Previewing our new annual progress report

Don Grimes and I are wrapping work on our annual progress report on Michigan’s transition to a knowledge-based economy. Look for it in mid September. It is later this year largely because we have have added a major new section to the analysis. In past reports our focus has been on per capita income. As the metric we believe best measures economic well being of residents of a state or region. And as the best measure of how well Michigan is doing in our goal of returning Michigan to high prosperity: a place with a broad middle class.

What is brand new in the new report is data on the components that make up per capita income. We got interested in the components when we had difficulty explaining some state income growth rates that were concentrated in neither high education attainment industries nor college-educated adults. The dominant pattern we have identified with the most prosperous states and regions in the country.

Our previous analysis has been focused almost exclusively on jobs and income that comes from employment—both public and private. But it is also clear that there are other ways in which residents of states and regions earn income. Employment earnings are a major, but not the only, component of personal income. (In 2009 employment earnings were 72% nationally of per capita income.) Personal income from other sources benefits not only individuals and households, but the whole community, as folks spend their income. We decided that we could provide a more complete picture by looking at all components of what makes up personal income.

We collected data for the new report on six components of per capita income:

• Employment earnings (both wages and employer paid benefits) from natural resources (mining, agriculture, forestry, and fishing) private sector employers.

• Employment earnings from all other private sector employers.

• Employment earnings from government (local, state, federal, public schools, and public universities and colleges) employers.

• Dividends, interest, and rent.

• Transfer payments. These are payments made by government to or on behalf of individuals. They include Social Security, Medicare, Medicaid, TANF cash benefits, food stamps, veterans’ benefits, tuition support like Pell grants and subsidies for college loans, the Earned Income Tax Credit, etc. The one change we made to the official statistics is that we include farm subsidies in transfer payments (not private sector earnings).

• Social insurance taxes and residential adjustments. These are subtractions from income for taxes paid by both individuals and employers for items like Social Security, Medicare, and unemployment insurance, as well as adjustments for people who live in one state or region and work in another. The category is needed to balance income totals, but has little or no analytical value.

The new report will have data on both 2009 per capita income by component for the US, states and regions and change in per capita income corrected for inflation from 1989 to 2009. We chose 1989 as the base year because we are primarily interested in the long-term structural changes occurring in the American economy.

We are confident that readers of the new report will find this more detailed description of how the residents of the country, states and regions earn a living revealing. What we found surprised us. The data provide a more complete picture of the nation’s, states’ and regions’ economies. Turns out there are big differences between states and regions in how their residents earn a living and how that has changed over the past two decades.

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