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Personal Income and the Cost of Living in Oregon
by Nick Beleiciks
Published Mar-8-2013

 
Oregon's per capita personal income (PCPI) level is low relative to the nation. The 2010 report Why Oregon Trails the Nation: An Analysis of Per Capita Personal Income identified some of the significant causes of Oregon's low PCPI. The report also mentioned how Oregon's lower cost of living accounts for some of the state's gap with the nation. This makes sense because the average Oregonian with a personal income of $36,300 can consume more goods and services and afford a bigger apartment in Oregon than they could with that same income in a high-cost area like New York.

Accounting for the cost of living makes it easier to use PCPI to compare the economic well-being of people living in different regions. A 2012 study by the Bureau of Economic Analysis (BEA), Regional Price Parities for States and Metropolitan Areas, 2006-2010, tries to do so using survey data about consumer prices and rent expenditures. The study confirmed that regions with high per capita personal income tend to have high price levels and those with low per capita personal income tend to have lower price levels. The study also found that state PCPI levels were closer to the national average after adjusting for differences in consumer prices and rents.

The price-adjusted PCPI figures created by the BEA narrow the personal income gap between Oregon and the nation, but Oregon's rank relative to other states falls after the adjustment. The Portland area's adjusted PCPI is nearly equal to the average U.S. metropolitan area, but Oregon's other metro areas and non-metro areas remain below U.S. averages.

Closing the Income Gap
 
Oregon's per capita personal income, the annual sum of all resident income in the state divided by the number of residents, was $36,300 in 2010. That's $3,600 (9.0%) less than the national figure of $39,900. Oregon's per capita personal income gap with the nation has generally been growing since 1996 and the growing gap concerns state policy makers and economists. The price-adjusted PCPI from the BEA shows how much of the current gap reflects a lower cost of living in Oregon relative to the rest of the nation.

Oregon's prices were 2.5 percent lower than the national average between 2006 and 2010. When Oregon's 2010 PCPI is adjusted to account for the lower prices in the state, it is equivalent to adding $1,100 to the figure. The resulting adjusted PCPI is $37,400 and the gap between Oregon and the U.S. narrows to $2,500 (6.3%). The lower cost of living in Oregon accounts for 31 percent of the difference between Oregon and U.S. PCPI levels.

Oregon's PCPI Rank Falls When Adjusted for Prices
 
The BEA's report published adjusted PCPI levels for each state. Oregon's 2010 PCPI prior to adjustment ranked 33rd highest among the states. Adjusting for lower relative prices in all states shuffles their relative ranks, and Oregon's adjusted PCPI falls to 35th highest (Table 1).

The BEA estimates that the Oregon regional price parity (RPP) index for all items was 97.5 during 2006-2010. The average for all states was 100.0. Oregon's RPP ranked 23rd highest among the states, meaning that the cost of living was higher in 22 other states than it was in Oregon.

The highest prices were in Hawaii, District of Columbia, New York, New Jersey, and California. The states with the lowest prices were South Dakota, North Dakota, West Virginia, Missouri, and Mississippi. For the most part, these states followed the pattern of high PCPI and high prices or low PCPI and low prices. Two states were interesting outliers. Hawaii's PCPI was ranked a relatively high 18th in 2010, but since it has the highest cost of living, the Aloha State's price-adjusted PCPI ranked just 45th in the nation. North Dakota's PCPI was ranked a relatively high 11th in the nation, but since it has the second lowest cost of living (behind South Dakota), the Peace Garden State's price-adjusted PCPI ranked 3rd highest in the nation.

Oregon's PCPI is often compared with neighboring states because the PCPIs of Washington and California are both above the national level. After adjusting for the cost of living, Washington is the only neighbor with a PCPI higher than the national average (Graph 1). Read more about PCPI in Oregon and Washington in Per Capita Personal Income: Oregon and Washington Comparisons on QualityInfo.org.

The clarity that using price adjusted figures provides when comparing the income levels of two regions is dramatic when it comes to Oregon and California. California's PCPI was $42,500 in 2010, a full $6,200 above the Beaver State's PCPI and 7 percent above the national level. After adjusting for the higher prices that residents pay for rent and consumer goods and services in California, the Golden State's PCPI loses its luster. California's price-adjusted PCPI of $38,500 is 4 percent below the national level and just $1,100 above Oregon's adjusted PCPI.

