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Does Geographic Region Have an Impact on Mean Family Income?

Mean Family Income in Midwest Census Region Versus Mean Family Income in Northeast Census Region

The Midwest Region of the United States is the heartland of farming. Historically, it has contained mostly perfect, flat land for agriculture, good soil, and an a variety of climates, well suited for farming. Thus, a huge sector of the economy has been dedicated to manufacturing and farming. On the other hand, the Northeast Region's closer proximity to water has given way to an international trade-based economy dominated by financial corporations and business conglomerates. Until World War II, the Northeast had primarily dominated the manufacturing industry. After this period, industry moved to the Midwest because of lower costs of production. Now, the Northeast is a magnet for more skilled workers because of more developed technology, a more competitive labor market due to better pay, and a better medical market. The incentive for less-skilled workers to move to the Northeast has decreased with the creation of this financial, governmental, medical, and educational conglomerate that we now know today.

We can see on the graphs how mean family income has steadily increased in both regions since 1984, but where do the graphs differ? Are there any periods where growth has declined in one region and increased in another? What might be the reason for these differences?

In addition to this, the graphs begin at 1984, post-"Extraordinary Time". Why then has mean family income steadily increased, despite some declines in growth along the way?

Juliana Kerper and Chris Vogel

24 thoughts on “Does Geographic Region Have an Impact on Mean Family Income?

  1. hermana20

    From 1984 to 1989 the mean family income in the Northeast increases at a much faster rate than the mean family income in the Midwest (47k vs. 40k). The mean family income in the Midwest dropped during the 2008 recession, however, the mean family income in the Northeast continued to rise during the recession (only dropping briefly coming out of the recession then resuming steady positive growth). The drop in the mean family income in the Midwest during the 2008 recession could be attributed to the fact that many auto manufacturers that suffered from the automotive industry crisis of 2008-2010 are located in Midwestern cities like Toledo, Akron, and Detroit. Many auto manufacturing jobs were lost during the recession, and more losses were only saved by Obama's $80 billion bailout of the auto industry. On the contrary, most jobs in the Northeast at banks, financial firms, universities, and other independent businesses were less effected by the 2008 recession. Mean family incomes have likely increased even after the end of the Golden Age because incomes have generally kept up with rising prices and inflation. $250,000 was a fairly strong salary in New York City in 2002, but now $1 million dollars is. These two salaries are relatively the same when the price increases in living costs are taken into account.

    1. Chris Vogel

      Inflation from 2002 to 2017 was 1.36, therefore a $340,000 salary would be equivalent to $250,000. So, a $1 million dollar salary today is almost 3 times greater, in real terms, than a $250,000 salary in 2002

  2. johnsonj20

    The tech boom of the late 1990s largely explains why the mean family income in the Northeast region (where high-skill jobs are more dominant than in the Midwest region) rose nearly $3000 more from 1995-2000 than the mean family income in the Midwest region during the same period. Innovations in communications and transportation decreased the demand for labor in the manufacturing sector and shifted the demand for labor to the service sector. The Midwest region was dealt the brunt of the manufacturing blow as workers were laid off and manufacturing jobs were relocated abroad, where the opportunity cost of labor-intensive work is lower than in the United States. The continuous gravitation away from manufacturing and toward service as the largest American economic sector into the 21st century also explains why the mean family income has risen by nearly $6000 more from 2000-2015 in the Northeast region than in the Midwest region from 2000-2015. Rising productivity has increased GDP over time, which has corresponded to higher wages, incomes, and prices. The generally positive slopes in the graphs reflect these trends.

  3. yuy20

    Historical differences in industry definitely contribute to the variations in the two graphs, and as Ayub and Jack mentioned, the transition to a service economy has also taken a toll on the Midwest income growth. However, the Midwest has learned to adapt the these changes; for example, agricultural industries have expanded into other areas such as food services or research involving science. Expansion and connection into other parts of the economy helps retain the Midwest's strengths and advantages in resources. Also, it appears from the graph that income changes more suddenly in the Midwest than in the Northeast. This may arise from the volatility in the economy and tendency to respond faster to economic changes. Another interesting thing to note is that income inequality is less in the Midwest than other regions in the country, according to the Federal Reserve Bank in St. Louis. This may also contribute to slower income growth if less higher incomes are growing at a faster rate.

    1. Chris Vogel

      Do you the volatility of the Midwest economy reflects its manufacturing economy? Or are there other reasons for this?

