Last week, we noted that the total wages paid in the District are stagnant. This is because average wage and salary earnings in the city are declining.  But our tax collections from wage and salaried District residents–whether the wages are earned in the District or elsewhere–continue to improve.  This we know, because, the amount of taxes withheld from the wages and salaries of District’s residents have been  growing much faster than total wages and salaries paid in the District. Here is the data:

• Withholding grew by 5 percent in 2014 and by 8 percent on average in the last four years.
• In contrast, total wages paid in the District to all workers (D.C. residents or not) grew by an average of 2 percent in the last four years, and did not grow at all in 2014.
• The wages earned by the District residents in the District did slightly better, averaging 4 percent in the last four years, but this is still lower than withholding growth.

How do we explain this?

The answer is, once again, in the demographic change. In early 1990s, when the nation emerged from the 1991-92 recession rather quickly, the District economy continued worsen: first, residents were still leaving the city and the District’s population continued to decline through 1998. Second, the federally engineered recession that lasted through late 1990s drew businesses away. As a result, the District’s finances continued to worsen even though the general economic climate was improving across the region.

The trend is now the opposite. District residents’ wage and salary earnings remain robust even though the average wages paid in the city is declining. This is because more DC residents now work outside the District (especially in Maryland and Virginia) and  more DC residents occupy the jobs in the District, reducing the commuter bite out of the income earned in the District. Thus, rather than flocking the suburbs to commute to the jobs in the District, more people are choosing to live in the District, commuting to jobs in Virginia and Maryland.