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.
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.
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.
|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|
|Oregon (Rank = 33rd)||$36,300||Oregon (Rank = 35th)||$37,400|
|Source: U.S. Bureau of Economic Analysis|
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.
|Portland's Adjusted PCPI Near the U.S., All Other Areas Less|
|2010 PCPI||Regional Price Parity||Adjusted 2010 PCPI|
|Source: U.S. Bureau of Economic Analysis|
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.