DEPARTMENT OF MANAGEMENT SERVICES (757) 385-8234 FAX (757) 385-1857 TTY: 711 MUNICIPAL CENTER BUILDING 1 2401 COURTHOUSE DRIVE VIRGINIA BEACH, VA 23456-9012 DATE: June 15, 2011 INTER-OFFICE MEMORANDUM TO: FROM: Jim Spore, Executive Catheryn Whitesell, Management Services SUBJECT: 2009 Per Capita Income Analysis We previously provided you with information on per capita income, which fell for the first time in history in 2009. An analysis of the data reveals that the loss of jobs and income within the City as opposed to income associated with jobs held by Virginia Beach residents outside the City represent one reason for the decline. A steep decline in dividend and proprietors income also serves as reasons. Attached is a more detailed analysis of per capita income, earnings, and jobs with comparisons to the major cities on Hampton Roads as well as Chesterfield, Henrico, and Prince William, and some comparisons over time. If you have any questions, desire additional explanations and/or comparisons, please let me know. CRW/ph c: MLT EV SIT SIT Team Leaders
City of Virginia Beach Per Capita Income Analysis
Definitional Background on Personal and Per Capita Income: There are two main sources of local income: Personal and Per Capita Income from the Bureau of Economic Analysis; and Mean and Median, Household and Family Incomes, and also Per Capita Income from the Census Bureau. The key distinctions are: BEA s Personal Income includes benefits while the Census Bureau s money income does not. BEA reports on three broad categories of income: Earnings (salary and benefits); Dividends (interest and rent); and Transfer Payments (Medicare, Unemployment Insurance, Public Assistance, and Veteran Benefits). The primary source for BEA s income data is administrative records (IRS and companies that are required to report for Unemployment Insurance purposes) while the Census Bureau data is self reported via surveys. Both sources measure income by place of residents. But the origins of BEA s earnings data are for place of work, meaning compensation to employees of businesses that are geographically located in a City. While many employees reside in the city in which they work, some do not. BEA estimates the net flows of income across neighboring communities to develop a place of residence income. This is referred to as Adjustment for Residence 1. This is an important concept, which will be discussed latter. Lastly, earnings data reflect a true average, meaning an average of all jobs regardless of the salary level and the hours worked. Industries with a high concentration of part-time employees can negatively influence the average earnings. 1 As an example, the BEA attempts to subtract the earnings of a Chesapeake resident who is employed in Virginia Beach. And it attempts to add the earnings of a Virginia Beach resident who is employed in Norfolk. The reason the BEA uses income by place of work, with a residency adjustment, rather than tax returns (referred to as Adjusted Gross Income - AGI and, by definition, is by place of residence) is that there is a longer time lag for the AGI data; there is a loss of industrial detail with AGI; and there are some non filing issues (some residents who earn very low incomes are not required to file taxes).
