DP5111 Factor Price Equality and the Economies of the United States

Author(s): Andrew B. Bernard, Stephen J. Redding, Peter K. Schott
Publication Date: June 2005
Keyword(s): factor price equality, labour market areas, neoclassical trade theory, regional wages
JEL(s): C14, F16, J30, R23
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5111

We develop a methodology for identifying departures from relative factor price equality across regions that is valid under general assumptions about production, markets and factors. Application of this methodology to the United States reveals substantial and increasing deviations in relative skilled wages across labour markets in both 1972 and 1992. These deviations vary systematically with labour markets’ industry structure both in cross section and over time.