The Portland-Beaverton-Vancouver Primary Metropolitan Statistical Area includes Multnomah, Clackamas, Washington, Columbia and Yamhill counties in Oregon, and Clark and Skamania counties in Washington.
Table of Contents
Executive Summary
Prosperity refers to the economic success of the regional economy and can be measured using income data. In order to assess regional prosperity in the Portland Metropolitan region, we will consider two measures of income: aggregate regional income (Metropolitan GDP) and income for individuals and households. In addition, we will discuss poverty levels in the Portland Metropolitan region according to the federal poverty standard. To ascertain the significant income variations both within the region and between comparable regions, this paper will compare counties within the Portland Metropolitan region and discuss how Portland measures up to ten “comparator regions” in the United States.
How quickly has income grown?
In the past several years, both aggregate regional income and personal income rose in the Portland Metropolitan region. Between 2001 and 2007, Portland’s per capita personal income grew 19 percent from $32,338 to $38,511. Between 2001 and 2006, the Portland Metropolitan region’s GDP grew 34 percent from $77 billion to $103 billion.
How does the Portland Metropolitan region’s income compare to other metropolitan regions?
Between 2001 and 2006, the Portland region and its comparator regions have seen vastly different rates of Metropolitan GDP growth. The Portland region’s Metropolitan GDP grew at a rate of 34 percent compared to 12 percent for the San Jose, CA region and 67 percent for the Las Vegas, NV region. The Portland Metropolitan region has a similar Metropolitan GDP to Austin and Salt Lake City. Portland’s per capita personal income in 2006 was $38,511, which was on the lower end of the scale in terms of the ten comparator regions but still comparable to the Austin, Charlotte, and Salt Lake City regions. According to the U.S. Census American Community Survey, Portland’s median household income is $52,480—just below Austin, but higher than both Phoenix and Charlotte. The Portland Metropolitan region’s level of poverty is at the median of the comparator region group with 11.5 percent of individuals earning incomes below the federal poverty line.
How is income within the Portland Metropolitan region distributed among counties?
Income varies greatly between the seven counties in the Portland Metropolitan region. Clackamas County has the highest level of per-capita personal income at $41,378, followed by Multnomah County with $38,529. Skamania County has the lowest level of per-capita income at $28,265, while Washington County is very close to the average for the metropolitan area at $36,259.
1. How Should We Gauge Our Region’s Prosperity?
How do we know whether our region is prosperous? Although prosperity probably means different things to different people, we usually think of prosperity as economic success or vibrancy. With respect to the Portland-Vancouver region, then, prosperity refers to economic success or the vibrancy of the regional economy. Does the region’s economy provide the income, goods, and services that people need to feel satisfied with their lives? Do the region’s inhabitants feel economically secure and confident that they can live in a reasonably comfortable fashion? Are they able to enjoy some of the non-economic pleasures that contribute to quality of life? These are some of the questions we might ask as we investigate whether our region is economically prosperous.
This Metropolitan Knowledge Network Journal issue paper presents a variety of data that paint a picture of the prosperity of our region. In particular, we focus on the economic prosperity of individuals. The financial status and viability of business is certainly important to the notion of regional prosperity because businesses create value, earn income from outside the region and offer economic opportunities to individuals. We provide a discussion of business vitality and the data that describe it in a future article entitled “How Prosperous are our Region’s businesses?” This paper focuses specifically on outcome measures of prosperity, including the Gross Domestic Product of the region, personal income, money income, and poverty. A discussion of prosperity should also consider whether we are investing in the drivers or inputs to that prosperity. These drivers include innovation, human capital, infrastructure, and quality places.[1] These indicators of assets for prosperity will be explored in future articles on this site.
1.1 What Measures Are Normally Used to Determine Whether a Region Is Doing Well
Most people gauge the state of their economic well-being, at least in part, by how much income they receive. Income determines, in large part, a person’s or household’s standard of living. It determines whether they can afford to meet the basic needs of their family and whether they can purchase other goods and services that enrich their lives. However, income is only part of the prosperity equation. It is only relevant relative to cost. Thus, factors that affect a family’s cost of living, such as household structure (number of income earners, number and age of children) and location (which affects the cost of housing and transportation) also determine economic well-being.