Composition of Per Capita Income: The data in the following table shows that Virginia Beach has the highest per capita income among all the benchmarks in this analysis, and the City s earnings per capita rank second. The City performs well in these comparisons because our residents earn high wages; we have the highest employment to population ratio (more workers supporting the non-working population); and these offset the relatively low wages of jobs located in the City, which is discussed in more detail latter in this analysis. The City ranks relatively high (fourth) in dividends per capita, most likely due to the aboveaverage wealth of our residents. Lastly, the City ranks tenth in transfer payments, most likely due to the City s relatively young age (fewer residents receiving Social Security) and low poverty rate (fewer receiving social assistance). Table 1: Composition of Per Capita Income Transfer Total Earnings Dividends Payments Virginia Beach 44,999 32,994 6,948 5,057 Chesapeake 39,966 30,186 4,588 5,192 Norfolk 36,838 24,669 5,503 6,665 Portsmouth 33,637 21,905 4,180 7,552 Suffolk 36,494 25,469 5,180 5,844 Hampton 36,252 25,736 4,132 6,385 Newport News 31,120 20,896 4,437 5,787 Chesterfield 41,454 30,426 6,212 4,816 Henrico 44,423 30,498 8,649 5,276 Prince William 43,827 35,406 4,960 3,461 Virginia 44,057 31,112 7,261 5,684 Unites States 39,635 25,548 7,143 6,944 Va Beach's Rank 1 2 4 10
Comparison of Per Capita Income over Time: Table 2 illustrates how relative comparisons have changed over time. The ratios in the table are illustrated with Virginia Beach s per capita income in the numerator. A ratio of greater than 1.00 means Virginia Beach s per capita income exceeds the income in a particular city. A ratio of less than one means our sales are less than the sales in that industry for that city. Over the entire time horizon, the City has gained in relative comparisons against Norfolk, Hampton, Newport News, Chesterfield, Henrico, and the United States. Over the most recent ten-year time period, the City has gained in relative comparisons against Chesapeake, Suffolk, Newport News, Chesterfield, Henrico, Prince William, Virginia, and the United States. Table 2: Va Beach's Per Capita Income as a Ratio of: 1969 1979 1989 1999 2009 Chesapeake 115.1 115.1 109.4 112.1 112.6 Norfolk 102.9 116.4 130.1 131.1 122.2 Portsmouth 136.3 123.5 131.6 141.6 133.8 Suffolk 127.0 122.8 120.0 122.2 123.3 Hampton 113.1 129.0 127.9 125.8 124.1 Newport News 107.9 119.4 123.8 137.5 144.6 Chesterfield 91.4 90.4 93.8 95.2 108.6 Henrico 92.1 90.7 88.6 87.0 101.3 Prince William 106.0 102.6 97.6 102.1 102.7 Virginia 108.4 106.9 102.3 97.9 102.1 United States 100.6 104.7 109.1 102.4 113.5
Employment to Population Ratio & Jobs Per Capita: The employment to population ratio measures how many workers support the population, and some economists believe this represents a better measure than the unemployment rate. The elderly and youth do not contribute significantly to the economy. Stay-at-home mothers, students, disabled, and discouraged workers represent examples of working-age population that do not participate in the labor force. As shown in Table 3, the City s ratio, the highest ratio among all the benchmarks, represents one reason why the City achieves the highest per capita income (and helps offset lower wages within the City). A companion indicator, jobs per capita, measures the number of jobs that are physically located within a specific political geography as a percentage of the locality s population. The City does not fare quite as well in this category (urban, core cities tend to have a higher concentration of jobs), but our ratio exceeds three of the four suburban benchmarks with similar socio-economic characteristics (Chesapeake, Chesterfield, and Prince William). Table 3: Employment & Jobs Statistics Employment to Jobs Population Ratio Per Capita Virginia Beach 54.0 0.558 Chesapeake 52.7 0.539 Norfolk 46.2 0.913 Portsmouth 44.8 0.572 Suffolk 48.6 0.397 Hampton 48.0 0.541 Newport News 52.0 0.601 Chesterfield 52.0 0.532 Henrico 52.4 0.699 Prince William 48.9 0.425 Virginia 53.3 0.602 Unites States 46.0 0.566 Va Beach's Rank 1 7 Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, and Census Bureau
