Studies: Income growing at good pace in South Dakota

Thursday, October 24, 2013

Article By:  Aberdeen News   |   Jeff Natalie-Lees


South Dakota wages are increasing at a rate much faster than the rest of the country, according to studies released in the past month.

The U.S. Department of Labor recently published data showing that gross wages in South Dakota increased 6.43 percent from 2010 to 2012. That is almost double the national average of 3.63 percent.

In another study conducted by the U.S. Department of Commerce's Bureau of Economic Analysis, South Dakota led the nation in total and per capita income growth from 2010 to 2011. Total per capita income rose 12.8 percent while personal per capita personal income rose 11.8 percent.

"This is telling us that South Dakota is moving in the right direction," said Nathan Lukkes, deputy commissioner of the Governor's Office of Economic Development.

For many years, South Dakota has been viewed as a low-wage state. It routinely ranks toward the bottom in gross wages. In the fourth quarter of 2012, South Dakota ranked 49th in wages out of 50 states and the District of Columbia, according to U.S. Department of Labor statistics. The only two states South Dakota beat were Idaho (50) and Mississippi (51).

That impression of being a low-wage state is really a myth when other factors are considered, Lukkes said.

"Yes, if you look at gross pay, we are near the bottom of the barrel, but every state is different," he said. "When you look at take-home pay and purchasing power, South Dakota does well."

South Dakota does not have a personal income tax, which has an immediate impact on income, Lukkes said.

Many neighboring states, such as Minnesota and North Dakota, have personal income taxes. Minnesota has a state income tax rate of 5.35 percent to 7.85 percent, depending on income, with the average family paying $1,263 per year, according to the Minnesota State Tax website

In South Dakota, families keep the money that would go to state income tax.

Another factor is cost of living. In many states, the cost of living, especially housing, is much higher than in South Dakota. This is especially true in high-cost-of-living states, such as New York, California, Hawaii and Alaska.

The Governor's Office of Economic Development released a study in September that showed average wages, when adjusted for payroll taxes and cost of living, in South Dakota rank 26th nationally. The study was based on data from the U.S. Department of Labor.

The picture becomes even rosier when looking at per capita income, a broader measure than wages. Personal income includes money from small businesses, farms, land rents or investments. In 2012, South Dakota ranked 17th in the nation in per capita income, according to the U.S. Department of Labor.

South Dakota wage growth is in contrast to many other parts of the country. Studies by the Economic Policy Institute, which look at wages adjusted for inflation, show that nationwide wages have been flat since 2007. Many states have shown a decline in real wages from 2007 to 2012, including:

  • Nevada, -6.5 percent.
  • New York, -4.8 percent.
  • Connecticut, -3.3 percent.
  • Michigan, -2.7 percent.

During that time, wages adjusted for inflation in South Dakota rose 4.2 percent. Oil-rich North Dakota led all states with a 25 percent increase in inflation-adjusted wages.

The Economic Policy Institute studies show that nationwide wage growth is uneven across educational levels. Since 2000, those holding advanced degrees saw inflation-adjusted average wages rise about 5 percent. Wages for all college graduates rose only 1 percent, while those with high school diplomas registered declines.

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