Tuesday, November 06, 2007

The Persistent Myth about Per Capita Income Growth in Pittsburgh

Norman Robertson's "Private Sector" column in Tuesday's Post-Gazette continues to perpetuate the myth that increases in per capita income in the Pittsburgh Region are a ray of sunshine in the otherwise gloomy local economic picture. Unfortunately, as noted in a previous post, and also in a column on the topic in the Post-Gazette itself, per capita income is a poor measure of Pittsburgh's economic strength because of some unique characteristics of our region.

Our per capita income ranks high relative to many other regions because our population includes a relatively large number of senior citizens and a relatively small number of children. Children earn no income, so in regions with more children, earnings are spread across a larger population, lowering their per capita income relative to ours. On top of that, our large number of senior citizens import a lot of Social Security and Medicare benefits (which are included in the per capita income statistics), and that boosts our per capita income over other regions. There's no question that those dollars are good for our economy, but we won't be successful in the long run if we rely on Medicare to support the region.

So why do we have higher growth in per capita income than other regions? For one simple reason -- our population is declining while other regions are growing. Per capita income is the ratio of income to population. If the denominator gets smaller (i.e., population decreases), the ratio (i.e., per capita income) increases.

Here's a simple illustration. Pittsburgh ranks better on per capita income growth than Las Vegas. Why? Between 2000 and 2005, Las Vegas had the highest growth in total income of any region in the country -- a 45% increase. In contrast, Pittsburgh ranked 10th from the bottom, with only a 17% increase. Over the same time period, Las Vegas had the highest population growth in the country -- a 23% increase -- while Pittsburgh had the largest loss of population in the country -- a 2% decrease. When you take Las Vegas's 45% increase in income and divide by its 23% increase in population, you get an 18% increase in per capita income. When you divide Pittsburgh's 17% increase in income by its 2% decrease in population, you get a 19% increase in per capita income.

In other words, Pittsburgh ranks better on per capita income growth than Las Vegas because we lost population, not because incomes grew faster here. Our senior citizens with their stable and relatively high retirement incomes have stayed here, while many of our young people with their lower incomes are leaving. That's not something to be happy about.

As noted in a separate post, recent changes in the labor force and unemployment suggest this trend may be continuing and even accelerating. Over the past nine months, Pittsburgh had the largest percentage reduction in its labor force among any of the top 40 regions.

The true measure of Pittsburgh's economy is its job growth, and we are not doing well there at all. We need to focus on getting jobs growing here, and not be lulled into complacency by misleading per capita income growth statistics.


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