How much money can be earned in each state? Two extremities of the American economy

22.09.2017 09:43|

In recent years, the crisis in some parts of the eurozone has been connected to the introduction of the single currency area, the uneven pace of economic growth of individual countries or the differences in wages. However, in the USA, where the integration between states is much deeper than in the eurozone, there are also huge differences in economic growth, wages and inflation - writes Marcin Lipka, Conotoxia Senior Analyst.

Marcin Lipka, główny analityk

When economists analyse the causes of the eurozone crisis from the beginning of this decade, they often point out that this is the result of a mismatch between countries. There is a lack of a common fiscal policy that would even out regional differences, and the introduction of the euro in 1999 only intensified the gap between a rich north and a less wealthy south.

However, looking at the data from the individual states in the US we see that the differences in wages and inflation or GDP are not much smaller than in the eurozone. This may mean that even if relations within the single currency area are tightened, the differences will not be noticeably decreased.

Different inflation in different regions

The same monetary and fiscal policy for all states, ease in settlement or the same language do not prevent inflationary differences in different parts of the US. When in the Western region (West - from California and Washington to Colorado and New Mexico) we experienced consumer inflation (CPI) above 1% in 2015, the population of Central America (Midwest - from Kansas to Illinois and Michigan to Ohio) was accompanied by up to 1% deflation.

The different pace of price increases was not a matter of only one year. Since the beginning of 2014 until August 2017 the accumulated inflation rate for the Western region was 7.8%. However, for Midwest or North American (Northeast - from Pennsylvania to New York to Maine), it did not even exceed half of this value and amounted to 3.7 and 3.4% respectively.

The differences in price levels are also very well visible, if we look at the Bureau of Economic Analysis (BEA) data. The purchasing power of one dollar in Mississippi and Arkansas is about 35% higher than New York or Hawaii states.

Some states are emerging and some are shrinking

However, the US GDP data is also surprising. Since 2009, the country's economic growth has been slightly above 14%, i.e. below 1.9% per year. At that time, however, North Dakota grew three times faster than the United States (46%, 5.5% YOY on average) and Texas doubled its average result (28.5%, 3.7% YOY on average). A good result was also achieved by California - each year it exceeded on average 2.6%.

The situation in Wyoming, Alaska or the Louisiana Bay of Mexico was quite different. In the first of the aforementioned states, GDP in 2016 was 7% lower than in 2009. According to BEA, only last year GDP shrank by 3.6% YOY.

The situation in Alaska is only a little better than it was during the last crisis. There, GDP has fallen by 6% since 2009. In Louisiana, on the other hand, GDP is not only by 2% lower than it was just after the crisis. BEA publications for this state show that during the last decade the economy shrank on average by 0.3% every year.

American gap in wages

How different can be the standard of living in each region New York residents earn an average of 1540 USD a week. High wages are also recorded in Connecticut (1417 USD) and California (less than 1300 USD).

At the other end of the extreme, there is West Virginia with a weekly wage of 830 USD or New Mexico (838 USD). It is worth noting, however, that the average state wage does not yet show such large differences as the division into the biggest counties (units, districts) where employment sometimes exceeds the number of people working in smaller eurozone countries. Here the differences are really huge, not only in terms of employment but also in terms of the profession.

Data for the Bureau of Labor Statistics (BLS) for the first quarter of 2017 shows, for example, in the unit of Dallas, the Texan town of Dallas is 1,400 USD. At the same time, in restaurants and hotels, the average wage is 509 USD, and in the mining sector, it is 6300 USD. However, the highest wages can be seen in New York for those employed in the financial sector. The average wage for 368k people there is 9.4k. USD weekly, which is less than half a million dollars a year. In addition, compared to the first quarter of 2016, it increased by more than 10%.

The overall picture of the American economy shows that despite considerable integration between states, their condition varies considerably. The examples from the US also suggest that, even with the further integration of the eurozone, disparities in inflation, GDP growth or wages may still persist.


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