Making a better future for the next generation in North Carolina.

The Family’s Slice of the Pie – Part 2

Apr 5, 2023 | Economic Development, Economy, Income, North Carolina | 0 comments

In my last post, I wrote about how the government of North Carolina seemed gung-ho on growing their economy, but had much less to say about how that growth is shared among their citizens. In this post, I would like to tell you why I believe typical families in both states were shorted $5,000 in annual income after the economic growth of the last 10 years.

What difference does a $5,000 shortfall of family income make for the next generation in our states? Here are some of the things a family could do with $5,000 in extra annual income to promote the development and well-being of their kids:

Two kinds of averages

Let me explain why I think our families were shorted $5,000. At the end of last week’s post, I promised to look into a mystery – that per capita personal incomes increased by much more than median household incomes in both states. I think I found the answer….

Part of my confusion was dealing with two kinds of average incomes. Per capita personal income is all the personal income in the state divided by the number of people in the state. The median family income is the dividing line between the upper income 50% of families and the lower income 50% of families. Here is an example of why it makes a difference:

  • Say there are 10 people in a bar with a total annual income of $550,000.
  • Their per capita income would be $550,000 divided by 10, or $55,000.
  • If their individual incomes were pretty evenly distributed between $30,000 and $80,000, their median income might also be $55,000. Five of the people would be below that number and five people above.
  • Now, assume that Elon Musk walks into the bar and his annual income is $110,000,000.
  • The per capita income in the bar just jumped. It became $110,550,000 divided by 11, which equals $10,050,000. On a per capita basis, everyone became a multi-millionaire!!
  • That doesn’t feel like reality, of course. Elon Musk isn’t writing checks to anyone. So, median income might be a better way to understand the situation.
  • The median income of the 11 people will only rise a few thousand above $55,000, if that. It will just go up enough so half the people are below it and half above it. Elon Musk is just one more in the “above category.”

 What happened in our states 2012 – 2021 is a pretty simple story

With that understanding, here is North Carolina’s story:

  • Between 2011 and 2021, per capita personal income grew 51%.
  • Median family income was $45,206 in 2011.
  • If median family income had grown by the same 51%, it would have reached $68,221 in 2021.
  • However, it only reached $62,891 – a shortfall of $5,330 for the typical family.

These conclusions are mine, but the figures come from U.S. government statistics. You can find them at the Bureau of Economic Analysis website. My spreadsheet with the calculations is available on request.

So what is the upshot of all this?

In absolute terms most North Carolina families were improving their earnings, but were falling behind relative to more affluent families, business owners, and investors. The comparison with per capita income growth shows this relative slippage. I worry about that. What does it do to the majority of kids in the next generation as they see the affluent families pulling farther and farther away from them? Why would it not lead to the politics of envy and resentment?

I would be happy if someone could show me why this analysis is wrong, that I don’t need to worry, that everything will be OK if we just keep focusing on growing the pie. “A rising tide lifts all boats,” I have heard it said.

If this analysis is not wrong, then it’s time for leaders in North Carolina to start focusing — not only on how to grow the pie – but on how the pie is sliced up. It starts with reporting – did the state’s families earn a fair share of last year’s economic growth? How did we do compared with other states? If our typical family was falling behind, what can employers do to help? What can government policy do to change the dynamics? The answers will be there if we are motivated to look for them.

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