Comparing Metro Phoenix
Gross Domestic Product by Metropolitan Area
Description: Gross Domestic Product (GDP) by metropolitan area is a measure of the market value of final goods and services produced within a metropolitan area.
Rationale: GDP by metropolitan area per employee is a proxy for the productivity of employees in a metro area. GDP by metro area per capita is a measure of prosperity.
Data Sources: The data come from the U.S. Department of Commerce, Bureau of Economic Analysis (BEA): http://www.bea.gov/regional/index.htm#gsp. GDP by metro area is a new series designed to measure the value of final output for the metropolitan areas. The adjustment for inflation is the GDP implicit price deflator. The employment data are total employment from the BEA web site.
Comments on the Quality of the Data: GDP by metro area was released for the first time in September 2007. These are prototype estimates based on a simple methodology. The BEA data rely heavily on state- and county-level industry earnings data to distribute GDP by state to metropolitan areas. As with most new data definitions, revisions in these early estimates can be expected. Differences in the cost of living across metropolitan areas affect the comparison.
No adjustment has been made for geographic differences in the cost of living. Thus, it may not be appropriate to conclude that economic well-being is better in one metropolitan area than another based on the unadjusted GDP by metropolitan area being higher.
An adjustment for geographic differences in the cost of living has not been made for multiple reasons:
- No comprehensive measure of living costs is available for all metro areas (or states).
- The ACCRA cost-of-living index frequently is used for this purpose, but not all metro areas participate in this study. Further, the ACCRA study is designed to measure living costs for only a segment of the population (professional and managerial households in the top income quintile), and taxes are not included.
- Differences in living costs in part reflect differences in the perceived quality of life. The academic literature suggests that even if an acceptable measure of cost of living were available, GDP by metropolitan area (or other dollar measures) should be adjusted only partially (perhaps 40 percent) for living costs.
While geographic differences in living costs can vary over time, the over-time variations generally are modest relative to the magnitude of the level of the geographic differences. Thus, the rate of change over time in GDP by metropolitan area (or other dollar measures) is less affected by geographic differences in living costs than is a comparison of areas at one point in time.
