The States in America Where Incomes Grow Faster

President Biden will never admit it, but he has Republican-led states to thank for the resilient U.S. economy and labor market. Witness how an earnings surge in right-leaning states is helping compensate for sluggish growth in progressive ones.

New state personal income data from the Bureau of Economic Analysis highlights how aggregate worker and proprietor earnings in red states grew significantly more in the last year than in the blues. The disparity owes to GOP-led states adding more jobs, including in higher-paying industries like tech and finance, along with faster-growing wages.

Earnings nationwide rose 5.4% on average between the first quarters of 2022 and 2023, but much less in New York (2.6%), Indiana (2.6%), California (2.9%), Connecticut (3.4%), Rhode Island (3.6%), Maryland (4%), New Jersey (4.3%), Oregon (4.5%) and Illinois (4.6%). Apart from Indiana, these states are run by Democrats—and most have been for years. They boast high taxes and a high cost of living, which along with Covid lockdowns spurred increased out-migration during the pandemic.

Meanwhile, earnings in the same period surged in North Dakota (9.7%), New Mexico (9.6%), Nevada (9.1%), Florida (9.1%), Nebraska (8.6%), Hawaii (8%), South Carolina (8%), Alaska (7.9%) and Texas (7.7%).

How to explain this? California suffered from tech layoffs. Hawaii, Florida and Nevada benefited from a tourism resurgence after Covid’s Omicron wave ebbed. Higher oil and gas prices and production boosted earnings in New Mexico, North Dakota and Alaska, though less so in Texas, which has a more diverse economy.

States with higher earnings growth also tend to have lower tax rates as well as fast-growing populations. Consider neighboring Utah (7.2%) and Colorado (4.9%), which have similar economies but diverging political climates as Colorado becomes more like California. Could that be affecting its earnings growth?

Progressive states have sought to shower subsidies on favored industries such as green energy. Yet earnings in Texas and Florida grew faster across the board than in New York and California, including in information, manufacturing, construction, retail, finance, and professional, scientific and technical services. (See the nearby chart.)

Manufacturing earnings grew 11.1% in Texas and 8.7% in Florida, versus 5.5% in New York and 2.5% in California. While information earnings declined 1.5% in New York and 9% in California, they grew 6.7% in Florida and 9.9% in Texas. Construction earnings grew five times faster in Florida (10.1%) and Texas (11.7%) than in New York (1.7%) and California (1.8%).

Population growth in Sun Belt states such as Florida and Texas continues to fuel housing construction despite rising interest rates. Easier permitting makes it less expensive to build, resulting in more affordable housing.

Wages have also been growing faster in general in GOP-led states, perhaps owing to tighter labor markets. Average private hourly earnings between March 2022 and March 2023 outpaced inflation in Texas (6%) and Florida (6.4%), but not in Illinois (1.4%), New York (2.7%) and California (3.2%). That means real wages in these blue states declined by 2% to 3%.

It’s no surprise that more Americans are moving to states where wages are growing faster and their earnings go further. Maybe one reason the U.S. economy continues to chug along is because the rising tide in states like Florida and Texas is lifting all boats.