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Rural and Urban Personal Income
by Erik A Knoder
Published Mar-21-2013

 
Oregon is known for many reasons: its beautiful coast, green forests, rain, environmental protection and, of course, low per capita personal income. Well, it may not be as well known, but per capita personal income (the average income per person) is definitely lower in Oregon than for the nation as a whole. Per capita personal income (PCPI) for the U.S was $41,560 in 2011 (the most recent data available) and in Oregon it was only $37,527.

Per capita income is a handy, but not perfect, way to describe how rich or poor the people are in a given area. It is an estimate of all the personal income that residents of an area receive divided by the area's total population, children and retirees included. It includes the wages that workers earn but also other sources of income such as dividends, pensions and Social Security payments. It is sometimes confused with average wage because the numbers are similar but per capita personal income is more comprehensive. It describes an area where people live, whereas average wage describes a quality of jobs in an industry or occupation.

In absolute terms, per capita personal income has increased over time in Oregon and the U.S. and in Oregon's metro and non-metro areas. It has also increased even after adjusting for inflation. From 1969 through 2011, inflation-adjusted PCPI increased about 72 percent in Oregon's metro areas and 58 percent in its non-metro areas. But most people are concerned with how their income compares with others, so this article generally refers to relative changes, comparing Oregon with the U.S. and metro to non-metro areas.

The Oregon Employment Department recently published a study of why Oregon's PCPI was lower than the nation's (see www.QualityInfo.org then look under publications for Why Oregon Trails the Nation) and one finding was that Oregon's non-metro areas did a little better than expected. Although Oregon's non-metro areas also trailed the national average for non-metro areas, they were closer to the national average than Oregon's metropolitan areas were to their national counterparts. This article will look at more of these non-metro versus metro differences.

Metro Versus Non-Metro Characteristics
 
In 2011, Oregon had 11 counties that made up its metropolitan areas: Benton (Corvallis); Clackamas, Columbia, Multnomah, Washington, and Yamhill (Portland); Deschutes (Bend); Jackson (Medford); Lane (Eugene); and Marion and Polk (Salem). The other 25 counties are called non-metro counties. In general, the metro counties have cities with more than 50,000 people or are adjacent to and have important connections to counties with larger cities.

Population
 
Even though only 11 counties are metro counties, they held nearly 78 percent of Oregon's population in 2011. Both metro and non-metro counties had similar percentages of youth from birth to age 17 (around 22%), but they differed in older age groups. Metro areas had more working age adults - about 64 percent of their total population was ages 18 through 64, versus only about 59 percent for non-metro counties. Non-metro counties made up this gap by having more people over age 65 - 19 percent of their population versus only 13 percent in metro counties. This is important to the PCPI calculation; the more workers a county has, the higher its income is apt to be.

Unemployment
 
Oregon's non-metro counties generally have higher unemployment rates as well. The difference between metro and non-metro has narrowed since the 1990s, but it still persists. The gap was about 1.5 percentage points before the Great Recession. Since the recession the rate in non-metro areas has been about 2 percentage points higher. Higher unemployment works to reduce an area's income since people lose earnings from jobs and must rely on transfer payments, such as unemployment insurance, which are usually lower than wages.

Graph 1
Oregon's seasonally adjusted unemployment rates
Size of Firms
 
Hand in hand with non-metro areas having smaller economies is that they tend to have smaller firms as well. This is important because larger firms, often benefitting from economies of scale, usually pay higher wages.

Table 1 shows the share of employment and average wage for different sizes of firms by number of employees in metro and non-metro areas. Non-metro firms pay lower wages on average for each size class of firm. This might be due to a lower cost of living in non-metro areas, greater transportation costs for the firms (leading to less money available for wages), or any number of reasons that can affect the supply of and demand for labor. It is noteworthy that the largest discrepancy in average wage ($13,097) is for the large firms with more than 500 employees and that the gap in employment share between metro and non-metro is also large for this group of large firms. In general, the non-metro areas have a smaller portion of their employment in firms with more than 50 employees and these firms pay considerably more.

Table 1
Share of Employment and Annualized Average Wage by Firm Size
  First Quarter 2011
(Private Industry Only)
                 
    1-4 5-9 10-19 20-49 50-99 100-249 250-500 500 +
Metro          6.9% 7.5% 9.4% 13.4% 10.2% 14.1% 9.3% 29.3%
Non-Metro      12.9% 13.0% 14.6% 17.1% 9.9% 14.0% 7.4% 11.2%
                                 
Metro          $34,035 $31,330 $33,174 $38,437 $39,034 $41,521 $43,907 $56,335
Non-Metro      $33,966 $26,160 $26,609 $29,737 $31,595 $31,306 $35,496 $43,238
Industry Structure
 
Metro area economies differ structurally from non-metro ones. One way to show the difference is to compare how much each industry contributes to the total employment of the area. Table 2 shows that metro areas tend to have relatively more of their employment in higher-wage industries at the top of the table and non-metro areas tend to have more of their employment in lower-wage industries toward the bottom of the table. In addition, every industry except natural resources and mining pays lower wages in non-metro areas. The data are for employees covered by unemployment insurance for 2011.

Non-metro areas have a pronounced lead in in their relative share in government employment. This is the only fairly well paying industry in non-metro areas in which they have a lead. It might well be considered their strong suit, even though non-metro government pay is still lower than in metro areas.

Non-metro areas also have relatively more natural resource and mining jobs, that tend to be lower paying, and leisure and hospitality jobs - the lowest paying industry.

