Joe Santos, director of South Dakota State University’s Ness School of Management and Economics where he leads the Dykhouse Program in Money, Banking and Regulation, was invited to discuss economic conditions for South Dakota at the 2023 Regional Economic Conditions Conference.
The Federal Reserve Bank of Minneapolis hosted the January event. Representatives from each of the states in the Minneapolis Fed’s district presented, with Santos serving as the representative for South Dakota.
Behind South Dakota's high per capita personal income
Currently, per capita personal income is greater in South Dakota than the rest of the United States, according to U.S. Bureau of Economic Analysis. South Dakota PCI is $66,413 while the U.S. average is $65,636.
“That’s interesting as it is, but I think this offers us a really interesting analytical off-ramp, if you will, for what’s going on in the labor markets in South Dakota,” Santos explained, referring to the state’s PCI.
“A really easy way to dismiss what’s happening, perhaps, is this depopulation story,” Santos added.
PCI is calculated by dividing the total personal income of residents in a given area by the population of an area, Santos explained. It is largely perceived that South Dakota (as a state) has fewer and fewer people, and some suggest that is the reason why per capita income in South Dakota is relatively high.
“Of course, that is not the case,” Santos said.
South Dakota’s population, according to the U.S. Bureau of Economic Analysis, has actually grown since the first quarter of 2021.
“Population growth in South Dakota is greater than the population growth in the United States,” Santos said. “That quick, dismissive answer (about depopulation) isn’t going to work. So why else is per capita income above the United States level?”
The driving forces behind South Dakota’s above-average PCI is a strong labor force participation rate and a high employment rate, according to Santos. South Dakota’s employment rate currently sits at 98%—two points higher than the U.S. average. Similarly, South Dakota’s labor force participation rate is 69%, higher than the U.S. average of 62%.
“Essentially, a high employment rate and a high labor force participation rate is supporting per capita income in this state,” Santos said.
The labor force participation rate is defined as “the percentage of the population 16 years and older that is working or actively looking for work.” In South Dakota, the labor force participation rate has stayed relatively consistent since 2015 and isn’t experiencing a “downward pitch” that the U.S. rate is currently experiencing.
“We have a relatively high per capita income in this state, because in some sort of loose way we are working a lot,” Santos said.
Of course, this is at the same time the country is dealing with widespread inflation and the purchasing power of money is down, Santos notes.
For both the U.S. and South Dakota, real personal income—what that personal income buys—has fallen year over year, Santos said.
“Growth in real personal income is hovering below zero,” Santos said. “Income is rising in nominal terms—more money per household—but so too are prices. ‘Stuff’ per household is falling or, at best, flat.”
The Minneapolis Fed has provided full video of the conference on its YouTube page (embedded below). Santos’ presentation begins at approximately the 1:31:00 mark.