The Appalachian region is one of the most persistently poor areas of the United States. A focal explanation for the weak economic performance over the years is the fact that Appalachia has long lagged behind other regions in terms of the supply of skilled workers, particularly those with higher levels of education attainment, and this lack of skill has perpetuated poverty in the region. In recent decades, however, residents of Appalachia have begun to narrow the gap in education attainment. To what extent this relative skill upgrading in Appalachia has translated into higher wages and reduced wage inequality across regions of the country depends on changes in the relative returns to skill. Knowledge of how regional differences in skill levels and returns to skill translate into regional differentials in economic inequality and development is needed for a better understanding of widening inequality. This report uses data from the 1980-2000 Integrated Public Use Microdata Samples (IPUMS) of the Decennial Census to decompose changes in the wage levels and distributions of men and women within and outside Appalachia over the past two decades. Evidence indicates that while still lagging behind the United States as a whole, the Appalachian region has shown some social and economic convergence toward the United States during the last decade. The convergence appears to be primarily in the direction of decreased income inequality and high school graduation rates. Income growth in Appalachia has generally kept pace with the United States, but average income levels are still below those of the rest of the nation. (Contains 1 footnote, 13 figures and 15 tables.)