A new set of data recently developed by the University of Washington estimates the level of earnings required for a household to meet its basic needs without government assistance. This income level, called the Self-sufficiency Standard, varies by county and household type. We must also consider the amount of time a person devotes to earning income. A person earning $40,000 per year working 40 hours per week might feel much better off than someone earning the same annual income but working one full-time and two part-time jobs in order to achieve that income. Thus, an earner’s hourly wage and the activities that a person must give up to earn an income might also enter into a person’s sense of their own prosperity.
While we consider the income of individuals, households, and families in the metropolitan region, we might also look at the region’s income in the aggregate. Regional measures of income allow us to consider the prosperity of the region as a whole, or on a per capita basis, regardless of how it is distributed. We will consider both measures of income—aggregate regional income and income for individuals and households—in discussing regional prosperity. Finally, regional income is determined, in large part, by the level and value of economic activity in the region. The Gross Domestic Product (GDP) for metropolitan regions is the total value of goods and services produced in the region. Akin to the national measure of GDP, metropolitan level GDP can be interpreted as a comprehensive measure of economic activity. At the national level, GDP is the most widely used measure of the state of the national economy.
1.2 Measures of Income
There are generally three sources of publicly available income data:
- Personal income data is collected and distributed by the Bureau of Economic Analysis (BEA).
- Money income data is collected and distributed by the Census Bureau.
- The Internal Revenue Service publishes aggregated measures of adjusted gross income of individuals.
The BEA produces annual estimates of personal income for local areas, including counties, metropolitan areas, and BEA economic areas. These estimates are designed to be consistent with the national income and product accounts, which are used to estimate Gross National Product and other national economic data. The BEA’s personal income measure is a more comprehensive measure of income than the money income measure used by the Census Bureau. As described below, personal income is the current income that is received by, or on behalf of, the residents of that area from all sources, minus their contributions for social insurance (BEA 2008).
The Census Bureau derives income information from the Decennial Census, the American Community Survey, and the March supplement of the Current Population Survey. Money income includes only money income received by individuals and excludes non-cash benefits. Poverty rates reported by the Census Bureau are based on money income. The Internal Revenue Service Adjusted Gross Income measure consists of the taxable income of individuals who filed a federal income tax return. In general, BEA estimates of personal income are higher than both the money income estimates provided by the Census Bureau and the adjusted gross income measure offered by the IRS. For more detail about these three definitions of income, see the inset below.
Three Income Definitions
Personal Income
Personal income, as reported by the BEA, is the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory and capital consumption adjustments, rental income of persons with capital consumption adjustments personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.
Money Income
The Census Bureau uses the concept of money income. Census money income is defined as income received on a regular basis (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, social security, union dues, Medicare deductions, etc. Thus, money income does not account for noncash benefits, such as food stamps, health benefits, subsidized housing, or goods produced and consumed on the farm. The Census Bureau warns users that, for many different reasons, there is a tendency in household surveys for respondents to underreport their income. Based on an analysis of independently derived income estimates, the Census Bureau determined that respondents report income earned from wages or salaries much better than other sources of income and that the reported wage and salary income is nearly equal to independent estimates of aggregate income (US Census, n.d.).
Adjusted Gross Income
Adjusted Gross Income consists of the taxable income of individuals who filed a federal income tax return. According to the Internal Revenue Service, Adjusted Gross Income is defined as taxable income from all sources including things like wages, salaries, tips, and a multitude of other sources, minus specific deductions like contributions to retirement accounts, tuition, and moving expenses, among others.
1.3 Sources of Income
Income reported by the BEA has three sources: earnings from work; income from investment; and transfer payments, which include social security, pensions, and welfare. For most people, the largest part of their income is derived from their earnings from employment. However, some regions may include a larger than average number of people whose main source of income is from transfer payments. This information is important because the economic structure of such regions can be fundamentally different than those with higher percentage of income from earnings. Thus, they may react differently than other regions to national economic trends and to economic policy.