Average Earnings (Salary & Benefits) and Composition of Jobs: The BEA provides data on average salary and benefits for jobs by place of work. It does not explicitly provide data on the average wage and salary of residents (it derives a total earnings by residents through adding or subtracting the residency adjustment to the earnings by place of work); however, using BEA and other data from other governmental agencies, staff have developed an estimate of average salary and benefits by place of residence. As the data in the tables 4 below and 5 on the following page indicate, the City s residents earn the second highest earnings among all the benchmarks (Prince William ranks first, undoubtedly positively affected by residents who reside in that county but earn high wages in other NVA localities and Washington D.C.). The City, however, ranks second to the last for average earnings for private sector jobs by place of work. Many City residents earn higher salaries elsewhere but choose to live in Virginia Beach, and this accounts for relatively high earnings by residents. Table 4: Average Earnings (Salary & Benefits) Place of Residence Place of Work All Jobs Proprietors* All Jobs Private Sector Government Virginia Beach 61,079 26,295 47,375 40,068 76,194 Chesapeake 57,331 18,911 43,049 40,442 57,817 Norfolk 53,365 38,074 68,121 51,776 91,399 Portsmouth 48,907 22,402 61,604 41,470 91,522 Suffolk 52,411 15,673 44,519 39,513 64,922 Hampton 53,580 16,155 57,040 40,428 91,000 Newport News 40,165 22,277 55,146 50,192 72,927 Chesterfield 58,557 15,377 43,718 41,014 60,624 Henrico 58,172 24,778 54,666 54,506 56,299 Prince William 72,401 19,396 49,734 42,936 78,520 Virginia 58,417 24,013 55,521 50,421 78,060 Unites States 55,560 27,577 50,695 48,301 65,178 Va Beach's Rank 2 3 10 11 7 *a type of business entity that is owned and operated by one individual and in which there is no legal distinction between the owner and the business. Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Census Bureau
Virginia Beach s average earnings by industry lag nearly all benchmarks. The City most notably lags in: Manufacturing; Information; Professional/Scientific/Technical Services; Management of Companies/Enterprises; Administrative and Waste Services; Educational Services; and Federal Civilian. Table 5: Average Earnings (Salary and Benefits) by Industry for Selected Benchmarks Va Beach Chesapeake Norfolk Virginia United States Construction 55,767 51,789 50,728 48,478 50,268 Manufacturing 52,429 63,399 62,624 64,568 72,640 Wholesale trade 68,245 56,652 Disclosure 75,050 72,785 Retail trade 26,057 25,733 30,400 28,481 29,664 Information 61,332 56,347 110,410 90,933 89,270 Finance and insurance 68,184 46,891 72,568 71,749 64,487 Real estate and rental and leasing 19,023 18,608 23,246 20,643 20,173 Professional, scientific, technical services 57,327 57,763 78,426 89,218 74,960 Management of companies/enterprises 72,293 98,932 95,403 117,906 104,918 Administrative and waste services 27,504 32,754 36,129 33,972 32,513 Educational services 33,843 16,963 40,798 37,029 36,029 Health care and social assistance 48,162 47,192 54,272 50,573 51,713 Arts, entertainment, and recreation 15,390 10,834 24,090 17,887 25,727 Accommodation and food services 20,182 18,016 18,468 20,577 21,713 Other services 31,969 35,541 32,801 38,473 32,385 Government 76,194 57,817 91,399 78,060 65,178 Federal, civilian 79,222 86,743 102,553 120,440 103,548 Military 100,597 72,074 104,336 105,586 82,002 State and local 53,699 54,291 53,330 55,714 57,775 State government 41,621 44,678 52,522 55,189 58,842 Local government 55,036 55,725 53,758 55,935 57,385 Disclosure: This means there are an insufficient number of businesses on which to release data and maintain confidentiality. Note the Other category essentially aggregates other industries for which data cannot be disclosed.
