In its September comprehensive revisions to all states’ Personal Income, the US Bureau of Economic Analysis (BEA) reduced its estimate of District’s 2014 Personal Income by $4.2 billion to $46.0 billion, down 8.5 percent. The reductions go back ten years, telling us that the District residents have been earning less than we thought they did for almost a decade.
BEA’s revised estimates do not change the basic story that income earned by DC residents has grown over the past decade as population and jobs have grown. But the new numbers dial back considerably the proportion of the growing income earned in DC that stayed in the city.
The Personal Income calculation
To calculate Personal Income, BEA starts with income earned in the District by everybody working in the city. Earned income is wages and salaries, benefits, and proprietor’s income. BEA then makes what is called a “net resident adjustment” to obtain income earned by DC residents. The net resident adjustment involves (1) subtracting income earned in DC by non-residents (mostly commuters), and (2) adding income earned outside of DC by DC residents.
BEA 2014 revision increased by $1.7 billion the amount earned in DC, but also took $5.8 billion more away for the net resident adjustment using a new analysis of Census Bureau journey-to-work data and IRS tax filings. Revisions to the non-earnings portion of Personal Income were relatively minor.
Before the revision, income earned by the District residents (in D.C. or elsewhere) appeared to be 46.1 percent of the income earned in the District in 2014 (by residents and commuters), up from 39 percent in 2004. The revision puts the 2004 share to 38.2 percent, and 2014 share to 39.9 percent. Here is another way to look at it: before the revision, we thought that the District residents accounted for 62 percent of the increase in all income earned in the District between 2004 and 2014. With this revision, this share is now closer to 44 percent.
With these revisions, the increases in the proportion of income earned in DC staying in the city become more modest than what one might expect just by looking at the jobs numbers. From 2004 to 2014, resident employment grew 21.0 percent while wage and salary jobs located in DC increased just 11.8 percent. We have written about this before, considering explanations such as more DC residents working in higher paying jobs outside the District and more DC residents taking jobs vacated by commuters. New data gives us pause since it shows that the growth in the resident employment seems not to have been not accompanied by a similar measure of growth in incomes. We do not know why.
The difficulty of tracking income flows in DC’s changing economy.
There is nothing unusual about BEA revising its estimates as more information becomes available, but the scale of the September 30, 2015 revisions to DC’s Personal Income is unusual. The percentage revisions to DC’s Personal Income were far greater than for any state data. Over the past three years there were only 5 instances of state changes of more than 3 percent in any one year, the biggest being a 4.8% increase for Alaska in 2012. Why was DC so different? The reason is the net resident adjustment factor. Tracking the in-and out-flows among jurisdictions is one of the more difficult tasks in compiling earnings estimates, and those flows proportionately are much larger in DC than for any state. They also can be influenced heavily by the changes in job or residence location by a relatively small number of high income households.
In its latest revisions, BEA turned to the most recent American Community Survey (ACS) data available for all US counties (the average for the years 2006 through 2010), along with the most recently available IRS tax data. Accurately tracking DC’s Personal Income is likely, however, to continue to be a challenge for BEA because DC’s population and economy keep changing—and the key data sources used to determine Personal Income are available only with a considerable lag.
Revised DC Personal Income compared to the US
The new data still show that DC Personal Income grew faster than the US average from 2004 to 2014 (DC 59%, US 46%). Over the past four years, however, DC increases have been quite close to the US average, and in 2014 the 4.4% growth in the US exceeded DC by more than a percentage point.
DC’s per capita income, now estimated at $69,828 in 2014, is 52% above the US average and is still the highest in the nation (compared to states). With higher population growth, however, DC’s per capita income has also grown more slowly than the national average over the past four years.
What exactly is this data?