Which are the Most Productive State Economies?

The Economist’s Free Exchange blog has a graph comparing the productivity of state economies (measured in GDP output per hour worked) versus the extent of urbanization.  The conclusion?  More urbanized states tend to have higher productivity.  To take it a bit further, there are some highly urbanized states that are even more productive than they should be, given the extent of their urbanization.  These states (above the trend line in the accompanying graph) include Delaware, Connecticut, California, New Jersey and New York.

This raises a host of interesting issues.  Among them is the fact that one of the complaints often expressed about New York and other northeastern states is that labor is more expensive there than in the South.  This data suggests that there are good reasons for that to be the case (and that–from an economic perspective–it may make sense that New York is a high cost state).

The post highlights another aspect of this correlation between urbanization and productivity:

[Rich] cities are very expensive places to live and also happen to be places from which a lot of households are moving, the better to settle in the poorer but cheaper places below the line. Or, to wrap this all up in a sweeping economic statement: you can make people wealthy by making places wealthy OR by moving people to wealthy places. It is a very funny (and not funny ha ha) characteristic of economics, that it seems to focus overwhelmingly—indeed, almost exclusively—on trying to figure out the former, even though the historical record of success is much greater for the latter.

Indeed, in a previous post, Free Exchange suggested that the process of high productive workers moving to lower cost areas may stifle long-term US productivity growth.  The full post is here.

You can see a larger version of the graph by clicking on the image.

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