Reasons for Lower Wages in Virginia Beach: The reasons are multi-causal, but two that stand out are: Comparatively Low Wages: the average compensation for the same industry is lower in Virginia Beach than in the United States; and The Composition of Jobs: the City has a high concentration of jobs in lower paying sectors (including part-time ones that often do not provide benefits). A natural question that follows from the previous discussion is: why are jobs in Virginia Beach compensated at a lower rate than those in the State? Many theories have been advanced to explain the lower pay for comparable work 2. The military is a factor for several reasons. Many residents are tied (geographically immobile) to the area due to a spouse in the military. Employers are keenly aware of this, and may offer lower wages. Also, each year many relatively young, military personnel retire from the service, and seek employment opportunities in the private sector, increasing the supply of labor available and driving down the wages. Many retired military personnel and/or spouses of active duty military personnel may only need to seek part-time employment because of their military pensions or current military benefits. Possibly because of our reliance on the military s presence, this area does not have a strong entrepreneurial business spirit, measured by venture capital. Studies have shown that areas with a strong entrepreneurial effort grow and prosper more quickly than non-entrepreneurial areas. Another important reason is that this area is often perceived as a low wage area. This has served as a magnet attracting businesses that often pay lower wages. There may be a demographic factor at work as well in that the City has a more youthful workforce, which may not be as tenured or experienced as that of the State. Finally, the City mostly like has a greater mix of part-time employment. If Virginia Beach private sector industries paid at the U.S. levels, the City s per capita income would be $46,981 rather than $44,999 (4.4% higher). 2 We should add this caveat to definition of comparable work. It is quite difficult, using BEA s data, to directly compare work on an apples-to-apples basis. Footnote 3" highlights one potential limitation in the comparability of jobs in that an industry within a certain locality may have preponderance of part-time employees compared to the industry within the State. Another issue can be referred to as job-order functions. The composition of manufacturing jobs may differ in that some localities may have a greater mix of manufacturing industries that require a lower/higher level of skills.
We illustrate the composition of jobs in low paying industries in the following tables. Table 6 segregates jobs into low, middle, and high earning private sector industries (using the average earnings on the U.S. level as a guide). Virginia Beach performs poorly in all categories, ranking first in concentration of low paying jobs, and near the bottom in middle and high earning private industries. Several factors serve as reasons for the concentration of lowering paying jobs. Virginia Beach began as a bedroom community to Norfolk, and it has taken a substantial amount of time for the City to develop its economic base. Tourism represents an export industry, attracting outside money to our City. The jobs associated with tourism are low paying, however (but tourism does serve as supply of jobs for low-skilled school-age children). Finally, our relatively wealthy community demands shopping amenities. Table 6: Concentration of Jobs Low, Middle, & High Paying Private Sector Industries Low Middle High Virginia Beach 54.3% 20.5% 25.2% Chesapeake 49.3% 22.5% 28.2% Norfolk 40.9% 34.1% 25.0% Portsmouth 44.2% 39.0% 16.9% Suffolk 43.2% 36.2% 20.7% Hampton 53.0% 20.8% 26.2% Newport News 40.5% 19.4% 40.2% Chesterfield 47.6% 24.1% 28.3% Henrico 41.8% 22.2% 36.0% Prince William Disclosure Disclosure Disclosure Virginia 44.0% 24.1% 32.0% Unites States 43.4% 26.3% 30.3% Va Beach s Rank 1 10 8 Low : Retail Trade; Real Estate, Rental, and Leasing; Administrative and Waste Services; Educational Services; Arts, Entertainment, and Recreation; Other Services Middle : Construction; Transportation and Warehouse; Health Services High : Manufacturing; Wholesale Trade; Information; Finance and Insurance; Professional, Scientific, and Technical Services; and Management of Companies Disclosure: This means there are an insufficient number of businesses on which to release data and maintain confidentiality. Note the Other category essentially aggregates other industries for which data cannot be disclosed. Note about Disclosures for Prince William: Because at least one industry in each category is suppressed, comprehensive totals for each category are not available. Table 6 represents the current composition, but the direction of the trend of high earning industries is important to investigate. Starting in 2001, the government changed the categorical system under which they classified businesses, so the time series for high earning industries runs from 2001-2009. As shown in Table 7 on the following page, many of the benchmarks have experienced negative growth (both the beginning and ending year of
this time series represent recessionary years), including Virginia Beach. Chesapeake and Chesterfield experienced growth in these industries while Henrico s decline exceeds that of Virginia Beach. Table 7: Growth in Employment in High Earning Industries 2001-2009 Virginia Beach -2.0% Chesapeake 27.2% Norfolk Disclosure Portsmouth Disclosure Suffolk Disclosure Hampton -16.1% Newport News Disclosure Chesterfield 3.4% Henrico -8.8% Prince William Disclosure Virginia 0.7% Unites States -4.1% Va Beach's Rank 4 of 7 High Earning Industries: Manufacturing; Wholesale Trade; Information; Finance and Insurance; Professional, Scientific, and Technical Services; Management of Companies Disclosure: This means there are an insufficient number of businesses on which to release data and maintain confidentiality. Note the Other category essentially aggregates other industries for which data cannot be disclosed. Note about the Disclosures: Because at least one industry is suppressed for many of the localities, totals are not available for accurate comparisons. Table 8 on the following page shows a finer break out of the industrial make up for selected benchmarks. Somewhat surprisingly, the Retail sector s contribution to our economy is similar to that of the other benchmarks. Some of Service sectors in our City represent lowerpaying sectors compared to the other benchmarks. Accommodation s contribution to our economy is naturally greater than it is to these benchmarks.
