Comparing Metro Phoenix
Per Capita Personal Income
Description: Per capita personal income (personal income divided by population) is a measure of individual economic well-being. Personal income includes most income that accrues to individuals; capital gains income is not included.
Rationale: Per capita personal income is perhaps the best measure of the collective economic well-being of individuals in a metropolitan area.
Data Sources: U.S. Department of Commerce, Bureau of Economic Analysis: http://www.bea.gov/regional/index.htm#state. The adjustment for inflation is the GDP implicit price deflator.
Comments on the Quality of the Data: A shortcoming of personal income data is that it does not include capital gains, which are becoming much more important as participation in the stock market and real estate investing become more widespread. In addition, certain components of personal income are not available by state and local areas and are estimated from national data. These estimated data may explain why per capita personal income in Arizona is further below the national average than other measures of income, such as per capita income from the decennial census. Geographic differences in the cost of living affect the comparison of per capita personal income across areas. 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 per capita personal income 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, per capita personal income (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 per capita personal income (or other dollar measures) is less affected by geographic differences in living costs than is a comparison of areas at one point in time.