1.4 Metro Level GDP Per Capita
The Bureau of Economic Analysis recently began calculating a gross domestic product (GDP) measure for metropolitan regions. Akin to the GDP for the nation, the metropolitan level GDP estimates the market value of all the goods and services produced in the metropolitan region. In the first release of these statistics in September 2007, these data were described as prototype statistics being released “for evaluation and comment by data users.” The methodology used to create these estimates relies heavily on industry earnings, which causes some problems that are explained in the inset below.
Bureau of Economic Analysis Produces Experimental Estimates of GDP for Metro Areas
By Amy Vander Vleit, Oregon Employment Department
The U.S. Bureau of Economic Analysis (BEA), the agency that produces estimates of state and national gross domestic product (GDP), recently added a new—yet experimental—data series to its arsenal: gross domestic product by metro area. In a nutshell, GDP measures the total market value of final goods and services produced in a given region over a specified period of time. It’s a comprehensive and widely used measure of economic activity at the state and national level. At this point the BEA is releasing the data for evaluation and comment by data users, ergo the words ‘experimental’ and ‘prototype’ attached to the data. Although it doesn’t sound as if they will discontinue the series any time soon, they might revise the data and perhaps the methodology down the road based on user feedback. The data can theoretically be used—with caution at this early stage—to answer questions such as:
- What is the size of an area’s economy?
- Is the economy growing or declining?
- How does growth in one metro area differ from other metro areas or from the nation?
- Which industries are propelling growth?
A Few (Cautious) Answers
The nation’s 363 metropolitan areas generated 90 percent of the total U.S. GDP in 2005, although the 75 smallest metro areas accounted for just two percent. The five largest metro areas were responsible for nearly one-quarter of the $12.4 trillion figure. The New York metro area alone generated $1.1 trillion, outranking all but one state (California) and nine countries. The Portland metro area kicked in an estimated $95.6 billion to the national total. That would make us the nation’s 26th largest metro area as measured by 2005 GDP.
User Beware
Much of Portland’s industry-level GDP data is suppressed due to confidentiality issues. The data that is available should be viewed with a healthy dose of caution due to the combination of BEA’s methodology and Oregon’s industry structure. GDP data is collected at the state—not metro area—level, so the BEA devised a method to allocate a state’s GDP among its metro areas. They use two data sets: statewide GDP by industry and county-level earnings by industry (which they also produce). You have one pot containing statewide manufacturing GDP, another pot with statewide retail trade GDP, etc. Each pot gets divvied up based on county earnings data for the corresponding industry. One component of GDP is investment in capital equipment (e.g. a new factory, new machinery). Manufacturers in particular spend heavily on capital equipment, especially high tech, auto makers, and oil refineries. A case in point: In 2002 and 2003, Intel spent close to $2 billion to build and equip its Hillsboro D1D plant.
Here’s the caution: BEA admits that there is a weak correlation between earnings and output for some capital intensive industries. This can result in the misallocation of a state’s GDP among its metro areas. For example: Let’s say capital spending in high tech manufacturing increased by $500 million in Oregon in 2003 due in large part to activity in the Portland area. At the same time, Portland showed a slight decline in high tech manufacturing earnings. Meanwhile, Corvallis didn’t experience any capital spending but it did see a slight increase in its high tech manufacturing earnings.
According to the BEA method, Corvallis would be allocated some, perhaps a lot, of the state’s (i.e. Portland’s) high tech manufacturing GDP. Since Oregon has a relatively large manufacturing sector, the potential for such misallocations is likely to be greater than for other states. So while this new BEA data series can be useful for many metro areas, it might present some problems for Oregon’s metro areas.[2]
Footnotes
- Brookings Institution 2008 (↩)
- More information is available at the BEA’s “GDP by State and Region” webpage. (↩)