Table 8: Composition of Employment Va Beach Chesapeake Norfolk Chesterfield Henrico Virginia United States Construction 5.7% 9.0% 3.1% 7.8% 5.1% 6.2% 5.6% Manufacturing 2.4% 3.7% 3.3% 5.2% 3.4% 5.3% 7.4% Wholesale Trade 2.6% 4.1% Disclosure 3.6% 4.2% 2.7% 3.7% Retail Trade 11.1% 14.5% 6.1% 12.5% 11.6% 10.2% 10.5% Services 47.2% 44.7% 38.7% 50.1% 59.5% 50.1% 51.1% Accommodation/Food Services 9.3% 8.3% 5.0% 6.9% 7.2% 6.8% 7.1% Military 8.5% 1.4% 23.9% 0.6% 0.5% 3.3% 1.2% Government 11.7% 13.6% 17.4% 13.3% 8.5% 15.5% 13.4% Other 1.5% 0.6% 2.6% 0.0% 0.0% 0.0% 0.0% Disclosure: This means there are an insufficient number of businesses on which to release data and maintain confidentiality. Note the Other category essentially aggregates other industries for which data cannot be disclosed. If the City has the same industrial composition as the U.S., our per capita income would be $45,217 (0.5% higher).
Selected Other Topics: Proprietors: As previously show in Table 4, the City s proprietors compare favorably, ranking third, and exceeding all the suburban benchmarks that match well on socio-economic characteristics. Norfolk s proprietors perform exceptionally well among the benchmarks. The reason why the average proprietors income appears low for all the benchmarks is the number of proprietors is overstated, pulling down the average. The BEA uses IRS tax records of Sole Proprietors and Limited Liability Partnerships. The latter include some partners that are only tangentially related to the income producing proprietor. Another perspective of proprietors income is to place it in the context of all earnings. This eliminates the issue above and is illustrated in Table 9. Virginia Beach fares well here too, but is well below the United States, probably due to our reliance on the military. Without this presence, labor would be redirected to other pursuits, including proprietary efforts. Table 9: Percentage of Earnings from Proprietors Virginia Beach 8.3% Chesapeake 5.1% Norfolk 9.9% Portsmouth 6.4% Suffolk 4.7% Hampton 4.2% Newport News 4.9% Chesterfield 6.6% Henrico 6.8% Prince William 4.9% Virginia 8.4% Unites States 13.0% Va Beach's Rank 4 Source: Bureau of Economic Analysis
Adjustment for Residence: As previously noted, the BEA begins its computation of personal income with wage and benefit data by place of work (for example, all the wages earned at businesses located in Virginia Beach). Many residents live and work in Virginia Beach, but some residents work elsewhere. BEA estimates the wages earned by residents who work outside the City (net inflow) as well as the wages earned from businesses in Virginia Beach by residents of a neighboring city (net outflow). This is referred to as an Adjustment for Residence. Generally, the suburban localities have large residency adjustments while urban, core cities have residency leakages. And Virginia Beach s residency adjustment is less than three of the four suburban benchmarks, as shown in Table 10: Table 10: Adjustment for Residence Virginia Beach 28.2% Chesapeake 31.8% Norfolk -127.4% Portsmouth -44.1% Suffolk 38.3% Hampton -7.2% Newport News -41.6% Chesterfield 32.0% Henrico -11.3% Prince William 46.7% Virginia 4.3% Unites States 0.0% Va Beach's Rank 5 Over time as the City s economy has developed, the residency adjustment has declined rather substantially from nearly 45% to below 30%, indicating the City s economy has developed to offer more job opportunities to residents. 