A publication of the Indiana Business Research Center at IU's Kelley School of Business
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Measuring Income Refined: Per Capita Personal Income Now Adjusted for Regional Price Parities

Carol O. Rogers

Anyone who uses per capita income as a comparative measure of “wealth” or spending ability may actually be excited to learn that, for the first time, it is now officially adjusted for price differences across the nation. Such an adjustment can provide us with cost-of-living-based income for any state, essentially giving us “real” personal income.

The U.S. Bureau of Economic Analysis released these first official estimates on April 24, 2014 (un-official preliminary estimates had been available for 2011). According to their release “Americans looking to move or take a job anywhere in the country can compare inflation-adjusted incomes across states and metropolitan areas.”1 Figure 1 shows the change in this real personal income (adjusted for inflation) between 2011 and 2012.

Figure 1: Real Personal Income Percent Change, 2011 to 2012

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Source: U.S. Bureau of Economic Analysis

While Indiana’s personal income is accelerating, the gap between Indiana’s per capita and the nation’s persists when using these new data. However, the difference between Indiana and the nation began to plateau in 2011 and continue with no change in 2012 (see Figure 2).

Figure 2: Midwest States Relative to U.S. Per Capita Personal Income Shown in Real Terms, 2008 to 2012

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Source: IBRC, using U.S. Bureau of Economic Analysis data

More analysis needs to be done on this new data series, but the results show promise in providing for a much more refined method of comparing incomes nationwide by taking prices into account. After all, what we pay for something makes a difference in what we need to earn.

Want to explore these data more? Visit the U.S. Bureau of Economic Analysis and look for “Real Personal Income for States and Metropolitan Areas” on the Regional Economic Accounts page.

Notes

  1. U.S. Bureau of Economic Analysis, “Real Personal Income for States and Metropolitan Areas, 2008-2012,” April 24, 2014, http://bea.gov/newsreleases/regional/rpp/rpp_newsrelease.htm.