The Beat Goes On

Delawareans per capita incomes trend continues the nine-year record of being lower than the national average

by Charlie Copeland, Co-Director

Center for Analysis of Delaware's Economy & Government Spending

October 12, 2021

The following is an update on the data release that CRI issued on July 2, 2020. CRI, periodically, will continue to update releases like this to demonstrate with data whether Delaware's economy has started to improve in overall terms or to improve in relation to the nation or not. Regrettably, in economic terms, Delaware continues its relative decline.

Delaware Per Capita Income Over Time (Earnings, Investment, Government Support)

Per capita (per person) personal income is one important measure of the economic well-being of a society. In 2002 Delaware's per capita income was 18% above the nation (see chart below). It has been downhill ever since. 2020 extended the decades-long downward trend as Delaware's per capita income now registers 5% below the nation.

(GRAPH SOURCE: U.S. Bureau of Economic Analysis)

As indicated in the graph above, the early 2000s were an economic catastrophe in Delaware with the closure of automotive manufacturing plants, the downsizing of the Dupont Company, and stagnation of the credit card industry.

However, these events from well over a decade ago do not explain the ongoing post-Great Recession erosion of Delaware's economy. Perhaps that can be explained by the continued shift in our economy from one driven by entrepreneurial activity to one driven by government expenditures.

Economists track personal income as three major components: earnings (wages and proprietor's income), investments (dividends, interest, rent), and transfer payments (Social Security, Medicare, Medicaid, TANF-Temporary Assistance for Needy Families - aka Government Support).

Earnings are the largest component of personal income, accounting for 60% nationwide. From 2002-2020 total earnings in the U.S. increased 88% but rose only 47% in Delaware - and actually decreased by around $64M in Delaware during the pandemic.

This loss of high-wage earners in Delaware has been accompanied by a slowdown in income from investments. The loss of high-wage earners also caused an increase in the negative effects of Covid-19 in Delaware versus the rest of the nation. From 2002-20 nationwide income from investments rose by 129% (versus last year's reported 133% - a 4% yr/yr decline), but Delaware took a larger hit - 2002-2020 income from investments rose just under 89% in Delaware (versus last year's reported 94% - a yr/yr 5% decline).

As shown in the chart below, in Delaware, the growth in the third component of personal income - transfer payments (aka Government Support) - continues to outpace the nation. Total transfer payments increased 332% in the U.S. from 2002-2020 while rising almost 400% in Delaware.

The state rose faster than the nation in all categories of transfer payments, most notably in Social Security and Medicare (beach retirees) and Medicaid (liberal eligibility requirements).

(Graph Source: U.S. Bureau of Economic Analysis)

The Impact of Delaware's Relative Poor Economic Performance

The data is clear. As Delaware's economy slows and its government grows, stagnation ensues.

This economic stagnation has a real impact:

One, our youth leave the State for growth locations and job opportunities elsewhere.

Two, entrepreneurs and growth companies skip Delaware for States that have pro-growth policies.

Three, government becomes more and more central for economic support, increasing costs to taxpayers.

All three of these forces drive the economy further into a negative feedback loop. The data above show the effect of the lack of entrepreneurial, high-value job growth in the State as well as Delaware's government expansion into the local economy.

In the past nine years, we at CRI have implored Delaware Governors to adopt policy changes proven to increase economic activity, which in turn would increase personal incomes such as:

Streamline the antiquated process of directing funds to schools, which will improve student outcomes and make Delaware public schools attractive again,
Lessen the burden of high business taxes on small & family-owned businesses to spur growth,
Take the recommended and proven steps to lower the highest industrial electric rates in our mid-Atlantic neighborhood, and
Eliminate the Health Resources Board, whose activities have reduced easy access to healthcare in our inner cities and rural areas while failing to control high prices.

These policy recommendations have been ignored. If the status quo continues, stagnation will too.

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