Posted by: Josh Lehner | July 1, 2011

Personal Income, Wages and Automatic Stabilizers

An article yesterday from the Wall Street Journal illustrates the importance government assistance has on personal income and consumption. The increase in, for example, unemployment benefits during recessions along with other automatic stabilizers compensates for wage loss due to a decrease in hours worked or job loss. At the national level, wages and salaries are just now returning to levels reached at the beginning of the recession, however wages and salaries plus government assistance returned to these levels a year ago. At the same this occurred, the nation began to see stronger increases in consumer spending. As the WSJ notes when it comes to consumer income: “Without transfer programs, such as jobless benefits, the recession would likely have been longer and deeper.” The following graphs are a follow-up to the WSJ article from an Oregon perspective and also recent posts on Oregon Personal Income on our blog (see HERE for a broader summary of last quarter’s income and HERE for a previous example of unemployment benefits’ impact).

The first graph, essentially, recreates the graph found in the WSJ article. Real Wages and Salaries in Oregon peaked in 2007 Q4 as opposed to March 2008 at the national level (note that state level data is only available quarterly, while national data is available monthly). Oregon wages and salaries remain substantially below pre-recession levels, even if they have been increasing the past five quarters. Real wages and salaries plus transfer payments (BEA definition HERE) returned to their pre-recession levels for good in 2010 Q1, around the same time the nation did.

The next graph is another way to visualize these changes. Each of the series are indexed to their 2007 Q4 value. Real Total Personal Income remained flat over the 2007 Q4 – 2010 Q1 time period due to the increase in transfer payments. During this time personal income not from transfer payments (i.e. wages and salaries, dividends, interest and rent, proprietors’ income, etc) declined over 6.5 percent. Transfer payments increased nearly 35 percent, essentially replacing the lost income from other sources, hence total personal income remained constant.

Finally, the last graph shows the percentage of total personal income in Oregon that is from transfer payments. Currently, about 20 percent of Oregonian’s personal income is sourced from transfer payments, an unprecedented figure with data going back to 1948.

 

 


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