A Primer on Personal Income
By Daniel W. Kennedy, Ph.D., Senior Economist, DOL

Spending on goods and services drives the U.S. economy. If Aggregate Expenditures (AE) decline, economic activity contracts, and conversely if AE increases, the economy expands. Aggregate Expenditures are the sum of spending on consumption by households, investment by businesses, government purchases, and net exports (imports minus exports). Two-thirds of all spending in the U.S. economy is consumer expenditures, making these expenditures the largest component of AE. Of the factors that influence aggregate household consumption, Disposable Income (DI), or after-tax income, is the most important. The principal determinant of DI is Total Personal Income, making Personal Income an important gauge of current economic activity. In fact, Personal Income minus Transfer Payments is one of the Conference Board's coincident economic indicators.

The level of Personal Income is just as important for determining the level of economic activity for regions, states, and local areas. As such, Personal Income serves as an important coincident indicator of economic activity in Connecticut. What follows in this article focuses on the Quarterly Personal Income (QPI) series for the U.S., the regions, and the states. QPI is the most frequently released income series at the state and regional levels. It is released by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce on their website (www.bea.doc.gov) and in their Survey of Current Business each quarter. Preliminary estimates of the QPI are released four months after the end of the quarter (the fourth quarter 2000 QPI estimate was released in April 2001). Consequently, the Connecticut Department of Labor (CTDOL) forecasts the state QPI series for Connecticut one to two quarters ahead to provide a current estimate for publication in the Connecticut Economic Digest.

What is Personal Income?

Personal Income is defined as income received by persons from participation in production, from government and business transfers, and from government interest. It is composed of Wage and Salary Disbursements, Other Labor Income, Proprietor's Income, Rental Income of Persons, Personal Dividend Income, Personal Interest Income, and Transfer Payments to Persons, less contributions for Social Insurance.

What Does It Measure?

Personal Income (PI) is actually one of three measures of household income. The two other widely used measures of household income are the U.S. Census Bureau's Money Income and the Internal Revenue Service's (IRS) Adjusted Gross Income (AGI). Money Income consists of cash and its equivalents received by individuals. AGI is the taxable income of individuals who filed a Federal Income Tax return. PI, in general, is a more comprehensive measure of income. Further, since PI is a component of the National Income and Product Accounts (NIPA), it more closely adheres to the economic concept of income (explained below).

The NIPA was devised to provide an income statement for the U.S. economy. The most widely reported measure from the NIPA is Gross Domestic Product (GDP). GDP measures the dollar value of goods and services produced in the U.S. during a given time period, using land, labor, and capital located in the U.S. (whether domestically or foreign owned). Like two sides of the same coin, one side, GDP, measures goods and services purchased (product side); the other side, National Income (NI), measures the income earned from the use of land, labor, and capital (income side). For the economy as a whole, spending on output must equal income received for that output. This is expressed in the following accounting identity:

EXPENDITURE = INCOME.

It is from the income side that Personal Income is derived. Though, in theory, National Income equals National Product, in practice, it is not the case. Several adjustments must be made to go from one side of the NIPA to the other (i.e., from GDP to NI). After making the necessary adjustments to get from GDP to NI, income not going to persons (i.e., households and noncorporate businesses) must be subtracted from NI. Thus, NI must be reduced by the amount corporations earn but do not pay out (i.e., corporate profits with inventory valuation and capital consumption). Also subtracted from NI, are Net Interest, Contributions for Social Insurance, and Wage Accruals less disbursements. Then, Interest Income earned by households, Dividend Income received by households, and Business and Government Transfer Payments to persons must be added to NI to obtain Personal Income.

What Exactly is "INCOME"?

State PI vs. NIPA PI

State Personal Income is the measure relevant to Connecticut, and is the income series forecasted by the Connecticut Department of Labor and published in the Digest on page 8. It is necessary to make a distinction between State PI and NIPA PI because the two are not the same.

