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Minnesota’s lags the U.S. average on Personal Income growth but leads on transfer income growth

Today, the Bureau of Economic Analysis (BEA) released figures for Personal Income by state for the second quarter of 2019. The BEA defines Personal Income as

the income received by, or on behalf of, all persons from all sources: from participation as laborers in production, from owning a home or business, from the ownership of financial assets, and from government and business in the form of transfers. It includes income from domestic sources as well as the rest of world.

These figures showed that, from the first to the second quarter, annualized growth in Personal Income was 5.4% for the United States and 5.2% for Minnesota. Overall, our state ranked 22nd for Personal Income growth, as Figure 1 shows.

Figure 1: State Personal Income, Percent Change at Annual Rate, 2019:Q1-2019:Q2

Source: Bureau of Economic Analysis 

In per capita terms, Personal Income growth in the United States was 4.8% from the first quarter to the second quarter of 2019 compared to 4.5% in Minnesota. That ranked our state 28th overall, as Figure 2 shows.

Figure 2: State Personal Income Per Capita, Percent Change at Annual Rate, 2019:Q1-2019:Q2

Source: Bureau of Economic Analysis 

How does the growth in income categories – labor income, dividends from owning a home or business or the ownership of financial assets, and from government and business transfers – compare between Minnesota and the United States generally?

Figure 3 shows that, from the first to the second quarter of 2019, Personal Income from labor rose faster in the United States than it did in Minnesota, by 4.4% compared to 3.7%. Minnesota had a slight edge in dividend income growth, 8.1% to 8.0%. But, when it comes to transfer growth, Minnesota had a notable lead, by 7.7% to 6.1%. These transfers – which include things like Social Security – accounted for 19% of Personal Income growth nationally in this period, compared to 23% in Minnesota.

Figure 3: State Personal Income by Source, Percent Change at Annual Rate, 2019:Q1-2019:Q2

Source: Bureau of Economic Analysis 

An aging population and increased Social Security spending might mean that income from transfers will increase. But it is a source of concern that it is increasing so much faster in Minnesota. For income to be transferred, someone must first earn it. For transfers to account for a growing share of incomes, is not sustainable.

John Phelan is an economist at the Center of the American Experiment. 

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