Significant causes of Oregon's low per capita personal income relative to the nation likely include:
- Lower industry wages.
- Lower earnings by proprietors.
- A fast-growing population.
- Lower wages in high-paying occupational groups.
- A net outflow of commuter wages.
- Higher unemployment rate and lower employment-to-population ratio.
- Shorter average workweek and more part-time work.
Total personal income includes three major components:
- Net earnings by place of residence (examples: wages and salaries, employer contributions to pensions and insurance, proprietors' income)
- Dividends, interest, and rent (examples: interest income, corporate dividends, rental income)
- Personal current transfer receipts (examples: retirement and Medicare benefits, income maintenance programs, unemployment insurance benefits)
The $146.8 billion total personal income received by Oregon residents in 2011 is simply divided by the 3.9 million people living in Oregon to calculate the PCPI, which is shown in Figure 1.
|How is Oregon's 2011 Per Capita Personal Income Calculated?|
|PCPI =||Earnings by Place of Residence + Dividends, Interest, and Rent + Transfer Receipts|
|$37,909 =||$89.8 Billion Earnings + $27.7 Billion Dividends, Interest, and Rent + $29.3 Billion Transfers|
|3,871,859 Oregon Residents|
Oregon's PCPI was consistently above the national level from 1938 to 1956, when incomes were bolstered by defense manufacturing for World War II and the post-war economic boom. In 1943, war-related manufacturing propelled Oregon's PCPI to 125 percent of the national level, the highest Oregon's PCPI has ever been relative to the nation (Graph 1).
In the late 1970s, a booming manufacturing sector, including the important wood products industry, helped return Oregon's PCPI to above U.S. levels between 1976 and 1979. The boom was relatively short-lived, and the national recessions of the early 1980s were especially tough on Oregon's economy. Employment in wood products and construction was hit hard, and by 1982 the state's PCPI fell to just 93 percent of the U.S. level.
After a decade of low PCPI, Oregon was bolstered by employment growth in construction, high-tech manufacturing, and growing trade with Asia. The gap in PCPI between Oregon and the U.S. was at its smallest point in recent years in 1996. Then the Asian financial crisis struck in 1997 and exports to Asia fell. At the same time, some high-paying industries like electronic instrument manufacturing and paper manufacturing began moving significant portions of their operations out of state.
The state's PCPI growth was slower than the nation's in 10 out of the 15 years since 1996, causing the gap to widen to its current level. Three factors seem to be the most significant contributors to Oregon's growing gap with the nation: lower earnings, lower proprietor income, and fast population growth.
A significant part of the gap in Oregon's PCPI relative to the nation is due to industry wages. The majority of Oregon industries pay less than their national counterparts. If national wages could be applied to Oregon's industry structure, the state's gap with the nation would close by about 4 percentage points.
Another factor contributing to Oregon's lower earnings is the pay structure of Oregon's occupations. Workers in the state's lower earning occupations tend to be paid more than their national counterparts, and the occupational median wage is slightly above the national median, but wages in Oregon's higher paying occupations lag behind the nation. For instance, wages for life, physical, and social science occupations in Oregon average about 91 percent of the national wage for these occupations. Similar trends hold for legal occupations, business and financial operations, management, and computer and mathematical science. Lower pay in these high-wage jobs contribute to lower industry wages.
Oregon also has more part-time workers and a shorter average workweek than the nation, two intertwined factors that also contribute to lower earnings. In 2010, Oregon had the second highest rate of workers who usually work part time. Two-thirds of part-time workers were part time voluntarily. The other third were working part-time due to slack work or business conditions, an inability to find full-time work, or issues with child care.
Oregon's high unemployment rate and many available workers put downward pressure on wages, leading to lower earnings and lower PCPI. Oregon's unemployment rate has long been above the national rate, regardless of whether the economy is in recession or expanding. In 2011, Oregon's average unemployment rate was 9.5 percent, compared with the nation's 8.9 percent.
High unemployment in Oregon also contributes to a lower employment-to-population ratio, as do a higher portion of retirees, and a larger share of the population that chooses not to work. Oregon's lower rate of wage earners in the population negatively impacts PCPI. Oregon historically had a higher employment-to-population ratio than the U.S., but the last couple of years they've been about the same. Between 1996 and 2011, Oregon's ratio declined from 65 percent to 59 percent. The U.S. employment-to-population ratio also declined during this period - from 63 percent in 1996 to 58 percent in 2011.
|Components of Per Capita Personal Income, 2011|
|Dividends, interest, and rent||$7,147||$7,037|
|Personal current transfer receipts||$7,574||$7,495|
Proprietors' income includes corporate directors' fees, income from sole proprietorships, partnerships, and tax-exempt cooperatives. If Oregon proprietors earned the same income as the national average, Oregon's total personal income would rise, and Oregon's PCPI gap would narrow by more than 2 percentage points.
It's difficult to figure out why Oregon's proprietors earn less. Part of the difficulty has to do with the estimation of proprietors' income. More than half of nonfarm sole-proprietors and partnership income is an income misreporting adjustment that tries to account for income that is not reported on tax returns. This is estimated nationally and distributed to states based on net receipts by industry. Other sources of proprietors' income, such as inventory valuation and capital consumption are also estimated at the national level and distributed to states based on tax records.
To the extent that people moving to Oregon are young adults early in their careers or retirees without wage income, the in-migrants would put downward pressure on PCPI. Oregon PCPI in recent years may have been a "victim" of the state's attractiveness, and a resulting population influx, particularly by those without incomes significantly higher than the Oregon average.
The relationship between population growth and economic growth is complex, but an overly simple calculation suggests that if Oregon's total personal income grew as it did between 1996 and 2011 but the population grew at the same pace as the nation, Oregon's PCPI gap would be 2.8 percentage points smaller.
Out-of-state workers took home $2.6 billion in earnings more than Oregonians who work out of state were bringing back into the state in 2011, and these earnings were counted in the commuters' home state. If the flow of commuter earnings in and out of the state were even, Oregon's PCPI gap would be about 1.6 percentage points smaller.
- Much slower population growth.
- Faster growth in compensation per job.
- Concentration and growth in high-paying industries.
- Lower unemployment rates.
- Fewer part-time workers.
States with the highest PCPI levels are concentrated on the East Coast (Figure 2). These states differ from Oregon and the rest of the nation in their concentration of high-wage financial and insurance industries near New York, and professional and business services workers near the nation's capital. Wyoming's PCPI, the exception to the East Coast trend, benefited from rising energy prices during the last decade, increasing its PCPI rank from 20th in 2000 to 7th in 2011.
Other factors, however, were looked at but not found to have much impact on Oregon's PCPI. These include industry and occupational mix, the high minimum wage, federal government employment and spending, and the unionization rate.
Other factors are sometimes cited as influences on a state's PCPI level but were beyond the scope of this analysis. These factors include the share of population with higher education, investment in education and infrastructure, and the tax structure. We leave it to experts in these fields to help enlighten Oregonians on the significance of each factor.