Why is Personal Income for My Region so High?

INTRODUCTION

We commonly receive comments that per capita and per household income in the IMPLAN data sets seem very high, especially when compared to the household income data reported by Census publications. The reason is that the two sources (IMPLAN (based on BEA) and Census) are based on quite different data sources in terms of both definitions and methodology.

In IMPLAN, we base household income on the county-specific lagged Bureau of Economic Analysis (BEA) "Personal Income” numbers controlled to the non-lagged U.S. total “Personal Income” value from the BEA National Income and Product Accounts (NIPA). In contrast, per capita household income reported by the Bureau of the Census is "Money Income" based. “Personal Income” and “Money Income” are not the same.

THE DIFFERENCES

LOOKING ACROSS DATA

For 2010 at the U.S. level, the BEA reports per capita personal income of $42,060, whereas the Census reports per capita (money) income of $32,621 (inflated using CPI to 2018$). This is a 29% difference. Comparing the Census figure for median household income, we see $50,046 for 2010; higher than the BEA’s figure for a difference of -16%.

MEAN AND MEDIAN

Mean and median have different definitions. Mean is an average. So mean household income is calculated as the total household income divided by the number of households. Median household income indicates that there are as many households below the reported income as there are above; it’s the middle. The thing to remember is that you can’t compare a mean (average) to a median.

PERSONAL INCOME

What is included in personal income is not the same as in money income as data collection methods and sources are entirely different. Personal income data is based largely on data collected from the payers of that income. It is based on data collected from the records of business and governmental sources. A description of the data sources can be found in the BEA paper "Local Area Personal Income and Employment Methodology."

BEA Personal income includes the following:

• Wage and salary disbursements – based on BLS QCEW data which includes wages and salaries, bonuses, tips, and the cash value of meals and lodging provided by employers and is adjusted with estimates for misreporting, underreporting, and for sectors not fully covered
• Other Labor Income – represents contributions by employers to privately administered pension and welfare funds (e.g., unemployment, health plans, life insurance, and private savings), fees paid to corporate directors, and miscellaneous fees (fees paid to jurors, witnesses, compensation of prisoners and marriage fees paid to justices of the peace).
• Proprietor's Income (8% of total PI: 94.6% is non-farm, 5.4% is farm) – current-production income of sole proprietorships and partnerships and of tax-exempt cooperatives. It includes imputed net rental income of owner-occupants of farm dwellings and an imputed value for farm products consumed on farm. Proprietor Income is adjusted for inventory valuation changes and capital consumption adjustments (which accounts for the difference between tax depreciation and actual wear and tear). An adjustment is also made for "misreporting" of non-farm income – which accounted for half of the 1997 non-farm proprietor income in the US. 
• Personal contributions for social insurance – these payments are removed from total personal income and consist of payments by individuals for social insurance (e.g., social security and Medicare); railroad retirement; government employee retirement; state unemployment insurance; temporary disability insurance; and veteran's life insurance.
• Personal Dividend Income – dividends received by individuals, by non-profit institutions and dividends retained by fiduciaries (on behalf of individuals)
• Personal Interest Income – interest on bonds, and interest reported on income tax received by individuals, by non-profit institutions retained by fiduciaries (on behalf of individuals). It also includes imputed (non-cash) interest from life insurance carriers and private noninsured pension plans. It also includes imputed interest received by persons from banks, credit agencies and regulated investment companies, which represents the value of financial services for which persons are not explicitly charged.
• Rental Income of Persons – net current-production income of persons from the rental of real property, except by persons primarily engaged in the real estate business, adjusted by capital consumption adjustment. Rental income also includes royalties from patents, copyrights, and rights to natural resources. Imputed rental income is income received by owner-occupants of nonfarm dwellings.
• Transfer Payments – income payments to persons for which no current services are performed and include: old-age, survivors, and disability (social security); railroad retirement and disability; federal, state, and local governments retirement payments; workers compensation; other government benefits (e.g., black lung and pension benefit guaranty benefits); Medicare, military medical insurance, and federally assisted medical payments; income maintenance payments (e.g., supplemental security, family assistance, and food stamps); unemployment compensation; payments to veterans; government education and training payments (e.g., fellowships, job corps, interest on guaranteed student loans); and other payments (e.g., to victims of crimes, Alaska permanent fund dividends and disaster relief). It also includes businesses transfer payments to individuals primarily for personal-injury liability settlements, as well as transfer payments also include indirect transfers by government or private business to individuals through nonprofit institutions such as: foster care agencies; job training; and education assistance.

MONEY INCOME

Money income is collected in the decennial Census long form and updated annually based on household surveys. Money income is thus self-reported by households. 

Money income includes the following:

• Wages, salary, commissions, bonuses, or tips from all jobs – reported amounts are before deductions for taxes, bonds, dues, or other items [note: instructions ask that military personnel should include additional income for cash received for housing and/or subsistence allowances, flight pay, uniform allotments, reenlistment bonuses, etc.]
• Self-employment income from owned nonfarm business, including proprietorship and partnership – reported net income after business expenses
• Farm self-employment income – reported net income after operating expenses; includes earnings as a tenant farmer or sharecropper
• Interest, dividends, net rental income or royalty income, or income from estates and trusts – reported even small amounts credited to an account
• Social Security or Railroad Retirement
• Supplemental Security Income (SSI), Aid to Families with Dependent Children (AFDC), or other public assistance or public welfare payments
• Retirement, survivor, or disability pensions (other than social security)
• Any other sources of Income – received regularly such as Veterans (VA) payments, unemployment

Personal Income vs Money Income

SO WHY DOES IMPLAN USE PERSONAL INCOME?

The BEA is involved in estimation of the national wealth, specifically the NIPA tables. Income includes cash payments and estimated values of non-cash payments. The BEA Input-Output benchmark tables reflect all economic activity that results from the generation of this wealth. The IMPLAN Input-Output tables comply with BEA Input-Output conventions and definitions and the U.S. IMPLAN model is consistent with the BEA NIPA tables. Household demands for goods and services, both cash and non-cash, are captured by the PCE (Personal Consumption Expenditure) component of final demand. Final demand whether cash or non-cash (and imputed) creates employment and income in the U.S. economy. So therefore, it makes more sense for IMPLAN to follow the definition set forth by the BEA rather than that of the Census.

RELATED ARTICLES

Understanding Types of Income

Income Data

Understanding Labor Income (LI), Employee Compensation (EC), and Proprietor Income (PI)

GOVERNMENT RESOURCES

Personal Income: More Than Your Paycheck

Updated October 27, 2021