Over the past decade or two, transfer payments have become a larger source of personal income here in Oregon and across the country. Transfer payments are basically benefits paid for by the government for citizens who are generally either older (Social Security) or low-income (SNAP, Medicaid, Unemployment Insurance, etc). As such, this rise in transfer payments can be considered relatively benign — an aging population means more Social Security benefits paid out — or a signal of deeper economic problems — more residents in need of financial assistance. The fact that transfer payments account for a larger share of all income in Oregon than nationwide warrants a bit of further digging to see if we can spot some key issues.
Image may be NSFW.
Clik here to view.
In examining the types of transfer payments that the BEA tracks in their personal income data, it becomes quite clear what is driving Oregon’s higher share. Social Security and Medicaid are the key reasons for Oregon’s higher share of transfer payments. For Social Security, this largely reflects Oregon’s extra large Baby Boomer cohort. Our population 65 years and older is roughly 10% larger than nationwide, in proportion of our overall population. For Medicaid, the timing lines up with the Affordable Care Act and expansion of Medicaid. Prior to the ACA, medicaid composed about the same percentage of income in Oregon as it did nationwide. Following the Medicaid expansion, Oregon’s share has been higher. This gap reflects the fact that some states chose not to expand coverage to their residents.
What this also means is that other needs-based programs are not comprising a larger share of Oregon income than they are nationally. Programs like EITC, SNAP, SSI, TANF and WIC which are targeted to assist our low-income neighbors are not significantly larger here in Oregon than nationwide, at least when measuring the dollar values against the size of the local economy. Now, one item where Oregon does tend to see higher spending is from Unemployment Insurance. There is not much of a difference today given we are in a strong labor market, but during recessions, when Oregon loses more jobs and has a higher unemployment rate, we do pay out more unemployment benefits than the typical state. This gap widens in downturns and shrinks in expansions.
Image may be NSFW.
Clik here to view.
At the regional level, Oregon sees considerable variation in transfer payments. As shown below, they’re increasing in all parts of the state, but particularly so in our rural areas. This increase is in large part due to the slower economic gains experienced in recent decades — meaning transfer payments are a larger share given fewer wages and less business income — in addition to older demographics which include some younger workers moving to urban areas and some retiree in-migration. All of these work to increase the relative share of transfer payments above and beyond the general aging of the overall population. (See our office’s previous look at future labor force growth across the state for more on the demographic implications for the economy.)
Image may be NSFW.
Clik here to view.
Do note that one caveat here is that all of the above is basing transfer payments as a share of personal income. In Oregon, while our median household incomes are now on par with the US, we do still have lower per capita personal income due to the income gap at the high-end. If Oregon’s per capita personal income were higher, then our transfer payments would be a smaller share of income and below the US, even if our caseloads remained the same.
Bottom Line: Transfer payments are an increasing source of income across the country. While this increase is seen everywhere, it is particularly pronounced in our rural communities where transfer payments today account for 1 out of every 3 dollars of personal income. However, transfer payments are not “bad” sources of income, and play a key role in many of our lives. Transfer payments provide financial assistance to our neighbors in need, hopefully temporarily while they get back on their feet, and to ensure some standard of living in old age. As such, these programs and benefits allow us to put food on the table and cover medical expenses. Much of this growth over time is due to an aging population. The fact that retirements are ramping up and the working-age population is increasing slowly does mean this higher share of transfer payments is here to stay.