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Wage Differentials Between the States: The Effect of Region and Unionization

Prior to World War II the United States' South lagged far behind its northern counterparts in terms of industrialization and economic growth. In fact, in the 1940's Franklin Delano Roosevelt proclaimed the South "the nation's number one economic problem" (Cobb,1982). However, in 25 short years the region found itself in a dramatic spurt of economic growth that changed the region's image into the more flattering "Sunbelt" South. From 19601975 Gross Regional Product nearly doubled and industrial output more than doubled (Cobb, 1982). Dixie's growth was not only limited to domestic firms, but by the 1970's the region was attracting around half of the United States' foreign industrial investment (Cobb, 1982). By 1978, many Southern states were attracting as much as $1 billion annually from foreign investments, led by South Carolina, North Carolina, and Virginia (Cobb, 1984). Manufacturing growth continued throughout the nineties. In the beginning of the decade eight of the top ten states, in terms of new manufacturing plants, were in the South (Applebome 1996). The backward Southern states of the mid-century were now viewed as some of the best "businessclimates" in the nation. In a 1980 survey, six southern states placed in the top ten business climates and the South's overall rank was better than the Midwest and Northeast traditionally industrial powerhouses. These rankings also seemed to have a significant relationship with regional growth in manufacturing employment. The rankings took into account factors such as tax rates, unemployment compensation levels, and labor relations history. Some of the most telling factors, though, were those describing unionization numbers and wage levels. Six of the seven states with the lowest union membership and five of the six lowest weekly manufacturing wage states were in the South (Cobb, 1982). Despite this economic growth, many argue that the wages of southern workers have not jumped to the level of their non-southern counterparts. This is the problem that this paper will address. Why have wages in the South seemingly remained at a lower level than the other regions of the United States, despite economic growth? What is determining the wage across the states? Is the market determining wage or are there other factors causing wages to be artificially high in some areas and low in others?