Do poor areas tend to “catch up” to richer ones? After much analysis in the economics literature, the evidence is still mixed. But what do the data in FRED show us?
These two graphs trace the evolution of per capita personal income of several U.S. states over almost a century. Here, we choose the 24 most-populated states in 1930 and rank them by their initial level of per capita income. We divide the state’s per capita income by the U.S. average: A value above 1 means the state’s per capita income is above the national average, and a value below 1 means the state’s income is below average. The top graph shows the “poor” states, and the bottom graph shows the “rich” states in this sample. The graphs suggest that state incomes have gradually converged from 1929 to the early 1980s. However, this convergence seems to have stopped since then. In fact, in some cases, state incomes seem to be diverging again.
A possible explanation for this lack of convergence could be differences in the cost of living. It’s more expensive to live in, say, California and New York; so differences in real income could be more compressed than the differences in nominal income, which these graphs show.
How these graphs were created: From the FRED Release view, search through the “State Personal Income Per Capita” release for the states you want and click “Add to Graph.” Then modify each line as follows: From the “Edit Graph” section, under the “Edit Line” tab, type “Personal Income Per Capita” in the search box in the “Customize Data” section. Select the annual series and add that series to the line; then type a/b in the formula section. To remove the many (many) series titles above the graph, go to the “Format” tab and deselect “Title.”
Suggested by Maximiliano Dvorkin and Hannah Shell.