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Income convergence: Massachusetts vs. the U.S. and the U.S. vs. the world

Summary:
Massachusetts has historically been one of the richest U.S. states, at least in per capita personal income; it was indeed the richest state as of the second quarter of 2021. And the U.S. has been one of the richest countries in the world, at least in terms of per capita GDP. So, in this post, we use data from the Bureau of Economic Analysis and World Bank to show some relationships in per capita income and GDP. The blue line plots the ratio of per capita personal income for the United States as a whole to that of Massachusetts. From the 1930s until 1980, the United States as a whole was catching up, or converging, to Massachusetts: from about 75% of the per capita income of Massachusetts to nearly 100%. Since 1980, that trend has reversed and U.S. per capita income has decreased

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Massachusetts has historically been one of the richest U.S. states, at least in per capita personal income; it was indeed the richest state as of the second quarter of 2021. And the U.S. has been one of the richest countries in the world, at least in terms of per capita GDP. So, in this post, we use data from the Bureau of Economic Analysis and World Bank to show some relationships in per capita income and GDP.

The blue line plots the ratio of per capita personal income for the United States as a whole to that of Massachusetts. From the 1930s until 1980, the United States as a whole was catching up, or converging, to Massachusetts: from about 75% of the per capita income of Massachusetts to nearly 100%. Since 1980, that trend has reversed and U.S. per capita income has decreased relative to that of Massachusetts. As of 2020, the ratio is back to its 1930s level. Even though per capita income grew in the United States during the 1980-2020 period, it did so at a slower pace than in Massachusetts.

The lesson here is that states poorer than Massachusetts were tending to grow faster than Massachusetts until 1980, implying that the United States as a whole was growing faster. Since 1980, states poorer than Massachusetts have grown at a slower pace and are not converging to the richer states anymore.

The red line shows a similar relationship at the world level, plotting the ratio of real per capita GDP for the world as a whole to that of the United States. Interestingly, the pattern is similar: What appears to be true within the United States (i.e., the absence of convergence of poor states to rich ones) also appears to be true at the world level (i.e., the absence of convergence of poor countries to rich ones).

How this graph was created: Search for and select “Per Capita Personal Income in Massachusetts.” From the “Edit Graph” panel, use “Edit Line 1” to add a series, searching for “Personal Income Per Capita” and applying formula b/a*100. From the “Add Line” tab, search for and select “Constant GDP Per Capita for the United States” and apply the same process as above by adding “Constant GDP Per Capita for the World.” Finally, use the “Format” tab to ensure the second line uses the right axis.

Suggested by Guillaume Vandenbroucke.

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FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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