A Comparison of Living Standards across the United States of America

65 Pages Posted: 16 Mar 2020 Last revised: 24 Mar 2022

See all articles by Elena Falcettoni

Elena Falcettoni

Board of Governors of the Federal Reserve System

Vegard M. Nygaard

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: March 13, 2020

Abstract

We use an expected utility model to examine how living standards, or welfare, vary across the U.S. and how each state's welfare has evolved over time. Our welfare measure accounts for cross-state variations in mortality, consumption, education, leisure, and inequality. We find that average living standards differ considerably across states. This is robust to allowing for endogenous interstate migration and to including housing in the model, and holds even when computing welfare conditional on education, gender, and race. Although states experienced heterogeneous welfare growth rates between 1999 and 2015 (ranging from 1.68 to 3.73 percent per year), there is no evidence of convergence in welfare levels, including during the sub-periods preceding and following the Great Recession. Whereas the level of real per-capita income is a good indicator of the level of welfare across states (correlation=0.75), the growth rate of real per-capita income is a poor proxy for the growth rate in welfare (correlation=0.42). Our welfare decomposition analysis can help identify what policies are likely to be most effective at increasing average living standards in the United States.

Keywords: Welfare comparison, Living standards, Inequality

JEL Classification: I31, O51, R13

Suggested Citation

Falcettoni, Elena and Nygaard, Vegard M., A Comparison of Living Standards across the United States of America (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3539893 or http://dx.doi.org/10.2139/ssrn.3539893

Elena Falcettoni (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.elenafalcettoni.com

Vegard M. Nygaard

University of Houston ( email )

Houston, TX 77204-5882
United States

HOME PAGE: http://https://sites.google.com/site/vegardmokleivnygaard/

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