What’s Driving Personal Income Growth in States

It's not always higher earnings.
by | April 3, 2018
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Growth in personal incomes picked up in most states last year as workers took home bigger paychecks.

Nationally, per capita personal income increased 2.4 percent between 2016 and 2017, according to data released by the Bureau of Economic Analysis (BEA). Western states continued to lead the rest of the nation, while much of the Plains states saw only meager increases. Incomes declined in two states -- Iowa and North Dakota.

The largest per capita increase was seen in California, where incomes rose 3.5 percent. That’s partly because of minimum wage hikes at the state level and in several localities. The state’s economic growth also outpaces most others, propelled by strong technology, warehousing and construction sectors.

“The gains have been broad-based as they’ve been in southern California as well as the Bay Area,” says Stephen Levy, who directs the Center for Continuing Study of the California Economy.

But the state is subject to a few headwinds. Levy says potential federal policy changes could have major effects on California’s heavy reliance on foreign trade and its large immigrant workforce.

Hawaii, Washington state and West Virginia also experienced steep increases in per capita personal income last year. While expanding economies propped up some states, others benefitted from higher government benefits or investment earnings. Louisiana and Wyoming reported larger increases by virtue of rebounding from losses in 2016.

 

 
 

Personal income is made up of three components: net earnings, property income and transfer receipts (primarily government assistance). Earnings was responsible for the bulk -- about two-thirds -- of the increase nationally.

Additional BEA data shows how each of these sources of income contributed to growth across states. Increases largely reflect areas with population growth, given that they’re expressed as totals rather than per capita rates described previously.

 

Net Earnings

Nationally, total net earnings increased 3.1 percent.

Idaho posted the top net earnings gain -- 5.3 percent -- last year. Many of the state’s industries had significant earnings growth, with the two largest coming in farming and management of companies/enterprises, according to BEA data. Census population estimates published late last year also identified Idaho as the fastest-growing state.

Washington state residents’ earnings climbed at a similar pace, driven largely by wage gains in retail trade and the information sector. Many of these workers received a raise from a ballot measure that pushed up the state’s minimum wage from $9.47 to $11 last year.

Meanwhile, net earnings dropped slightly in Alaska and North Dakota, mostly a result of struggling energy sectors.

 
 
 

Property Income

Total property income -- which is comprised of rental, dividend and interest income -- climbed 3.3 percent last year, up from 1.2 percent in 2016. Those gains largely stem from the performance of the stock market.

All states reported at least slight increases. The biggest gains -- of at least 4 percent -- were seen in California, the District of Columbia, North Dakota and Washington state, while the smallest gains were in Kentucky, Indiana, Rhode Island and Wisconsin.

 
 
 

Transfer Receipts

Nationally, total transfer receipts increased 3 percent in 2017 -- about the same as the year before. But states experienced wide variation.

Transfer receipts reflect government assistance, such as Medicare and Social Security, and retirement benefits from private employers.

Louisiana’s total jumped 8.3 percent for the year -- the most of any state by far. The state's Medicaid transfers alone rose $2.4 billion after it expanded coverage in 2016.

Florida and Nevada also reported sizable gains as more retirees relocated to those states. Disaster relief assistance following Hurricanes Harvey and Irma also contributed to additional transfers in a few states.

One state that’s becoming increasingly reliant on transfer income for revenue is West Virginia.

The coal industry and renewed growth in natural gas production helped boost the state’s economy last year. But its per capita personal income remains one of the lowest, second only to Mississippi, with relatively few high-paying sectors and an aging population.

“There’s no doubt that the recession we suffered ended, and we’re growing again,” says John Deskins, director of the Bureau of Business and Economic Research at West Virginia University. “But we think the growth is still going to be weaker than we’d hope.”

Another compounding factor, Deskins says, is that some rural counties are experiencing population losses as young people move away.

Only Illinois, Iowa and New Mexico reported declines.