The sources of the difference between the two are differences in the coverage of the components of PI and the use of more current source data for NIPA PI. The NIPA PI also includes other adjustments for U.S. and foreign workers that are not included in State PI.

Connecticut State Personal Income

State Personal Income is defined as the income received by, or on behalf of, all the residents of the State. The major components of State PI are the same as those that make up the NIPA PI. However, there are some further adjustments that have to be made to derive the residence-based PI at the state level. Personal Income is a measure of income by place of residence. And the source data for the dividends, interest, rent, proprietors' income, and transfer payments components of PI are recorded or treated as if they were collected by place of residence. However, Wages and Salaries, Other Labor Income, and Social Insurance Contributions, which make up more than two-thirds of PI, are recorded by place of work. Thus, the initial estimates must be adjusted so that they will be on a place-of-residence basis. This is the Residence Adjustment. This adjustment is more important for the state PI estimates than for the national estimates.

The result of the Residence Adjustment and subtracting Personal Contributions for Social Insurance is to translate earnings by place of work to earnings by place of residence on a net basis.

Table 1 below presents PI, its components and adjustments for Connecticut, New England, and the U.S. for the fourth quarter 2000. Major selected components of PI appear in boldface in the table. Table 2 shows the relative size of selected components of PI in the fourth quarter 2000.

Source: Bureau of Economic Analysis, U.S. Department of Commerce (April 24, 2001), $ in millions.

Why Do the PI Estimates Keep Changing?

Many wonder why a value for PI for the same quarter keeps changing as new releases come out. There is frustration with "trying to hit a moving target." This revision process is an attempt to maximize the trade-off between timeliness and reliability. Waiting until the most complete data are available to publish a PI estimate for a given quarter would result in too long of a lag between the release date and the reference date. An example of this problem is the two-year lag in the release of Gross State Product (GSP) data. It must be forecasted two years ahead to provide a current estimate. On the other hand, an estimate released very shortly after the reference period, and based on little data and questionable sources, would result in the release of seriously unreliable estimates. The preliminary estimate of State PI is released four months after the reference quarter, and is later revised twice. The first revised estimate is derived from the Current Employment Statistics (CES) establishment survey. The second revised estimate is based on data from the Unemployment Insurance (UI) program, which is a more complete source of the State employment and wage data. This process allows a more timely release of this important coincident indicator of the State's economic pulse (which is forecasted one to two quarters ahead to obtain a current estimate - not two years), and at the same time, it provides a reasonably reliable estimate. The exception to this is when a dramatic redefinition is implemented or when new, significant data becomes available at the annual July NIPA benchmarking. Each April and October, the estimates are revised for the preceding three years.

The references for this article are available upon request. Please call 263-6268.

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Occupation Profile: Secondary School Teachers
By Michael H. Zotos, Ed.D., Associate Research Analyst, DOL

Introduction

The demand for secondary school teachers is expected to continue to be strong, despite job losses in many sectors due to the downturn of the economy. Education has been one of the few industries adding workers despite job declines in other sectors. Over 300,000 workers were added from September 2000 through September 2001 at the national level. This figure includes private, state, and local education sectors. Connecticut local education entities alone added 1,575 workers during this same period, and it appears that demand for secondary teachers in selected subject areas will be ongoing. This is due to higher student enrollment, an increase in teacher retirements, higher teaching standards and qualifications, and fewer prepared teachers in subjects such as math, science, languages, and other special subject areas.

What Do They Do?

Secondary school teachers instruct students in one or more subjects such as mathematics, English, science, or social studies. They are employed in public and private schools. As teachers, they deal with instructional indicators such as creativity, interpersonal regard, grouping, and individualization of instruction. On occasion, they may teach more than one subject and may hold certification in specialized areas such as guidance or administration. They participate in extra curricular activities, act as faculty advisors, and meet with parents to discuss student progress. They often volunteer their time and energies to assist students to reach their highest level of productivity.

