State personal income fell nearly everywhere in the second quarter of 2021 compared with historically high levels a year earlier, when Americans received the first round of temporary relief payments to help weather the pandemic. Despite this dip, total personal income was higher in all states than before the pandemic thanks to still-elevated levels of government assistance and growth in wages and other compensation. Since the end of 2019, South Dakota and a group of Western states have posted the strongest growth in total personal income.
Nationally, the sum of residents’ personal income from all sources in the second quarter of 2021 was up an annualized inflation-adjusted rate of 4.1% from the last full quarter preceding the coronavirus pandemic. Although Americans’ earnings, which account for the bulk of personal income, ticked up in most states as the economy recovered, higher levels of government assistance payments actually drove much of states’ gains. In all, personal income in 18 states remained below pre-pandemic totals when government assistance is excluded.
States with the top personal income gains since the pandemic benefited from not only government assistance payments—including the extra relief payments as well as Social Security, Medicare and Medicaid, safety-net programs, and state unemployment insurance—but also relatively strong earnings growth. South Dakota’s total personal income increased at an annualized rate of 6.1% compared with the fourth quarter of 2019 preceding the pandemic, the sharpest increase of any state. Employment for several of the state’s larger industries, such as construction and retail trade, remained at or above pre-pandemic totals. Annualized growth rates represent how much total personal income would have increased had it grown at a steady pace and provide a uniform way to compare states and track their economic trends.
Others didn’t experience quite the same growth. Although personal income exceeded pre-pandemic totals in every state, it barely did so in Alaska and Wyoming after accounting for inflation, for example. Drastic reductions in oil production and other mining activities have plagued the economies of both states, contributing to serious budget pressures.
State personal income levels fluctuated greatly over the past several quarters, reflecting the timing of multiple rounds of pandemic-related federal aid. In the second quarter of 2021, government assistance—which grew at a nearly 20% annual rate nationally from pre-pandemic totals—accounted for 21% of total personal income, compared with 28% a year earlier and only 17% just before the pandemic.
State personal income sums up all the money that residents receive from work, certain investments, income from owning a business and property, and government assistance, including the extra federal aid provided in response to the pandemic, as well as benefits from employers or the government. Other measures should be used to approximate income growth for individuals, such as state personal income per capita or household income.
Growth since the start of the COVID-19 recession
A comparison of states’ annualized growth rates for total inflation-adjusted personal income between the fourth quarter of 2019—before the pandemic and recession—and the second quarter of 2021 shows:
- After South Dakota’s 6.1% annualized rate, the fastest growth in total personal income since the pandemic was in California (5.9%), Idaho (5.6%), Washington (5.4%), Nebraska (5.3%), Arizona and North Dakota (both 5.2%), and Georgia (5%).
- Six of the 10 states with the fastest growth rates were in the West. The same states experienced some of the sharpest long-term population gains, a trait typically associated with a strong labor force and economic expansion.
- Energy-dependent Alaska and Wyoming were the only two states with growth rates of less than 1%.
- Many states had strong earnings growth, led by South Dakota (7.6%), North Dakota (6%), and Idaho and Nebraska (both 5.2%). Still, inflation-adjusted earnings had not yet returned to pre-pandemic levels in 13 states by the second quarter of 2021.
- Growth in government assistance—including payments from the extra pandemic aid, Medicare, Medicaid, Social Security, and other programs—exceeded an annualized 20% in a dozen states, after accounting for inflation. Massachusetts’ growth rate was the largest (29.4%), as the state provides more generous unemployment benefits than others, followed by Hawaii (28.1%), Nevada (27.3%), and California (26.8%).
Trends over the past year
Although above pre-pandemic levels, total state personal income was down 2.8% from a year ago, when the first round of federal relief payments and a rise in unemployment benefits drove sharp gains in Americans’ incomes. When government assistance is excluded, however, all other areas of personal income climbed 6.1% from a year ago.