50.0% Residency Adjustment 40.0% 30.0% 20.0% 10.0% 0.0% 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Military and Local Government Earnings by Place of Work: Both the military and local government represent important economic engines in our economy; they both compensate through pay and benefits at lower to upper middle class wages, and are often subject to less cyclical downturns. Some may have concerns if the Local government represents too large of a slice of the economy and that does not enhance the productive capability of the economy for a given level of taxes. As expected, Virginia Beach ranks high (4 th ) in Military Earnings contribution to total. One point that really illuminates the contribution of the military to our economy is in comparison to the U.S. (18.1% to 1.9%). Table 11: Military Earnings as a Percentage of Total Virginia Beach 18.1% Chesapeake 2.4% Norfolk 36.6% Portsmouth 19.3% Suffolk 3.8% Hampton 21.1% Newport News 11.3% Chesterfield 0.7% Henrico 0.4% Prince William 7.5% Virginia 6.2% Unites States 1.9% Va Beach's Rank 4 Although the Military represents an important industry, its contribution to earnings over time has declined as shown in the accompanying graph. 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Military Earnings as a Percentage of Total 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
And this diversification is illustrated through the following graph that shows that the City s private sector earnings is rising relative to the earnings in the United States. Va Beach Private Sector Earnings as a Percentage of U.S. Earnings 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 Turning attention to Local Government earnings (wages and benefits of both City and Schools, but excludes operating and capital expenditures), Virginia Beach is not overly reliant on the Local Government, ranking 4 th in relative comparisons. Local government earnings contribute more to the total earnings compared to the Virginia but less in comparison to the United States. Local government contributes less in the cities with an urban, core job base (Norfolk, Portsmouth, Hampton, and Newport News), and more in suburban localities (with the exception of Henrico). In terms of suburban benchmarks, our local government contribution essentially matches Chesterfield, is less than Chesapeake s, and is more than Henrico s. Another perspective is to place the local government earnings in the context of total earnings by residence. This can represent a partial 3 proxy for the tax burden on local residents. Here Virginia Beach compares very favorably, ranking the 9 th lowest, with only Chesterfield and Henrico barely besting the City, as shown in Table 12 on the following page. 3 Partial because it excludes operating costs and debt service.
Table 12: Local Government Earnings as a Percentage of Total Earnings by Industry and by Residence Industry Residence Virginia Beach 10.0% 8.0% Chesapeake 14.3% 11.0% Norfolk 5.3% 13.3% Portsmouth 8.1% 13.1% Suffolk 15.4% 10.7% Hampton 8.2% 9.9% Newport News 8.9% 14.1% Chesterfield 10.1% 7.7% Henrico 6.3% 7.9% Prince William NA NA Virginia 8.0% 8.6% Unites States 9.4% 10.5% Va Beach's Rank 4 9 Affect of New 2010 Census Population: Next year, the BEA will compute per capita income using the decennial Census population figures. The City s decennial population was slightly higher than the estimate for 2009 would have suggested. BEA computes personal income independently from population (obviously, there is an implicit link, though). This means the higher population figure will lower our per capita income. As an example, using the decennial population figure, our 2009 per capita income would be $44,545 (1.0% less than the actual).