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Connecticut Economic Digest: September 1996 issue
Our Sources Of Income Are Changing | Housing Update | What does that job pay? | Leading & Coincident Indicators

Our Sources Of Income Are Changing
By Daniel W. Kennedy, Ph.D., Associate Research Analyst

Connecticut personal income per capita has been among the highest in the nation for many years and the most recent estimates from the United States Department of Commerce, Bureau of Economic Analysis (BEA) show the State's per capita income 33 percent above the national average in 1995. But a look at the percentage distribution of total Connecticut personal income by source over time shows that, to some extent, those with wealth have been making that wealth work for them, while those without have received increasing assistance from government.

Personal income (PI) is defined as income received by, or on behalf of, all residents of the State. Classified into five categories, it includes wages and salaries; other labor income (e.g., employee benefits and fees paid to corporate directors); proprietors' income; dividends, interest and rent; and transfer payments.

Trends in the 1990's

Real income has been far more stable over the business cycle in the United States since World War II than before. Several long-term shifts in the composition of personal income have contributed to this increase in stability. Largely, it has been due to the increase in the share of PI of those components that until recently have been relatively recession-proof (interest, rental income) or even counter-cyclical (transfer payments). In fact, transfer payments (social security, unemployment, government pensions, etc.) are at their highest level since before 1969 both in Connecticut and the United States.

The share of total income accounted for by transfer payments fluctuates somewhat with the business cycle, rising as the economy worsens and falling as the economy grows. The exception to this rule appears to be the most recent recession which caused significant growth in transfer payments at the state and national levels; through the end of 1994 there has been no evidence of a decline in this component. As shown in figure The share of total income accounted for by transfer payments fluctuates somewhat with the business cycle, rising as the economy worsens and falling as the economy grows. The exception to this rule appears to be the most above, between 1969 and 1994 the transfer share of total personal income has almost doubled, rising from 7.2 percent to 14.1 percent in Connecticut and from 9.2 percent to 16.9 percent at the United States level.

There appears to have been other trend-shifts in the composition of PI in both the United States and Connecticut in the early 1990's. Table 1 presents the changes in the composition of quarterly PI for Connecticut and the United States from the peak of their respective 1980's expansions to the 1995:Q4 estimates in the current expansion. At their 1980's expansion peaks, wages and salaries were a slightly higher percent of total PI in Connecticut than in the United States, as were dividends, interest and rent, and other labor income. Conversely, transfer payments were a significantly lower share of income in Connecticut than in the nation, and proprietor's income a slightly lower share.

Through the most recent recession and current expansion, some noteable changes in the composition of PI have taken place in the State relative to the national economy. Wages and salaries declined as a share of PI in both the State and nation, but are now a smaller share of PI for Connecticut than for the United States indicating a larger relative decline for Connecticut over the period. Further, while transfer payments increased as a share of PI in both the State and nation, the relative increase over the period was greater for Connecticut. Nevertheless, the 1995:Q4 estimates show that transfer payments are still a much larger share of income at the national level than in Connecticut. Also of note, proprietor's income decreased as a share of Connecticut income from 1989 to 1995, but increased as a proportion of total national income.

Other than transfer payments, the only other component to increase its share of State PI in the early 1990's was other labor income. In addition to wages and salaries and proprietors' income, dividends, interest, and rent declined as a share of PI. For the United States, though dividends, interest and rent also lost share (along with wages and salaries), other labor income and proprietors' income (like transfer payments) gained as shares of United States PI over the current business cycle.

Effect of the Recession

Clearly, the trends in the sources and composition of quarterly PI for the United States and Connecticut reflect the differences in the severity and length of the recessions and the disparate recoveries at the national and state levels. While the United States recession lasted three quarters (1990:Q3 to 1991:Q1), the Connecticut recession lasted 16 quarters (1989:Q1 to 1992:Q4). Further, even though both the state and national economies have gone through a restructuring, in addition to recession, in the early 1990's, Connecticut's restructuring has had a much more pronounced effect on the State's economy.

Though the latest quarterly PI estimates, as well as other economic data, seem to indicate that Connecticut is finally seeing the light at the end of the economic tunnel, the trends in changes in the composition of PI continue at both the state and national levels. Table 2 shows the changes in the composition of PI for the United States and Connecticut over the more current period, 1994:Q4 to 1995:Q5. Wages and salaries continued to decline as a share of PI in Connecticut and the United States, but at a faster pace in Connecticut. Proprietor's income also declined as a percent of quarterly PI for both the United States and Connecticut. Other labor income also declined as a source of PI in Connecticut while gaining share in the nation. Thus, three components declined in share for Connecticut, compared with two for the United States. For both Connecticut and the United States, dividends, interest, and rent and transfer payments gained as a percent of personal income, the pace again slightly faster for Connecticut than for the United States.