Education and Training

A Bachelor's degree in education is required as an entry level qualification for the position of secondary school teacher. Once employed, teachers enroll in courses which will enhance their effectiveness in the classroom. This allows them to learn new techniques and methods of teaching. It also keeps them current with new developments in education. Connecticut has a three-tiered certification continuum that recognizes the progression of a teacher's professional career: initial educator, provisional educator and professional educator certificates. Permanent certification requires teaching experience together with course credits in addition to the Bachelor's degree. Teacher workshops and training sessions are held at colleges, on site, and may be administered by private sector consulting firms. In addition, colleges offer summer school and overseas college programs for advanced study. Teachers who pursue higher degrees such as a Masters, Professional Diploma, and Doctorate also enhance their salary status. Salary schedules are often related to college or course credits, such as Bachelor's plus 15 or 30 credits. Positions in education other than teaching in the classroom include guidance, administration, and special services such as speech therapy, remedial reading, and school psychologist.

Where Do They Work?

The majority of secondary school teachers work in local public secondary schools. Teachers also are employed in private schools, some of which are administered by religious denominations, magnet schools, vocational schools, and regional multicultural schools. Opportunities are available for those who wish to teach elsewhere in overseas schools, government service, and the corporate sector.

Earnings

The statewide average annual wage for secondary school teachers, except special and vocational education, was $49,605 in the year 2000. This wage was the highest among all other teachers, instructors, and library staff for preschool through grade 12 at Connecticut schools. As the chart shows, the Stamford Labor Market Area ranked highest in the State with an average annual salary of $61,101. The range for all areas was $44,831 to $61,101.

Employment Outlook

The need for secondary school teachers through 2008 will be high in certain subject areas. Overall, employment is expected to jump from 18,058 in 1998 to 20,489 in 2008. Approximately 824 job openings per year are projected during this time span. Attrition of staff and higher enrollments are contributing to this need. Of all the occupations in Connecticut requiring a bachelor's degree or higher, secondary school teachers ranks second highest in annual job openings after general managers and top executives. 

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INDUSTRY PROFILE: CHILD DAY CARE SERVICES
By Jungmin Charles Joo, Associate Research Analyst, DOL

Introduction

Mirroring the national trend, the child day care services industry in Connecticut has been booming in the last decade. With the increasing number of women of childbearing age in the workforce, child care services has become one of the fastest growing industries in the Connecticut economy.

Description

The child day care services industry includes establishments engaged in the care of infants or children, or in providing pre-kindergarten education, where medical care or delinquency correction is not a major element. They include child day care centers, Head Start centers, nursery schools, and preschool centers. Occupations in this industry include preschool teachers, teacher assistants, and child care workers.

Establishments

While the number of Connecticut's total private sector establishments increased four percent from 1990 to 2000, the number of establishments in the child care services increased by 35 percent, from 704 in 1990 to 951 in 2000 (See table). Among the counties in the State, Fairfield County experienced the largest percentage increase (+50%) in the number of establishments. Fairfield County also had the largest number of child care establishments both in 1990 and 2000.

Employment

This industry had about 11,200 wage and salary jobs last year, up five percent from a year ago. In fact, its employment has consistently risen in every year of the last ten years. Moreover, even during the 1990-1992 period when total nonfarm employment declined, the child care industry actually added jobs (see chart). Between 1990 and 2000, while the State's overall private sector employment grew just three percent, child day care services jobs nearly doubled. The most rapid employment growth occurred in New London County (+148%). Last year, the largest number of child care jobs was concentrated in Fairfield (3,240) and Hartford (2,633) Counties.

Wages

Currently, the annual wage per worker in this industry averages $14,843, much less than the average of $46,027 for all private industries combined. Such low wages, in part, reflect hours worked - salaried workers in child care services averaged 30 hours a week, compared with about 35 throughout private industry. Despite steady yearly wage growth in the last decade, its 43 percent increase between 1990 and 2000 was still below the total private sector's 60 percent increase. Employees working in Fairfield County earned an average of $16,828 in 2000, the highest among the eight counties in the State. In contrast, Litchfield County employees earned the lowest at $14,108.

