Editor’s note: This article is a quarterly update of the state’s Personal Income Indicator for Pew’s Fiscal 50 Project.
Total personal income rose in every state in the second year of the COVID-19 pandemic as the economy continued to recover, with Idaho and South Dakota recording the largest gains. Americans’ labor income, which accounts for the bulk of personal income, recorded the largest annual increase in more than two decades. Federal and other state aid also contributed to state gains, surpassing strong 2020 levels.
Total personal income rose in all states in 2021 as the economy largely followed an upward trajectory after severe losses early in the pandemic. Nationally, the sum of personal income from all sources increased by 3.1% compared to 2020, taking into account inflation.
Income, which includes labor wages plus additional compensation such as employer-sponsored health benefits, and business profits, drove much of the growth after a flat 2020. . more than two decades – as wages rose and employment approached pre-pandemic levels by the end of the year. In Nevada and New Hampshire, annual earnings growth exceeded 7%, while only Alaska suffered a decline.
Government aid also contributed to states’ gains, fueled by the American Rescue Plan Act’s injection of a third round of economic impact payments in the first quarter of 2021. Aid has since declined each quarter. following, resulting in a 4.1% annual increase beginning in 2020. Government assistance from all sources, which also includes Social Security, Medicare, state unemployment insurance, and other safety net programs, increased in 2021 in all but six states from already high 2020 levels.
Idaho had the highest total annual growth in personal income in the country – 5.3%, after adjusting for inflation. Big gains in construction, retail and other industries boosted total revenue, while the state also saw one of the largest increases in government aid. South Dakota (5.1%) also benefited from strong growth in government aid and worker incomes as farm incomes soared. Other states with the largest annual increases include Florida and Nebraska (both 5%) and New Hampshire (4.7%). Vermont (0.3%) and Michigan (1%) saw the weakest growth for the year, as higher work-related income was partially offset by lower government assistance income.
State personal income summarizes all money residents receive from work, certain investments, income from owning a business and property, and government assistance, including additional federal assistance provided in response to the pandemic, as well as employer or government benefits. Other measures should be used to approximate individual income growth, such as personal government income per capita or household income. The data presented here is not intended to provide an overall assessment of state economies, as other economic measures should be considered.
Growth in the fourth quarter of 2021
Total personal income in the fourth quarter of last year increased from the same quarter in 2020 in about two-thirds of states, climbing at an annualized rate of 1.2% nationally. Combined labor incomes have increased in most states, despite the emergence of the Omicron variant of the coronavirus. Nine states saw declines, including South Dakota, Iowa and a few other states that saw substantial declines in farm income from high levels in the fourth quarter of 2020.
Personal state income has fluctuated significantly during the pandemic, reflecting the timing of multiple rounds of pandemic-related federal aid. In the fourth quarter of 2021, total government assistance was little changed from the same quarter a year earlier. Additional revenue from the expansion of the Child Tax Credit, which helps working parents with childcare costs, offset much of the drop in unemployment insurance payments related to the pandemic.
Year-over-year results for the fourth quarter of 2021 are based on estimates and are subject to revision, as is Pew’s ranking of state personal income growth rates.
State highlights since the start of the COVID-19 recession
Since the pandemic hit, states have largely avoided a sharp drop in personal income through several rounds of federal support for individuals and businesses. In the fourth quarter of 2021, nearly every state’s personal income was up from pre-pandemic totals, with a group of mostly Western states seeing the largest gains.
A comparison of states’ total inflation-adjusted personal income based on annualized growth rates, between the fourth quarter of 2019 – before the pandemic and recession – and the fourth quarter of 2021 shows:
- Idaho leads all states with growth equivalent to 4.5% each year since the start of the pandemic, followed by Arizona (3.9%), California and New Hampshire (3, 8%) and Utah and South Dakota (3.7%).
- Idaho, Utah and several other states with the largest gains enjoyed robust population growth, a trait typically associated with a large labor force and economic expansion.
- Wyoming (-0.7%) and Alaska (0%) posted the weakest performance, in part due to revenue losses in their energy sectors.
- Government assistance remained well above pre-pandemic levels in the fourth quarter in all states, led by Kentucky (10.7%) and Nebraska (10.6%). In 10 states, total personal income would still have been slightly lower than pre-pandemic totals without high levels of government assistance. (Download the data to see state growth rates for total revenue and government transfer payments.)
Pandemic Relief and State Records
State personal income is important to state governments not only because it helps gauge the economic well-being of its residents, but also because changes in resident income can indicate that tax revenues and spending demands are likely to increase or decrease, with repercussions on state budgets.
Shortly after the pandemic began, the huge spike in total personal incomes in every state was driven not by economic growth, but by increased public relief funds — particularly from the federal government — which have been provided to individuals and businesses. The extra money residents were able to spend helped support state economies disrupted by the pandemic and recession and also generated state tax revenue, either through sales taxes on purchases or taxes. income taxes in states that tax unemployment checks.
This analysis is an update of the Pew Personal Income Indicator. State personal income is one of several indicators that are part of Pew’s Fiscal 50 Project that tracks key fiscal, economic and demographic trends.
What is personal income?
Personal income summarizes residents’ paychecks, social security benefits, employer contributions to pension plans and health insurance, income from rent and other assets, and benefits from assistance programs public services such as Medicare and Medicaid, among others. Personal income excludes realized or unrealized capital gains, such as those from stock market investments.
Federal officials use state personal income to determine how to allocate state support for certain programs, including Medicaid. State governments use personal income statistics to project tax revenues for budget planning, set spending limits, and estimate utility needs.
Several issues influence the state’s personal income, many of which are beyond the immediate control of policy makers. Some of the most critical factors include national and global economic conditions, business cycles of a state’s major industries, demographic trends, and investments made over decades.
Personal income growth should not be interpreted solely as wage growth; wages and salaries make up about half of US personal income. Similarly, growth in total personal state income should not be taken as a measure of changes in the income of average residents.
Examining the state’s gross domestic product, which measures the value of all goods and services produced in a state, would yield different insights into states’ economies.
Download the data to see state-by-state personal income growth rates from 2019 through the fourth quarter of 2021. Visit Pew’s interactive resource “Fiscal 50: State Trends and Analysis” to sort and analyze data for other health indicators state budget.