only to explain these interstate differentials, but also to explain why California's unemployment rate has historically been above the national average)
A four-equation model, solved by two-stage least squares (2SLS), is developed to account for the joint determination of wages and unemployment. The unemployment rate equation subjected to empirical testing is a reduced form type. A comprehensive model dealing with all the structural equations which underlie this reduced form is beyond the scope of this work. Two equations, both dealing with labor force participation, are accounted for; they are abbreviated versions of equations generally found in the literature since it was necessary to keep the number of variables within computational range. [ABSTRACT FROM AUTHOR]

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