Income Distribution and Policy Implications

It should be emphasized that a decline in the share of a component of quarterly personal income does not imply that that source of income did not experience positive growth. It implies that the growth rate of that component did not keep pace with the growth of total PI. This point is depicted in Table 2, which presents the growth rates of the sources of PI for Connecticut and the United States over the 1994:Q4-1995:Q4 period, compared to the growth rate of total PI. Those sources of income growing faster than PI increased as a share of PI; those growing more slowly than PI experienced a decline as a percent of total PI over the period. Nonetheless, there appears to be a fundamental shift in the sources of quarterly PI at both the state and national levels, with the shift proceeding at a faster pace at the state level. That shift seems to indicate an acceleration of the sources of income associated with those at the high and low ends of the income spectrum. This in turn, implies a continuation of the trends in the distribution of income. The next year or two will reveal what effect the recent changes to the minimum wage and welfare laws will have on these trends.

(The United States Bureau of Economic Analysis produces quarterly estimates of personal income on a four month lag basis for all states and the nation. The Connecticut Department of Labor forecasts the quarterly State PI one to two quarters beyond the BEA series to provide timely, up-to-date estimates for the State. For a more detailed discussion of the composition of personal income and the derivation of the DOL forecasts, contact the Department of Labor's Office of Research.)

Table 1:

Changes in Composition of Personal Income, 1989-1995

Connecticut:
PI Component First Quarter 1989* Forth Quarter 1994 Forth Quarter 1995 Change 1989-1995 Change 1994-1995
Wages & Salaries 59.17 56.12 55.61 -3.56 -0.51
Other Labor Inc. 5.99 6.77 6.76 +0.77 -0.01
Proprietors' Inc. 7.14 7.11 6.96 -0.18 -0.15
Div., Int., Rent 19.23 17.64 18.03 -1.20 +0.39
Transfer Payments 10.13 14.10 14.45 +4.32 +0.35
Adjustments** -1.66 -1.74 -1.80 -0.14 -0.07
United States:
PI Component Third Quarter 1990 Forth Quarter 1994 Forth Quarter 1995 Change 1990-1995 Change 1994-1995
Wages & Salaries 58.93 56.90 56.70 -2.22 -0.20
Other Labor Inc. 5.90 6.72 6.73 +0.83 +0.01
Proprietors' Inc. 7.41 8.40 8.09 +0.68 -0.31
Div., Int., Rent 17.86 16.17 16.41 -1.45 +0.24
Transfer Payments 14.75 16.77 17.02 +2.27 +0.25
Adjustments** -4.85 -4.96 -4.95 -0.11 +0.01

Source: United States Bureau of Economic Analysis.
* Peak of 1980's expansion for the State and United States.
** Adjustments to Income = Contributions to social insurance and residential adjustment to payroll data.

Table 2:

Growth in Personal Income Forth Quarter 1994 to Forth Quarter 1995
  Connecticut United States
Transfer Payments 7.07% 6.85%
Div., Int., Rent 6.74% 6.85%
TOTAL PI 4.48% 5.29%
Other Labor Income 4.35% 5.51%
Wages & Salaries 3.46% 4.93%
Proprietors' Income 2.35% 1.47%

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Housing Update
July housing permits increase

The Connecticut Department of Economic and Community Development today announced that Connecticut communities authorized 764 new housing units in July 1996 an 11.7 percent increase compared to June 1996 when 684 were authorized. The Department further indicated that the 764 units permitted in July 1996 represent a decrease of 2.1 from 780 units permitted in July 1995, and that the year-to-date number are down 11.9 percent, from 4,817 in 1995 to 4,245 in 1996.

Reports from municipal officials throughout the state indicated that Tolland County showed the greatest percentage increase in July compared to the previous year: 69 percent. Litchfield County reported the greatest percentage decline: 39 percent. Hartford County documented the largest number of new, authorized units in July with 187. Fairfield County followed with 133 units and New Haven County had 128 units. Waterford led all Connecticut communities with 40 units, followed by Southington with 28 and Ellington 26.

The permit activity figure for July included the following statewide amounts by structure type: detached single-family units, 636; attached single-family units, 77; two unit structures, l6; three and fourunit structures, 27; structures containing five or more units, 8.

