How has the Great Recession impacted income distribution in Colorado?

In my last post I wrote about the fact that Colorado’s “poor counties” are no longer catching-up to rich ones. This suggests that income distribution between counties should be relatively unchanged over the course of the last decade. In this post I take a closer look at this idea.

The coefficient of variation (CV) is one statistic that is used to look at how equal the distribution is within a sample. If there is a relatively high average and little variation between places, the CV will be relatively low. Conversely, if the average is fairly low, and the variation between places is fairly high, then the CV will be high. Simply put, aa low CV suggests less inequality in per capita income between places.

In the following chart I use BEA data to show the CV for Colorado counties from 1969-2010. Up until the late 1980s, the CV was flat (though volatile). Beginning in the late 1980s, Colorado’s CV steadily increased, up until the start of the Great Recession (depicted by the green line). This shows that income inequality between counties was growing over this time.

Interestingly, a dramatic reduction in the CV was an important outcome of the Great Recession (shown by the dramatic reduction over the past 2 years). Why did this happen?

Let’s think back to yesterday’s post, where I looked at the relationship between a county’s initial income per person and its subsequent growth for the period 2000-2010. Recall that there was no real relationship.

However, when we shorten the time period, looking only back to 2008, the graph below shows a much stronger negative correlation between initial per capita income and subsequent growth rates. In particular, it shows most of the poorer counties had positive per person income growth over this time frame, while most of the richer counties actually had negative growth in per person income.

A likely explanation is that poorer counties are more reliant on government transfer payments as a share of income, and those have remained steady or increased since the recession’s start. Conversely, the richer counties see more of their income generated by the stock market and individual and corporate profits, which were hard hit by the recession.

So, one impact of the recession has been to reduce income inequality between rich and poor counties in Colorado. But this is due more to declines in the richest counties than any great progress by most of the poorer places.


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