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Does Productivity Boost Metro Incomes?

In our previous post, we looked at productivity by metro and identified the types of occupations that are more prevalent in high production metros. Today, we will look at how productivity translates into real income using the Census Bureau’s ACS 1-year data.

As a reminder, here is how our largest metros (those with a population of at least 1 million) broke out in terms of productivity. The highest productivity metros (in blue) tend to be located on the coasts, but productivity does not easily break down geographically. Some of the least productive metros (in red) are near some of the most productive (Sacramento to San Francisco, Providence to Boston). Clearly other factors, like industry and occupation mix are behind the variance in productivity.

Not surprisingly, income and productivity are closely aligned. The most productive workers should see their productivity translate into higher incomes.

The highest productivity group does have a significantly higher average household income ($105,399) than the other groups.

But, as a percent, the top three groups saw almost identical growth in household income between 2010 and 2016 (all increasing about 9.3 percent between 2010 and 2016). The fourth group (lower-mid productivity) saw slower income growth at 8.48 percent, while the lowest productivity group saw incomes grow just 5.65 percent between 2010 and 2016.

None of this is unexpected, but we see some interesting variation when we break average income into quintiles.

The fact that income is growing faster for higher income households is well documented, but does this trend hold for all our productivity groups?

First, we look at the average household incomes for each quintile in each of our productivity groups.

We see a similar income distribution pattern in all 5 of our productivity groups. Average income stair step fairly consistently through the first 4 quintiles before jumping significantly for the highest income quintile. Additionally, overall incomes trend downward as we go from the most productive to least productive metros. Again, nothing surprising here. It is when we look at the percent change in real income that we see something interesting.

The chart above shows real income is growing faster for the highest income quintile regardless of the productivity grouping. However, the distribution of income growth is a bit more equitable in the upper-middle and middle production metros. There, the lowest income quintile saw their incomes grow by 6 percent between 2010 and 2016. This is roughly on par with the other income quintiles except for the highest quintile. In the top production metros, real incomes for the lowest income quintile grew just 2 percent. For the least productive metro, the lowest income quintile saw real incomes decline.

While looking at this data by productivity grouping is telling, we miss the individual metro stories. The chart below looks at a representative from each productivity group.

San Jose – Highly productive San Jose saw real incomes for their richest quintile grow 25 percent between 2010 and 2016. This is remarkable growth, but high productivity has also lifted incomes of the other quintiles above the overall national growth rate of 5.4 percent. San Jose’s poorest quintile saw real incomes grow 13 percent. So, yes, San Jose’s rich got richer, but the rising tide lifted all boats.

Denver – As we showed, the upper-middle productivity metros had a more equitable income growth distribution. Denver goes one step further and shows a pattern where the lowest income quintiles had higher income growth. The lowest income quintile saw real incomes grow 23 percent. The second lowest quintile grew 17 percent. Both of these quintiles bested the growth of even the highest income group which still saw robust income growth at 15 percent.

Kansas City – The middle productivity groups representative, Kansas City, exhibits an unusual income growth pattern. The lowest and highest quintiles saw the greatest real income growth (10 percent and 12 percent respectively) while the three middle-income quintiles were all below 5 percent.

Cincinnati – Cincinnati, from our lower-middle productivity group, has more modest income growth overall. The greatest income change goes to the richest quintile (it grew 10 percent) will the lowest income quintile saw barely any real income growth between 2010 and 2016, growing just 1 percent.

Orlando – From our lowest productivity group, incomes in Orlando were mostly stagnant between 2010 and 2016. The highest income quintile saw real income grow just 5 percent while real income declined for the lowest quintile.

The data for all large metros can be found here.

So, what insight can we pull from this analysis?

  • The rich get richer. Regardless of productivity level, the greatest income increase went to the highest income quintile.

  • Productivity is boosting income. The most productive metros have the highest incomes.

  • Moderate productivity metros are more equitable. Income distribution in the upper-middle and middle productivity groups saw a more equitable distribution if income growth. The lowest income quintiles in these metros generally had a greater increase in real income.

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