Comparing Metro Phoenix
Gross Domestic Product by State
Description: Gross Domestic Product (GDP) by state is a measure of the market value of final goods and services produced within a state.
Rationale: GDP by state per employee is a proxy for the productivity of employees in a state. GDP by state 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. The adjustment for inflation is the GDP implicit price deflator. The employment data are total non farm workers from the Bureau of Labor Statistics.
Comments on the Quality of the Data: The BEA data rely heavily on state-level industry earnings data to distribute national GDP to the states. GDP by state differs from GDP for the following reasons: GDP by state excludes and GDP includes the compensation of federal civilian and military personnel stationed abroad and government consumption of fixed capital for military structures located abroad and for military equipment, except office equipment.
Because of the change from the Standard Industrial Classification (SIC) to the North American Industry Classification System (NAICS) in 1997, growth rates calculated from SIC data prior to 1997 are applied to the NAICS baseline in 1997. 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 state 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 state (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 state (or other dollar measures) is less affected by geographic differences in living costs than is a comparison of areas at one point in time.