  4. the prof

    See work by Danny Breznitz on cities that have managed structural transitions and those that have not. Why has Boston done well? Terrible weather, horrid expressways, old and expensive housing, and that manufacturing decline. Too close to NYC to have a full set of sophisticated financial institutions (OK, some insurance) or lawyers who can handle M&A or debt issues. Then there's Minneapolis, add high taxes to the mix, and unions, but it does much better than Wisconsin with the same historical background (ethnicity, education, industry mix). Their success is not a "macro" story but nevertheless fascinating and important.

  5. lentza20

    It is very interesting that the two different regions responded differently to the recessions seen in the economy. In the Midwest, the 2008 recession resulted in a clear decrease in the Mean Family Income, which is to be expected. However, in the Northeast during the same time the economy saw growth until the middle of the recession. What caused this discrepancy? Could it be the trade industry, which takes longer to respond to the market? Or could it be that manufacturing jobs were still feeling the high of the pre-2008 boom, while farming is the first market to be hit? Additionally, is there any correlation between the growth of the two regions/industries and the wellbeing of the economy as a whole? Or are they unaffiliated?

  6. perelk20

    If you look at the two graphs on the largest scale, they look relatively similar (both increasing). This suggests that family income acts on a more country wide level perhaps and is no necessarily dependent on industry type. The more specifically we look at the two graphs, i.e. 2008 during our most recent recession, the midwest average income is around 76k, while the Northeast averages 88k. Even outside the recession, this trend of greater wealth in the Northeast holds true over the years. Perhaps the trade industry is simply more lucrative than the farming industry. In our worldwide globalized economy, this idea probably holds true, now more than ever.

  7. liur20

    I found one interesting aspect of the the median income for Northeast region is that during the 2008-2009 finical crisis, the median family income did not fall until the U.S. going out of the recession as to the median income for families in the midwest experienced an income drop but recovering before the recession ended. I believe the factor that contributed to this difference in both region's income is due to industry's difference. Farming and manufacturing hasn't been a very high paying jobs compared to high-skilled corporations in the Northeast and posed a major difference in the median job. One of the reasons why the median salary for the northeast region declined after the great recession is probably because the regulations that were put into places after the recession and this limited the job growth and expansion.

  8. the prof

    • Data interpretation: it would be much easier to see differences and similarities if these were in the form of an index (FRED will do that for you) or even better, an index with a log scale.

    • Real vs nominal: housing in NYC is brutally expensive. Does that make comparisons meaningful? Using an index helps, but if the cost of living diverges over time, it may still be misleading, or at least overstate / understate differences.

  9. williamse19

    Although these graphs do have some differences, I was frankly surprised they weren't more different. As Professor Smitka said above this comment, housing is much more expensive in the Northeast while the Midwest has more room for urban sprawl and cheaper land (as a generalization). I expected the wage rates to reflect this however the final mean value only differs by about 10,000. It would also be interesting to see this indexed with inflation. Do incomes grow at such a seemily steep rate when inflation is factored in?

  10. hermana20

    https://fred.stlouisfed.org/graph/fredgraph.png?g=fzC8

    Here is a Fred graph that I have edited to include 3 different House Price Indexes in Iowa (Midwest), New York (Northeast), and California. As you can see, house prices in California and New York are much higher than in Iowa, and in California house prices were slightly higher than in New York very briefly in 2006. This makes sense because prime real estate in San Francisco, Los Angeles, Pasadena, etc. can go for a fortune. Likewise, in New York, real estate is extremely expensive with low-level apartments costing at least $2-3 million and many penthouses going for $20 million plus, with the top penthouses in New York going for upwards of $80 million!! During the recession, real estate prices in California took a large hit, while the hit in New York was reasonably small.

    https://ny.curbed.com/maps/nyc-most-expensive-homes-for-sale

  11. thaia19

    The graphs look fairly similar, and mean family income for the midwest and the northeast seems to be steadily rising at approximately the same rate. The graph for the midwest is slightly smoother and les volatile. I did notice that the mean family income in the northeast dropped more immediately in response to the 2008 recession, and in the midwest dropped a bit later. The mean family income in the midwest did take longer to recover from the recession than in the northeast and experienced a prolonged dip, but the northwest recovered within a year, returning to the previous rate of increase.

    1. Chris Vogel

      I think the you may have mixed up the graphs, as the northeast average household income rose throughout most of the 2008 recession.

