As we do in our annual economy reports, Prof. Johnston broke Personal Income down into its three components, income from:
(i) employment, (ii) certain gains from businesses and financial assets, and (iii) government transfer payments such as Social Security and unemployment insurance
Looking at the recently released data for the third quarter of 2021, Prof. Johnston wrote:
If we examine the three sources of personal income, we see that net earnings for Minnesotans grew 9 percent, compared to 9.3 percent for the nation, while dividends, etc. grew a bit higher than that national average (3.4 percent versus 3.3 percent).
The big difference is in the third category: transfer receipts. Nationally, these fell 15.6 percent in the third quarter as the U.S. labor market improved and unemployment compensation fell. Minnesota did even better: because the state unemployment rate fell further and faster than the national rate, transfer receipts (in particular, unemployment compensation) to Minnesotans fell 21.1 percent. Thus, overall, the decrease in unemployment payments reduced the growth rate of personal income and made Minnesota’s economic performance look worse than it really was. In brief, Minnesotans were earning more through work and investment and less through unemployment insurance.
This was true in December, but only as far as it went. It deals with Personal Income and its components in the aggregate, not on a per capita basis. And, of course, it takes no account for inflation. What do we see if we update Prof. Johnston’s analysis by adding another quarter, and adjusting for population and inflation?
Using the first quarter of 2020 as our base — the quarter when real terms, per capita Net earnings by place of residence peaked — we see, in Figure 1, that per capita Personal Income is falling in real terms. Indeed, it is falling faster in Minnesota than in the United States generally.
Figure 1: Real per capita Personal Income growth (2021:Q4$)
What is causing this? Figure 2 breaks down the real terms changes in per capita Personal Income by components, grouping labor and capital income together. We see two big spikes in transfer income growth, the result of COVID-19 fiscal support measures. But we also see that in real terms, per capita Personal Income derived either from employment (labor) or “certain gains from businesses and financial assets” (capital) has been more or less flat since the first quarter of 2020. Indeed, in Minnesota it is slightly below the level it was at then.
Figure 2: Real per capita Personal Income growth by component (2021:Q4$)
Yesterday, the Biden administration said:
You occasionally come across people arguing that the economy is doing great and wondering why ordinary Americans aren’t feeling it. These numbers tell you why: for two years, what real income growth people have seen has come almost entirely from government handouts, which are now being wound down. If Americans don’t feel better off, that’s because they aren’t.