Personal Income/Wages and Salaries
A strong economy is characterized by prosperity that is reflected in improving standards of living. Rising living standards enable individuals to purchase homes, provide for their families, and improve the quality of their lives.
Why is This Important?
Per capita personal income, which includes wages and salaries, transfer payments, dividends, interest, and rental income, is used as the broadest indicator of the magnitude of improvement in an economy. In light of the lag time with which personal income is reported, annual average wages and salaries are also reported to determine whether Virginia is keeping pace with the nation.
How is Virginia Doing?
In 2005, Virginia ranked seventh in per capita personal income, with $38,390 (unadjusted) per capita income. Relative to its peers, Virginia's per capita income was lower than Maryland ( $41,760) in 2005, but higher than North Carolina ($30,553) or Tennessee ($31,107). National per capita income stood at $34,586. The highest 2005 per capita income was in Washington D.C. at $54,985. Within Virginia, the Northern Region had the highest per capita personal income in 2005 ($48,888), while the Central Region had the second-highest ($34,729). At the other end of the spectrum, the Southside and Southwest regions had the lowest per capita personal income at just over $21,000. While cost of living differences cause these figures to overstate the real purchasing power differences among the regions, the relative rankings are not changed by accounting for those differences.
When looking at changes in income over time, it is important to adjust for inflation so that the calculated changes more accurately address real differences in purchasing power between years. After adjusting for inflation in order to compare income over time, the annual real (inflation adjusted) growth rate in personal income for Virginia from 1995 to 2005 was 2.8 percent compared to the national average of 2.1 percent. The Northern Region, followed closely by Eastern and Central regions, grew fastest last year at an over 3.7 percent clip, while Southside had relatively weak growth at 1.4 percent. Over the last decade, the Hampton Roads area has had the fastest growth rate at 2.9 percent, with the Southside lagging at 1.6 percent.
Wages and Salaries
In 2004, Virginia had the 10th highest average wage or salary per job, $40,335, out of the 50 states and the District of Columbia. The national average was $38,798. Relative to its peers, Maryland had a higher average wage or salary per job at $42,110, while Virginia's average was higher than that of North Carolina ($34,364) and Tennessee ($34,312). The highest average was in Washington D.C. at $63,571.
After adjusting for inflation, annual average wages and salaries in Virginia rose 3.2 percent over the year ending with the third quarter of 2004, compared with a 1 percent gain in the nation.
Annual average wages vary significantly across the state. In the third quarter of 2004, Northern Region's annual average wage was $52,117. Central Region had the second highest annual average wage in the state during the same period ($37,902), and Hampton Roads was the third highest ($33,066). At the other end of the spectrum, Southside Virginia posted the lowest annual average wage in Virginia in the third quarter of 2004 ($26,072), followed by Southwest ($27,863).
Note: Since the trends for per capita income and wages and salaries are similar, regional graphs are provided only for per capita income.
What Influences Income?
Two of the most important factors affecting personal income are educational attainment and economic opportunity. Studies show that individuals with more education generally enjoy higher incomes and are unemployed for shorter periods of time when compared to people with less education. According to the Federal Reserve Bank of Dallas, the lifetime earnings of a worker with less than a 9th grade education is $976,350 while a person with an associate's degree can earn $1,801,373, and a master's degree is associated with $2,963,076 in lifetime earnings. In addition to educational attainment, the industry mix of a region also contributes to a state or region's per capita income.
What is the State's Role?
Annual average wages and salaries are dependent on many social and market forces that are outside the purview of the state. Even so, there are areas, including the following examples, in which the state can exert influence over annual average wages and salaries.
- Facilitating higher levels of educational attainment by ensuring that adequate infrastructure exists at educational levels that provide the greatest return on investment.
- Targeting economic development efforts toward industries that are forecasted to grow and pay wages that lift regional averages.
- Supporting new business startups.
- Maintaining a business climate that encourages economic growth, thereby increasing the number and quality of available economic opportunities.
Data Definitions and Sources
U.S. Department of Commerce, Bureau of Economic Analysis
W. Michael Cox and Richard Alm, "What D'Ya Know?" Federal Reserve Bank of Dallas 2004 Annual Report, pp.3-23. See also Jennifer Cheeseman Day and Eric C. Newburger, "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings," Table 2: Synthetic Estimates of Work-Life Earnings by Educational Attainment, Sex, Work Experience, and Age, Based on 1997-1999 Work Experience, U.S. Census Bureau, July 2002.
Regions that contain more high-tech or fast growing industries naturally lead to more opportunities for individuals, which generally result in lower unemployment in the region. In addition, rural areas typically have lower annual average wages than urban areas, in part because of the lack of opportunities. In addition, the cost of living is generally lower in rural areas.
Third quarter 2001 represents the trough of the last recession.
Wages and salaries are adjusted by using ACCRA cost of living data. ACCRA data only cover selected metropolitan areas in the nation. The state cost of living adjustments (COLAs) are derived by using a population-weighted average. As a result, COLAs of states with large rural areas are most likely overstated.