  12. gutierrezcuadras20

    As many have pointed out, the two graphs look similar in showing an increasing trend in mean family income except during the Great Recession. In this time, the Northeast experienced a rise in mean family income from 2008 to 2009 while the midwest experienced a decrease. One reason that could have led to this difference is the housing industry. Housing in the Northeast proves far more expensive than in the Midwest, and so I imagine that demand for housing remained higher than in the Midwest even during this economic hardship. The value of homes for people in the Northeast thus remained high and so income correspondingly remained high. Additionally, mean family income has most steadily increased despite declines in growth because inflation continues to rise and directly causes both prices and incomes to increase.

  13. hartigank20

    Looking at the two graphs, we can see that the Northeast family income has increased at a faster rate than the midwest income. It seems to start in 1980, where Northeast mean family income is $24,827 and the Mideast mean family income is slightly smaller at $24,347. After this, the mean family income between these two regions begins to divide more and more. In 2015, mean family income in the Northeast was $103,932 while in the Midwest it was $92,269. I thought it was interesting how during the 2008 financial crisis, family income in the Northeast rose from $88,722 in 2008 to $91,096 in 2009 while Midwest income dropped from $76,432 in 2008 to $74,931in 2009. After this, midwest income rises while northeast income drops.

  14. wilkinsonw20

    One particular inconsistency that stuck out to me occurred during the recession we felt during 2008. In the Midwest, average income decreased as one would expect. In the Northeast on the other hand, prices rose for the beginning of the recession before falling only slightly over half way through the event. The Northeast took a turn for the worse where as the Midwest actually began improving during the time we were coming out of the recession. One possible explanation for the Northeast's decrease in mean family income could be the regulations implemented at that time. What could account for the Midwest's rise coming out of the recession? Perhaps the agriculture industry reacted faster to the economic changes than the manufacturing industry of the North east?

  15. Mac

    The cost of living varies significantly between the two regions. The average cost of living in NYC is about $7,400 a month versus $3,670 a month in Kansas City. I bring this up because if affects the wage distribution in the northeast and midwest. Obviously, it is significantly higher to live in a larger and more populous city like NYC than an outskirts country city like Kansas City. Looking at the y-axis for both graphs, the midwest family income is about $10,000 less than the northeast graph. Wages are adjusted for the average cost of living in each region of the country as demonstrated by the graphs and cost of living information. Production, consumption, populations, domestic trade, and international trade are a few variables that affect the rise of income for these two regions. The northeast has a head start on establishing a network of trading routes globally since it was civilized earlier than the agrarian midwest. In 2001, the midwest increased its family income average while the northeast decreased significantly. Possible reasons for this is a more solidified economy based off of farming that does not fluctuated during recessions because food is always in demand. In the northeast, production is more focused on commodities instead of necessities.

  16. Nate

    It is not a secret that the United States is an incredibly large county with regions that very greatly from each other in geography, population, resources, and culture. The Midwest was a much larger manufacturing hub prior to when companies began outsourcing cheap labor to countries such as Mexico, Taiwan, China, etc. This has likely been a large reason for the growing gap in mean household income between it and the Northeast since the beginning of the 1980s, when the two regions had practically identical mean family earnings. Additionally, the general increasing trend of figure above could be largely attributed to not accounting for inflation. For instance, the average Northeast family earned $47,325 in 1989, which is roughly $96,000 in today's money.

    1. Chris Vogel

      After accounting for inflation, what do you think is the source of salary difference? Reflection of costs of living? Efficiency wages reflecting the "higher quality" worker in the Northeast? Shift to more of a serviced based economy?

  17. Lukas Campbell

    I was surprised by the similarity between these two graphs in terms of growth in mean family income. While the most recent data points do show that the mean income in a Northeastern home is greater than that of a Midwestern home, that can be attributed to geographical differences and the higher cost of living in the Northeast. However, it seems that these differences do not have an effect on the overall rate of change in mean household income.

  18. blaira19

    Both graphs are fairly similar in the scheme of things, but there is differences from where the income is coming from. From the midwest, the population is more in the agricultural business whereas the northeast has been known for the technology and trading markets. From the graphs we can clearly see during the recession of 2008, there is a difference between the midwest and the northeast by nearly 13k. As the world moves towards technology, we will always need to have agriculture to provide food for the American population. If agriculture was redefined and changed with technology, then there is a chance that the agricultural industry could have a strong comeback.

    1. Chris Vogel

      Do you think that there is room for strong advancement in the farming sector given diminishing returns on capital?

  19. the prof

    For housing, there are urban areas that are "open" and ones that are "closed" due to topography or zoning. The former tend to have lower prices, and exhibit different dynamics. The latter can be idiosyncratic. If Atlanta or Phoenix grows, another suburb pops up. If San Francisco grows, housing prices pop up.

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