Table 2
2011 Industry Structure
  Employment Share   Average Wage
  Metro Non-Metro   Metro Non-Metro
Information 2.1% 1.2%   $70,086 $41,108
Manufacturing 10.6% 10.0%   $64,808 $42,737
Finance 5.3% 3.4%   $55,776 $36,991
Professional & Business Services 12.3% 7.6%   $52,670 $35,956
Construction 4.2% 3.7%   $51,791 $37,780
Government 16.1% 20.9%   $48,792 $39,769
Education & Health Services 14.5% 13.2%   $44,366 $39,297
Trade, Transportation & Utilities 18.9% 19.3%   $40,904 $30,331
Other Services 3.8% 3.5%   $29,181 $20,817
Natural Resources & Mining 2.2% 5.3%   $27,536 $28,771
Leisure & Hospitality 9.9% 12.0%   $17,710 $15,587
Metro and Non-Metro Personal Income
 
Given the many differences between metro and non-metro areas in Oregon, it should be no surprise that their per capita personal income differs, too. In 2011, the PCPI in non-metro counties was $31,383 and in the metro counties it was $39,267; a difference of $7,884 (25%). The difference was due primarily to the difference in earnings from work. Metro workers earned an average of $10,941 more per person than non-metro workers that year. They paid more of their earnings to retirement programs so their net earnings were a little lower than this. Metro residents also received $1,206 more per person in dividends, interest, and rent.

Two things were in the favor of non-metro residents: they received $2,184 more per person in transfer payments, such as pensions, and more of them commuted from work in metro areas to homes in non-metro areas than vice versa. Since PCPI is based on a person's residence not where they work, an adjustment is made to count non-metro commuters' earnings in their non-metro county of residence. This added $54 to the non-metro PCPI in 2011.

Since the main difference between metro and non-metro per capita personal income is due to earnings, one obvious question is: What industries account for the difference? Unfortunately, most of the data to answer this question are confidential. The Bureau of Labor Statistics and the Bureau of Economic Analysis, who produce the data, have suppressed most industry data for the metro and non-metro areas since 2000. (More data are published for early years from 1969 through 2000.) They do publish earnings for the total of all private industry and all government enterprises. Per capita earnings for the nonfarm private sector in metro areas were $24,396 versus only $13,174 in non-metro areas. It is probable that most individual industries generate higher earnings in metro areas. That is the case for the four private industries that are published: wholesale trade, retail trade, administrative and waste management, and food services and drinking places.

The difference in earnings was much smaller for government enterprises. Metro areas received an average of $359 more per person in earnings than non-metro areas from government enterprises, but the total figure is slightly misleading. The difference for earnings from state and local governments was about $505 per person in favor of metro areas, but non-metro residents received more per person from the civilian federal government ($76), the military ($70),). The metro area advantage in state government earnings is probably influenced heavily by the state capital's location in the Salem metro area.

What's Changed?
 
With so many strikes against rural areas it might seem that they are the cause for Oregon's low per capita personal income. That's not really the case. Most of the nation's non-metro areas struggle economically in comparison to metro areas. One reason large cities exist is that they offer economic advantages. They can reduce transportation costs, capitalize on economies of scale, and allow more specialization. Although metro areas are richer, Oregon's non-metro areas generally have held their own against the national average for non-metro areas.

Graph 2 shows how the per capita personal income in Oregon's metro and non-metro areas compare to the nation's metro and non-metro areas. The PCPI in Oregon's non-metro areas historically was more than 100 percent of the nation's non-metro areas. Only in the past few years has it dipped under the national level. On the other hand, the PCPI in Oregon's metro areas has almost always been less than the national average for metro areas. From the perspective of metro versus non-metro areas, Oregon's low per capita personal income is due to historically low metro area PCPI and a more recent decline in non-metro area PCPI. In simpler words, Oregon's non-metro areas used to pull more than their weight, but they no longer do so.

In 1969, the Oregon metro areas' PCPI was 94 percent of U.S. metro areas' level; by 2011 it was down about three percentage points to 91 percent of the U.S level. Oregon's non-metro areas' PCPI was 113 percent of the U.S. non-metro areas' level in 1969. By 2011, Oregon's non-metro areas had fallen 19 percentage points relative to about 94 percent of U.S. non-metro areas.

One significant reason for the relative decline in non-metro areas' PCPI in Oregon was the employment drop in lumber and wood product manufacturing during the recessions of the early 1980s and during industry changes related to automation and conservation starting in 1988. While the PCPI for Oregon metro areas fell by $2,455 (2011 dollars) compared with the U.S. metro areas from 1969 through 2000, non-metro areas in Oregon fell by $4,157 compared with non-metro areas across the U.S. Of that non-metro drop, the loss in wood product manufacturing earnings from 1969 through 2000 accounted for $2,095.

Oregon's non-metro areas have been gaining ground from transfer income. In fact, Oregon's non-metro areas are not just gaining ground; in 2011 they actually received more per capita income from transfer income than the national average for non-metro areas. Oregon's non-metro residents received an average of $9,317 in in transfer payments versus the national average of $8,473. Nearly half the personal income in Oregon's non-metro areas is unearned income from investments and transfer payments.

The change in PCPI in Oregon's metro areas has been more complicated than that for non-metro areas. As the report Why Oregon Trails the Nation noted, there have been a variety of reasons that combined to give Oregonians lower income. Much of the increasing gap between Oregon and U.S. metro areas was due to a relative drop in earnings, but commuting, Social Security taxes, transfer payments, employer pension contributions and lower proprietor income all played contributing roles.

Graph 2
Lumber & wood product manufacturing decline led relative non-metro income drop
Summary
 
Many factors combine to make Oregon's per capita personal income lower than the nation's and that is the case when looking at its metro or non-metro areas. Two of the more important reasons for changes in PCPI are the decline in Oregon's wood products industry and the increase in non-metro areas in unearned income from transfer payments.