Southern America’s Competitiveness Problem

Minneapolis, where the people are nice and labor productivity is high.

Wikimedia Commons

Listening to an informative discussion of banking, fiscal, and growth issues in Europe this morning I was frustrated—and not for the first time—by the fact that discussants seem to me to miss what’s surprising about the operation of the European currency union. Everyone seems to take the fact that persistent productivity gaps exist between countries like Germany and the Netherlands and countries like Spain and Italy to be the remarkable fact that needs to be fixed. But look at the United States!

In the Boston MSA, the median wage is $24.03 and in the Minneapolis MSA it’s $21.62 and in Chicago it’s $20.66 and in Seattle it’s $22.68—figures that represent the high labor productivity in “core” Northern United States economies. In the South, things look very different. It’s $16.82 in Tampa, $17.16 in New Orleans, $13.28 (!) in El Paso, and $16.47 in Tulsa. There are a few reasonably productive southern MSAs like Raleigh ($19.99) and Atlanta ($19.22) but they fall far behind the north’s leaders. And this gap is not new. In fact it’s converged somewhat since World War II but that’s a very long time frame and convergence in labor productivity is still a long ways away.

That’s just to say that whatever it is that makes the American currency union work, it’s most certainly not that we have equalized labor productivity across the region or that Florida has solved its “competitiveness” problems. Rather, it works despite all that because we have:

1) National bank regulation.

2) National fiscal stabilizers.

3) National labor mobility.

4) Persistent place-to-place transfers.

Florida is particularly telling here because it’s really big. It contains seven of the country’s 100 largest metro areas, and they range from 72nd out of 100 in median wages to 98th out of 100 in median wages. But the Florida economy exists and even in some respects thrives because people spend their career working in higher wage areas and then retire to Florida where they (a) collect Social Security checks, and (b) go visit doctors and hospitals who get paid by Medicare. Conversely, if you grow up in Florida you have ample opportunity to move to chilly Minneapolis if that improves your employment prospects.

Creating EU-wide bank regulation, fiscal stabilization, labor mobility, and transfer payments sounds unrealistically difficult but creating EU-wide equalization of productivity is so unrealistic that it doesn’t even exist within the United States! And as far as I know, it doesn’t exist in any other large countries. Certainly India and China feature enormous persistent internal variation in incomes and labor productivity.