Should High Desert Rural Communities Be Worried About Low Levels of Per Capita Personal Income?

Should High Desert Rural Communities Be Worried About Low Levels of Per Capita Personal Income?

by Damon Runberg

December 8, 2016

A popular measure widely cited by the media, policy makers, and economists’ regarding the economic health of a particular geography is an indicator called per capita personal income (PCPI). It represents the total personal income in a county, state, or country divided by its population. Personal income is much broader than just wages as it also includes income derived from owning a home or business, financial assets, and transfer payments from businesses and the government. The traditional theory goes that a high PCPI is a good thing and a low figure is bad. Ultimately, that is a bit of an oversimplification.

The most obvious way that you can raise your PCPI is by creating higher paying jobs in the local economy; a good thing. However, you can also increase your PCPI in ways that are not necessarily good for the local economy. For instance, you can increase the PCPI by decreasing your population. In particular, if you drop your youth population it can drive up the PCPI as kids don’t traditionally earn income. Or, you could attract retirees with their retirement earnings and Social Security payments. Although these two changes would result in a higher PCPI, it would be hard to make the argument that reducing your youth population and increasing the retirement age population are good for the local community in the long run. PCPI doesn’t tell us the whole story. Fortunately, the Bureau of Economic Analysis provides the components of personal income so we can see what is driving changes in local personal income.

PCPI tends to be much lower on the High Desert than for Oregon as a whole. The one exception is Deschutes County, the lone metropolitan area east of the Cascades, which had a per capita personal income around $650 higher than the state. In general, we find that metropolitan areas have higher PCPI than rural communities.

Crook, Klamath, and Jefferson counties posted some of the lowest levels of personal income per resident in Oregon. In fact, all rural counties in Central and South Central Oregon were ranked in the bottom half of counties percentile for PCPI. Jefferson County posted a particularly low PCPI of $32,180, more than $12,000 below the PCPI in neighboring Deschutes County.

Why is PCPI so low in our rural counties compared with Deschutes County? Not surprisingly, earnings are lower in our rural counties. The cost of living is lower and there are fewer high paying occupations. Based on our most recent hourly wage estimates, nearly 12 percent of Deschutes County jobs pay more than $40 per hour, many of those concentrated in health care and the professional sector. In our rural communities across Central and South Central Oregon, only around 9 percent of jobs pay more than $40 per hour. PCPI is around 20 percent lower in our rural communities than in Deschutes County, yet per capita earnings are nearly 30 percent lower. This urban/rural wage gap is the primary driver behind the lower PCPI in rural Central Oregon.

However, there is more to the story than just a wage gap. Income derived from dividends, interest, and rent is also lower in rural communities. This is income from stocks dividends, rental properties, and various other forms of interest. Income from dividends, interest, and rent was nearly $10,000 per resident in Deschutes County last year, much higher than the $6,500 per resident in our rural counties. 

The one income component that is higher in rural communities is transfer receipts. These transfer receipts are primarily government social benefits, such as Social Security, Medicare, Medicaid, and unemployment insurance. Annual transfer receipts totaled around $11,600 per resident in rural Central and South Central Oregon in 2015. That was more than $2,000 higher than per capita transfer receipts in Deschutes County. The initial impulse is to presume that folks in rural communities rely more heavily on government subsidies; however, the story behind the higher transfer receipts is a demographic one. Older residents draw a disproportionate share of transfer receipts, such as Social Security (retirement) and Medicare (health insurance program for people age 65 or older). The rural parts of Central and South Central Oregon have a higher share of their population in that 65 or older group (21%) than in Deschutes County (17%). A higher share of retirees means a higher share of transfer receipts.

There is nothing wrong with having low per capita personal income, especially if a community also has a relatively low cost of living. A family unit doesn’t need as much income in a low cost county, such as Lake, compared with a high cost county like Deschutes. The Massachusetts Institute of Technology developed a living wage calculator for each county in the nation. In general, their calculator attempts to capture the total expenses for things such as food, child care, housing, medical, etc. then uses those expenses to estimate a living wage. Their methodology isn’t perfect, but they found that a single adult needs to make around 10 percent more in Deschutes County than in Lake County due to higher living expenses. Ultimately, per capita personal income isn’t a particularly useful economic indicator as its various components reveal economic realities between urban and rural Oregon that are mostly common knowledge.