 Outline of Analysis
| Analysis of Growth and Change Among the Major Components of Personal Income within the United States: 1958-2022 Introduction The composition of the United States' total personal income has undergone dramatic change over the past four decades. With few exceptions, transfer payments and property income have increased in importance, while labor-related earned income declined in relative share. But within this trend there are notable and sometimes very extreme differences among individual states as to the extent of the shift in the composition of personal income among the three income components. The annual total personal income estimates compiled by the Regional Income and Product Divisions of the Bureau of Economic Analysis are among the most comprehensive, consistent, comparable and timely measures of economic activity available at the county and statewide level. Personal income estimates are also the best available local level indicator of general purchasing power, and are therefore central to tracking and comparing state patterns of economic growth and change. Yet, unless there is understanding of the degree and magnitude of the pattern of growth and shifting composition among the three major components that underlie total personal income one cannot gauge or appreciate the underlying character of income as a barometer for the economic performance of the local economy. This analysis offers a comparative perspective by examining the changing structure and composition of the United States' personal income. Earned Income can be viewed as compensation for labor services. Property Income represents payments in the form of dividends, interest and rent for the services of capital owned by persons. In contrast to the other two components of income, Transfer Payments are by definition payments that are not related to the provision of services. Various aspects of each income component will be further defined and explained as this discussion and analysis unfolds. Major Components of Total Personal Income, United States, 2022 (Thousands of Dollars)  Figure 1. Total Personal Income: 2022 = $21,820,248,000 Figure 1 depicts the composition of the United States' personal income among the three major components for 2022. Earned Income totaled $13,513,169,000K or 61.93% of total personal income; Property Income accounted for $4,304,995,000K comprising 19.73%; Transfer Payments accounted for $4,002,084,000K or 18.34% of the United States' personal income in 2022. For every $100 of personal income that accrued to the residents of the United States in 2022, about $38 was derived from Property Income and Transfer Payments. BEA Definitions of the Major Components of Total Personal IncomeEarned Income (Net Earnings by Place of Residence)Net earnings by place of residence is earnings by place of work-the sum of wages and salaries, supplements to wages and salaries, and proprietors' income-less contributions for government social insurance, plus an adjustment to convert earnings by place of work to a place of residence basis. Property IncomePersonal dividend income, personal interest income, and rental income of persons with capital consumption adjustment are sometimes referred to as "investment income" or "property income."Dividends: This component of personal income consists of the payments in cash or other assets, excluding the corporation's own stock, made by corporations located in the United States or abroad to persons who are U.S. residents. It excludes that portion of dividends paid by regulated investment companies (mutual funds) related to capital gains distributions. Interest: This component of personal income is the interest income (monetary and imputed) of persons from all sources. Rent: Rental income is the net income of persons from the rental of real property except for the income of persons primarily engaged in the real estate business; the imputed net rental income of the owner-occupants of nonfarm dwellings; and the royalties received from patents, copyrights, and the right to natural resources. Transfer PaymentsThis component of personal income is payments to persons for which no current services are performed. It consists of payments to individuals and to nonprofit institutions by Federal, state, and local governments and by businesses. Government payments to individuals includes retirement and disability insurance benefits, medical payments (mainly Medicare and Medicaid), income maintenance benefits, unemployment insurance compensation, veterans benefits, and Federal grants and loans to students. Government payments to nonprofit institutions excludes payments by the Federal Government for work under research and development contracts. Business payments to persons consists primarily of liability payments for personal injury and of corporate gifts to nonprofit institutions. Real Personal Income Growth Indices (1958=100): United States, 1958 - 2022  Figure 2. One of the key objectives of this analysis is to highlight the growing importance over the past several decades of property income and transfer payments and to illustrate their emergence as more prominent components of local area personal income. Figure 2 compares the real (that is, removing the effects of inflation) cumulative growth of the three major components of personal income for the United States over 1958-2022. The cumulative growth indices express each component as 100 for the base year of 1958, and represent each component in subsequent years as a percent of their level in 1958. The indices enable a direct comparison of the differences in the cumulative percentage growth of Earned Income, Property Income and Transfer Payments for the United States over more than 6 decades. Over the 1958-2022 period, Earned Income in the United States grew by 483.1%. Property Income, however, rose by 980.4%, while Transfer Payments grew by 2,108.4%. As a general rule, the growth of property income and transfer payments outpaced the growth of earned income. As a result, earned income declined as a share of total personal income, while property income and transfer payments increased. Major Components as a Percent of Total Personal Income: United States, 1958 - 2022  Figure 3. While the previous graph illustrates differences in the degree of growth among the three major components of personal income, the above figure traces their changing share and relative importance over time. Differences in growth among the three components arithmetically yields the changes in their relative share as shown here. Earned Income as a share of the United States' personal income declined from 80.0% in 1958 to 61.9% in 2022, a shift in relative share of -18.1%. Offsetting this decline was a +6.0% increase in Property Income's share from 13.8% in 1958 to 19.7% in 2022; and a +12.1% advance in Transfer Payments' share, from 6.3% to 18.3% over the same period. Earned Income as a Percent of Total Personal Income: 1958-2022  Figure 4. Figure 4 above traces