Household Income Trends

Recent trends in household income growth vary significantly across states.

At the national level, the newly released Census data on median household income for 2002 contained few surprises. Income losses over the past two years were shown to be somewhat mild relative both to job losses as well as to the income losses experienced during recent downturns.

Several mitigating factors have shielded household incomes in recent years. Workers who have not lost their jobs have clearly benefited from tax cuts as well as from rapid gains in productivity and the value of non-wage forms compensation such as health insurance.

While income losses have been somewhat mild for the nation as a whole, several states have seen significant declines over the past two years. Looking at median household incomes in the 2000-01 period relative to the 2001-02 period, the Census found that ten states and the District of Columbia have experienced significant income losses.

Household incomes in the Midwest region were hardest hit, with four states (Illinois, Michigan, Missouri and Ohio) experiencing declines. Of the remaining states that lost income, three were in the South (Florida, Mississippi and North Carolina), and three were in the West (Hawaii, Nevada and Oregon). Only one state, Oklahoma, with its large oil and defense industries, gained income over the sample period.

It is somewhat surprising that no state in the Northeast registered significant losses in money income over this period, since only the Midwest region experienced weaker employment growth. For Northeastern states, broader measures of household income have certainly fared worse than money income, given that households in the region tend to have relatively large asset holdings, and therefore have seen large declines in non-wage forms of income such as capital gains.

In contrast to the experience of the Northeast, in a few states, weak recent income gains appear at odds with relatively strong local labor markets. In particular, strong employment conditions in Hawaii, Florida and Nevada were unable to ward off income losses. It is possible that the dominant tourism industry in these states did not experience the rapid productivity gains seen elsewhere in the economy.

Abstracting away from migration trends, differences in productivity gains across states are likely at the root of many of the regional differences in recent household income growth. As such, the states that have seen the healthiest recent income trends may well be among those that are first to experience renewed job growth going forward.

Source: Economy.com