Table 1
Oregon's Rank Among States Falls After Adjusting for Prices
(Top Five, Oregon, and Bottom Five Ranked States)
  2010 PCPI   Adjusted 2010 PCPI
District of Columbia $70,700   District of Columbia $61,400
Connecticut $54,200   Connecticut $49,200
Massachusetts $51,300   North Dakota $48,700
New Jersey $51,100   Massachusetts $47,900
Maryland $49,000   Wyoming $47,200
       
Oregon (Rank = 33rd) $36,300   Oregon (Rank = 35th) $37,400
       
South Carolina $32,500   Mississippi $35,500
Kentucky $32,300   South Carolina $35,300
West Virginia $32,000   Arizona $34,700
Idaho $31,900   Idaho $34,200
Mississippi $31,100   Utah $34,100
Source: U.S. Bureau of Economic Analysis
Graph 1
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Incomes and Prices are Higher in Metro Areas
 
Metropolitan statistical areas tend to have higher income levels than nonmetropolitan areas. Oregon's nonmetro area PCPI is 20 percent lower than Oregon's combined metro areas, and the U.S. nonmetro area PCPI is 23 percent lower than the U.S. combined metro areas. Adjusting for the lower cost of living in nonmetro areas reduces the gap significantly at the national level, but less so in Oregon. The price-adjusted PCPI for nonmetro areas is 16 lower percent in Oregon and 11 percent lower nationally.

Table 2 shows the PCPI levels, the regional price parity used by the BEA to measure price level differences across regions, and the price-adjusted PCPI for Oregon's individual metro areas and Oregon's entire non-metro area.

After adjusting for lower rents and prices, the Portland-Vancouver-Hillsboro area's adjusted PCPI of $40,400 is similar to the national metropolitan area PCPI of $40,700. Oregon's other metro areas and non-metro area incomes remain lower than the U.S., even after adjusting for local prices.

Table 2
Portland's Adjusted PCPI Near the U.S., All Other Areas Less
  2010 PCPI Regional Price Parity Adjusted 2010 PCPI
All States $39,900 100.0 $39,900
Metropolitan Area $41,500 102.3 $40,700
Nonmetropolitan Area $31,800 88.3 $36,300
     
Oregon $36,300 97.5 $37,400
Metropolitan Area $38,000 98.3 $38,800
Bend $36,400 96.9 $37,800
Corvallis $37,300 97.5 $38,500
Eugene-Springfield $33,300 95.2 $35,100
Medford $34,200 96.0 $35,800
Portland-Vancouver-Hillsboro $39,800 99.1 $40,400
Salem $33,100 96.1 $34,600
Nonmetropolitan Area $30,400 94.0 $32,500
Source: U.S. Bureau of Economic Analysis
Price Parities by Expenditures Class
 
As mentioned above, Oregon prices are 2.5 percent lower than the all states average. The regional price parities used by the BEA to make such comparisons are calculated using price level data from the Consumer Price Index program, expenditure data from the Consumer Expenditure Survey, and rent expenditures from the American Community Survey. Using the combined data sources, the BEA created price parity indexes for various expenditures, allowing analysis of which items cost more or less in a particular state.

In Oregon, rents are about 7.3 percent lower than the national average (Graph 2). Hawaii had the highest rents and West Virginia the lowest. According to the BEA, rents have a proportionally higher impact on the price parities than any other single expenditure and have a larger range among regions than other items. For example, rents in Hawaii are 130 percent higher than rents in West Virginia.

Graph 2
Oregon's price parities relative to the all states average
Conclusion
 
Oregon's per capita personal income continues to trail the nation and the growing gap is a concern to policy makers and economists. Adjusting PCPI for the lower cost of living in Oregon closes the gap by nearly one-third, largely due to lower rents in Oregon. Oregon's relative rank among states falls two slots after adjusting all state PCPIs to regional prices. Within Oregon, adjusting for regional prices confirms that the Portland area's PCPI is similar to the nation, while all other areas are below national averages.