earned income as a percent of personal income for United States and over 1958-2022. Generally, earned income share declines were most prominent from 1979 to the mid-1980s and from 2000 to 2009. Some areas experienced pronounced short-term swings in earned income because earnings generation was concentrated in industries especially sensitive to major cyclical swings in the national economy. Mining, wood products and durable goods producing manufacturing, such as primary metal and transportation (including air and motor vehicle equipment), are among the most notable cyclically sensitive industries. Agriculture-dependent regions are especially subject to pronounced swings in earned income owing to the influence of weather on output and production, international swing in commodity prices, changes in government programs, as well as general cyclical conditions and trends. Finally, other factors that have induced abnormal short-term swings in earned income include major natural catastrophes and very large-scale private or government construction projects, such as the building of dams and power plants. Property Income as a Percent of Total Personal Income: 1958-2022  Figure 5. Figure 5 tracks property income as a share of personal income for United States over the period 1958-2022. Common to all was the discernable rise and advance to another plateau in property income's share over 1979-82. This period was plagued by double-digit rates of inflation and associated double-digit rates of interest. As interest income is an important part of property income it played a leading role in the growth and rise in the share of property income over 1979-82. Moreover, contained within the period 1979-82 were two back-to-back recessions. Unlike many recessions, the early 1980s recessions were widely disbursed regionally so declines in earned income shares were oftentimes observed, which further served to bolster property income's share during this period. Transfer Payments as a Percent of Total Personal Income: 1958-2022  Figure 6. People receive personal income either for participating in current production, or from transfer payments. Earned income and property income represent payments received for participating in production. Transfer payments, sometimes misleadingly referred to as "unearned income," are payments made by government or businesses to individuals "for which no current services are performed." There are vast differences in the mix of transfer payments that states receive, the particulars of which are beyond the scope of this discussion. As a general rule, social security and disability payments make up the largest general category of transfer payments. Next in order of importance typically comes medical payments for such programs as Medicare and Medicaid. Medical payments have driven much of the rapid growth in transfer payments over the past decade. Further down the scale of importance are payments for income maintenance programs such as Family Assistance, Food Stamps and Supplemental Security Income (SSI). Unemployment Insurance Payments is another category; often its relative size and importance is shaped by local economic conditions and more generally by the ebb and flow of business cycles. Finally, Veterans Benefits Payments is the remaining category of importance. Generally veteran's pension and disability payments dominate this group. You may obtain a detailed tabulation of the transfer payments received by the United States residents over 1958-2022 by clicking here. Indicies of Structural Change Among the Major Components of Personal Income: 1958-2022  Figure 7. Over the past several decades one of the more heralded changes that has transformed the character of our economy has been the structural shift in employment and earnings from goods-producing toward services-producing activities. Though far less widely publicized and less popularly understood, another change of major significance was the widespread shift in the composition of personal income addressed in this analysis. The "index of structural change" shown in Figure 7 calibrates the timing and magnitude of change in the composition of the United States' personal income among the three major components compared with the nation over 1958-2022. The period of most dramatic change held in common by United States and the nation spanned the period of the late 1970s to the mid-1980s and post 2005. Structural change is defined and measured here as the composite change in income shares among the three income components. Changes in shares are based on differences between each component's share in 1958, and its share of personal income for each year since. Index values equal the sum of the absolute value of the share changes among the three income components year-over-year relative to 1958. A rise in the index indicates that in composition of income among the three major components deviated further away from their 1958 distribution.
Major Components Contributions to Real Total Personal Income Growth: 1959-2022  Figure 8. The discussion thus far has centered primarily on examining and comparing changes in the composition of the United States' personal income over 1959-2022. Figure 8 focuses attention on how much each component contributed individually to the United States' real personal income growth over the 65-year period. The annual growth rate of the United States' real (inflation adjusted) personal income averaged 3.23% over 1959-2022. Each component's individual contribution to this total amounted to 1.99% for Earned Income, 0.67% for Property Income and 0.57% for Transfer Payments, all of which sum to 3.23%.*
In order to gauge each component's contribution to total real personal income growth the table above displays each component's overall contribution to growth as a percent of total growth. Note, for example, Earned Income's overall percentage contribution to the average total growth over 1959-2022 of 61.62% was derived by: 61.62% = ( 1.99% ÷ 3.23% ) x 100.* United States Major Components as a Percent of Total Personal Income: 1958 vs. 2022 and Component Contributions to Real Personal Income Growth, 1959-2022  Figure 9. Figure 9 recaps the theme and distills the results presented throughout this analysis of the major components of personal income. In 1958, Earned Income comprised 80.0% of the United States' total personal income. However, over the following 64-year period 1959-2022 Earned Income accounted for only 61.6% of the annual real growth in the United States' personal income. As a result, by 2022 Earned Income's share declined to 61.9%. Because Property Income alone accounted for 20.6% of the United States' real total personal income growth over 1959-2022, its share rose from 13.8% in 1958 to 19.7% in 2022. Transfer Payments, in turn, advanced from 6.3% to 18.3% over the same period owing to its 17.7% contribution to the growth of the United States' real total personal income.
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