Every state with the exception of California recorded at least a slight decline in total personal income when compared with the abnormally high levels in the second quarter of 2020, after accounting for inflation. States sustained the losses even though earnings from work rose in every state, helping to support state tax collections. Still, the gains weren’t nearly enough to offset sharp across-the-board drops in government assistance, yielding declines in total personal income.
State highlights over the past year
A comparison of estimated inflation-adjusted state personal income in the second quarter of 2021 with the second quarter of 2020, a period marked by a sharp decline in government assistance, shows:
- California was the only state to record personal income growth (0.2%).
- The smallest declines in personal income were in Illinois, Nebraska, and Texas, all with growth rate drops of -0.7%.
- The sharpest declines were in Michigan (-9.5%), West Virginia (-9.3%), Vermont (-8.6%), Rhode Island (-8.1%), and Maine (-7%).
- Declines in government assistance growth rates ranged from 19% in Florida to 35.7% in Michigan.
- Among 14 states in which earnings exceeded 10%, North Dakota (14.9%) and Nevada (14%) registered the strongest growth.
Results for the second quarter of 2021 are based on estimates and are subject to revision, as are Pew’s rankings of growth rates for state personal income.
(Download the data to see states’ growth rates for total earnings and government transfer payments.)
Pandemic relief and state ledgers
State personal income matters to state governments not only because it helps assess the economic well-being of its residents but also because changes in residents’ income can signal that tax revenue and spending demands are apt to rise or fall, with repercussions for state budgets.
Soon after the start of the pandemic, the huge spike in personal income totals in every state was driven not by economic growth but by the surge of public relief money—especially from the federal government—that was provided to individuals and businesses. The extra money that residents had available to spend helped support state economies disrupted by the pandemic and recession and also generated state tax revenue—either through sales taxes on purchases or income taxes in those states that tax unemployment checks.
Ups and downs since the Great Recession
The multiple rounds of federal support for individuals and businesses have led to starkly different results so far than were seen during the Great Recession, when total personal income fell nationally, including in every state. Thanks to the unprecedented temporary government aid, states largely avoided sharp declines in personal income after COVID-19 left millions unemployed. Total personal income exceeded its pre-pandemic level in every state less than a year after the latest recession officially ended, after accounting for inflation. In contrast, it took five years from the end of the Great Recession for the last state—Nevada—to recover to its pre-recession personal income level.
This analysis’ use of annualized growth rates allows for comparisons of states’ economic performance over several years. But personal income did not actually change at a steady pace, instead falling in some years and rising in others.
No state escaped the 18-month Great Recession without a calendar-year drop in total personal income. The country rebounded over the next three years until 2013, when personal income fell in 38 states, in part because many taxpayers shifted the timing of income in reaction to federal tax changes. The longest recovery in U.S. history ended on a high note with every state’s calendar-year increase in 2018 and 2019. Thanks to the extra federal support for individuals and businesses, all states avoided drops in personal income in 2020, despite the pandemic and the two-month recession that continue to disrupt the economy.
What is personal income?
Personal income sums up residents’ paychecks, Social Security benefits, employers’ contributions to retirement plans and health insurance, income from rent and other property, and benefits from public assistance programs such as Medicare and Medicaid, among other items. Personal income excludes realized or unrealized capital gains, such as those from stock market investments.
Federal officials use state personal income to determine how to allocate support to states for certain programs, including Medicaid. State governments use personal income statistics to project tax revenue for budget planning, set spending limits, and estimate the need for public services.
Several issues influence state personal income, many of which are beyond policymakers’ immediate control. Some of the more critical factors include national and global economic conditions, business cycles for a state’s major industries, demographic trends, and investments made over decades.
Growth in personal income should not be interpreted solely as wage growth; wages and salaries account for about half of U.S. personal income. Likewise, growth in total state personal income should not be seen as a measure of how much the income of average residents has changed.
Looking at state gross domestic product, which measures the value of all goods and services produced within a state, would yield different insights on state economies.
Download the data to see state-by-state growth rates for personal income from 2019 through the second quarter of 2021. Visit Pew’s interactive resource “Fiscal 50: State Trends and Analysis” to sort and analyze data for other indicators of state fiscal health.