Year-to-date totals indicate that Hartford County has issued the most building permits through the first seven months of 1996 with 1,011, followed by New Haven County with 858, and Fairfield County with 842. Southington authorized 122 new permits during this period, followed by Rocky Hill with 120, Waterford with 106, and Stamford and Wallingford, each with 105.

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What does that job pay?
By Michael Polzella and Pia Smith, Research Analysts

One of the most frequently asked questions we get is for the wages typically paid to a person in a particular occupation. To help answer that question, the Department of Labor recently released a new publication called Connecticut Occupational Employment and Wages in an effort to provide accurate and meaningful wage information to employers, job seekers, counselors, students, planners of vocational education programs, economic developers, Regional Workforce Development Boards, and others. Employers may find the data useful as a guide in analyzing pay scales; job seekers and students could utilize the information in making employment and career decisions; program planners should be aware of employment and wage levels in determining training programs to be offered.

The product of three years of survey efforts, this report offers employment and wage data for occupations in nonfarm industries (except for private household employees). The information is based on the results of the Occupational Employment Statistics (OES) Program, a survey-based statistical program which produces estimates of current occupational employment and staffing patterns by industry. It is conducted by individual state employment security agencies in cooperation with the United States Department of Labor, Bureau of Labor Statistics. Employment information and wage data are obtained from a large representative sample of more than 10,000 employers over the course of a three-year survey cycle. Occupational employment estimates based on the survey results are expanded to reflect total employment covered by the unemployment insurance program, which covers more than 90% of all workers. The collected data are also submitted to the Bureau of Labor Statistics for input into national occupational employment statistics by industry.

The new publication also lists the occupations with the highest average hourly wage for the seven major occupational groups. The survey found the top ten highest paying occupations overall to be: Dentists, $45.70; Physicians & Surgeons (MD), $44.80; Life Science Teachers- Postsecondary, $38.50; Sales Agents-Securities/Commodities/ Financial Services, $35.00; Lawyers/ Attorneys/Legal Counselors, $33.20; Engineering/Mathematical/ Natural Sciences (EDP) Managers, $31.60; General Managers & Top Executives, $31.00; Actuaries, $30.90; Social Scientists, $29.80; Nuclear Engineers, $29.60.


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Leading & Coincident Indicators
Leading index reaches new peak

Connecticut's leading employment index jumped to its highest level in the current recovery with the release of the (preliminary) June data. The coincident index continues to send a positive signal, rising smartly this year and having not fallen on a month-to-month basis since December 1995.

The leading index, a barometer of future employment activity, experienced its largest one-month fall in January 1996 and rebounded dramatically in February. It then rose in March, fell in April, and popped higher in both May and June. Now, the leading index exceeds its level in every other month since its last trough in June 1992.

The coincident index, a gauge of current employment activity, paused (did not change) in June after sending strong positive signals in four of the first five months. The exception, March, also saw a one-month pause. The coincident index accelerated its upward movement this year from its prior slow increase during the current recovery. No end is now seen for the current recovery, based on the coincident index.

The June release, therefore, provides more support for the view that the current recovery has strengthened, at least in the short term. In addition, the longer-term expectations for the current recovery have improved somewhat with the most recent peak of the leading index. Cautious optimism about the longterm future of the Connecticut economy seems reasonable. Nonetheless, a careful watch over future monthly data will provide a broader base for such optimism.

In sum, the coincident and leading indices add to the growing consensus that the Connecticut recovery began to accelerate this year. As an example, the headline in the April issue of The Connecticut Economy: A University of Connecticut Quarterly Review stated that "Finally, It Looks Like a Recovery."

The leading employment index rose from 86.3 in June 1995 to 89.9 in June 1996, or somewhat above its previous peak of 89.4 in September 1995. All five index components sent positive signals on a year-overyear basis with a higher average work week of manufacturing production workers, lower initial claims for unemployment insurance, higher Hartford help wanted advertising, a lower short-duration (less than 15 weeks) unemployment rate, and higher total housing permits.

The coincident employment index rose from 83.2 in June 1995 to 88.2 in June 1996. All four index components continued to point in a positive direction on a year-over-year basis with higher nonfarm employment, higher total employment, a lower total unemployment rate, and a lower insured unemployment rate.

Source: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [(203) 322-3466, Stamford Campus (on leave)] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Tara Blois [(860) 486-4752, Storrs Campus] provided research support.

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Last Updated: October 15, 2002