Outlook

Nationally, child day care services jobs are projected to grow 2.8 percent over the 1998-2008 period, nearly double the rate of growth projected for the entire economy (1.5%). Likewise, Connecticut is expected to show a similar growth trend in this industry. In addition to openings created by rapid employment growth, an unusually large number of job openings will result each year from the need to replace experienced workers who leave the industry. Turnover in the child care industry is very high because of the low wages and relatively meager benefits.

In the next ten years, the employment growth is forecasted to slow down from the previous decade because the number of women of childbearing age is expected to grow more slowly. Still, the demand for child care services will remain high. As the labor force participation of women between the ages of 16 and 44 continues to increase, more parents of preschool and school-age children will seek suitable daycare arrangements. Also, more government-funded center-based care (e.g., Head Start), employer-funded and -operated daycare centers, plus recently enacted welfare reform legislation requiring more welfare recipients to work, should create excellent employment opportunities in the child care services industry in both Connecticut and the nation.

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Industry Clusters
Access 2001 Winners Named

FleetBoston Financial and the Connecticut Department of Economic and Community Development (DECD) announced the winners of a $100,000 grant competition aimed at supporting both promising entrepreneurs and established businesses. 

Five businesses will receive technical grants of $20,000 each as part of the competition, known as Access 2001, sponsored by Fleet Development Ventures (FDV), a subsidiary of Fleet, and the DECD. The winners of the competition are: DreamReacher (Rocky Hill), E-Lite Technologies (Trumbull), New England Solution Systems (NESS) (Bloomfield), Nour Heart (Bloomfield), and PCC Technology Group (Bloomfield). 

The five winning companies were selected from over 30 entries in the Access 2001 competition. Twelve selected finalists presented their business plans to a panel of judges, who determined the five winning entries. The judges were an independent panel of experienced venture investors, industry leaders, and bankers. 

The overall Access 2001 program was designed to provide promising Connecticut entrepreneurs with the business management skills, knowledge and equity capital they need to build their businesses. Such entrepreneurship helps strengthen and sustain Connecticut's industry clusters. The industry cluster initiative depends on strong economic foundation elements such as capital availability, regulatory climate, and workforce development. Prior to the competition, Access 2001 held business planning and development seminars in Hartford and New Haven.

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Housing Update
October 2001 Housing Permit Activity

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development (DECD) announced that Connecticut communities authorized 820 new housing units in October 2001, a 5.7 percent increase compared to October of 2000 when 776 units were authorized. 

The Department further indicated that the 820 units permitted in October 2001 represent an increase of 37.1 percent from the 598 units permitted in September 2001.The year-to-date permits are up by 0.8 percent, from 7,850 through October 2000, to 7,912 through October 2001. 

Bridgeport Labor Market Area (LMA) recorded the largest net gain of new authorized units (51), an increase of 79.7 percent compared to a year ago. Trumbull led all Connecticut communities with 29 units, followed by Danbury with 24 and Milford with 21 units each. From a county perspective, comparing year-to-date data, Hartford, Windham and Fairfield counties surpassed last year's levels by 12.5, 10.8 and 10.4 percent respectively. Litchfield County is slightly ahead of last year's pace.

Towns and municipalities are required by the Census to report new residential permits on a monthly basis. This data is then compiled and transmitted electronically from the Bureau of Census to DECD.

In order to be consistent with other economic indicators from Department of Labor, we are now reporting new housing permits by Labor Market Area. The permit data by counties is still available upon request.

Note: The information in this news release is also being provided to all media outlets at the same approximate time each month in the State's Connecticut Economic Digest, a monthly compilation of state economic and housing activity. You may also access this information at the DECD web site, which is http://www.state.ct.us/ecd/research

DECD programs are administered in a nondiscriminatory manner, consistent with equal employment opportunities, affirmative action, and fair housing requirements.

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