A Comparison of Living Standards Across the States of America

47 Pages Posted: 12 Jun 2020

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 3 versions of this paper

Date Written: May, 2020

Abstract

We use an expected utility framework to examine how living standards vary across the United States and how each state's living standards have evolved over time. Our welfare measure accounts for cross-state variations in mortality, consumption, education, inequality, and cost of living. We find that per capita income is a good indicator of living standards, with a correlation of 0.80 across states. Living standards in most states, however, appear closer to those in the richest states than their difference in per capita income would suggest. Whereas high-income states benefit from higher life expectancy, consumption, and college attainment, low-income states benefit from lower cost of living. All states experienced positive welfare growth, and hence rising living standards, between 1999 and 2015. The annual welfare growth rate, however, varied from 1.38 to 3.76 percent across states due to varying gains in life expectancy, consumption, and college attainment, with life ex pectancy accounting for 50.3 percent of the variation. Finally, the growth rate of per capita income is a poor proxy for how fast living standards are rising in a particular state since the correlation between welfare growth and per capita income growth is only 0.38, and deviations are often large.

JEL Classification: D63, I31, O50, R13

Suggested Citation

Falcettoni, Elena and Nygaard, Vegard M., A Comparison of Living Standards Across the States of America (May, 2020). FEDS Working Paper No. 2020-041, Available at SSRN: https://ssrn.com/abstract=3624934 or http://dx.doi.org/10.17016/FEDS.2020.041

Elena Falcettoni (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and Constitution Ave NW
Washington, DC 20551
United States

HOME PAGE: http://https://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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