Markets, politics and inequality: Earnings and 'low-road' economic development strategies, 1970 to 2000

This study examines trends in earnings and inequality in the United States during a thirty-year period of economic restructuring from 1970 to 2000. The focus of this analysis is identifying the effects of state and local economic development policies, which I argue constitute a sub-national political economy overlooked in previous studies. Using statistical techniques designed to distinguish the sources of earnings variation over time and across places, I examine trends in earnings inequality in a sample of 81 metropolitan areas from 1970 to 2000. By examining the disparate earnings and inequality trends in metropolitan labor markets, and how they are shaped not only by supply and demand factors, but also by state economic development policies, I identify local institutional sources of national trends.; I show that variation in local political economic institutions shapes earnings restructuring, but in somewhat unexpected ways. Labor markets in states with stronger institutions and higher tax burdens are more equal in 1970, but experience sharper growth in inequality. Conversely, labor markets in states with weak institutions and more 'favorable' business climates experience relatively mild growth in inequality, and are more equal than their strong institution counterparts by 2000, mainly because low-wage earnings grow more quickly here over the thirty-year period. State right-to-work laws are robust markers for these two types of political economy, which I refer to as "low-road" and "high-road" development strategies. Right-to-work laws yield distinctive low-wage earnings trajectories even when the late development of the Southern states is taken into account.; Steeper low-wage earnings growth in right-to-work labor markets is a product of three interrelated dynamics: economic convergence, the "low-road" strategies of Northern manufacturing firms, and occupational upgrading among African Americans. The growth of low-wage service industry jobs improved opportunities for workers in right-to-work states, but represented a relative decline in opportunities for workers elsewhere. Northern manufacturing firms moved jobs to right-to-work states during this period to capitalize on weak unions and low wages. And, most importantly, the movement of African American workers from blue-collar to white-collar jobs in right-to-work states improved low-wage earnings.