After decades of lagging the nation, Oregon’s income now exceeds the national average.

While some seem to think its a mystery:  It’s not.  It all about a flourishing Portland economy, especially in the central city of the region

This success has been powered by an influx of talent, especially well-educated young adults drawn to close-in urban neighborhoods

Income growth in Multnomah County accounts for essentially all of the net improvement in Oregon incomes relative to the nation over the past decade or more

Rising incomes, especially in the city, have markedly reduced racial and ethnic income gaps

The secrets of economic success:  talent, quality of life, urban amenities, and knowledge industry clusters.  This urban-powered success should bury old-school myths about business climate.

A new story in the Oregonian notes that the state’s median household income has surpassed the national average, something it treats as a kind of esoteric statistical mystery, one that has economists, in its words, “flummoxed.”  As someone who’s followed this metric for decades, and analyzed Oregon’s economic growth, it’s really no mystery at all.  Oregon’s recent surge in median income is the product of a strong Portland economy, one that’s been transformed and powered by its ability to attract talent.  It’s been a long time in the making.

Median household income is a key indicator of economic progress.  Here’s a half century long picture of how Oregon’s income has tracked relative to the nation.  Nearly all that time, Oregon has lagged.  During the 1980s, Oregon was particularly hard hit.  Since then, Oregon’s changes have tracked national trends, but through about 2012, income was always somewhat below the national median.  But in the last couple of years, Oregon’s income growth has surged and now surpassed the national median.  (The following chart, courtesy of Oregon economist Josh Lehner,  is in inflation-adjusted dollars).

Oregon’s strong trend is borne out by other indicators. Another data series, the Current Population Survey (CPS), which has a much smaller sample and somewhat different approach than the ACS suggests that Oregon’s median income is outpacing the national average by an even larger margin.  State labor economist Will Burchard wrote that the latest figures show that Oregon’s median household income reached $76,554 in 2019, which is higher than the U.S. median household income of $67,521.

Portland powered the state’s economic gain

The Oregonian article makes it sound like the state’s improving incomes are a kind of mystery. But there’s no mystery here.  The first bit of evidence comes from looking at where Oregon incomes surged over the past couple of decades.  Oregon’s economy is big and diverse, and different parts of the state have fared differently.  When we look closely at the county-level data it’s apparent that the income surge is centered in Portland, not just in the Portland area, but in the City of Portland (which is largely coterminous with Multnomah County).  Between 2010 and 2019 median household income (in current dollars) rose 39 percent in Multnomah County, compared to 29 percent in the remainder of the metropolitan area (the suburban counties of Clackamas, Columbia, Washington and Yamhill), and just 23 percent in the remainder of the state.

This is an urban success story.  In a statistical sense, Multnomah County’s income growth explains nearly all of the degree to which Oregon incomes now outpace the nation.  Excluding the effect of increasing median incomes in Multnomah County, statewide incomes median incomes would have risen about 3 percentage points less—enough to keep statewide median income growth from exceeding the national average.

In a way, this isn’t new news at all, even for the Oregonian.  State labor economist Christian Kaylor highlighted Portland’s exceptional growth a couple of years ago, as reported in . . . The Oregonian.

Talent drove Portland’s growth:  The Young and Restless

It’s become increasingly clear in the past two decades that a well-educated population, what economists call “human capital,” is a decisive factor in economic development. It’s no secret that cities that do a great job of educating their populations, and which attract well-educated people from elsewhere do better economically.  That’s more the case with each passing year.

As we’ve documented at City Observatory for years, smart young people have been moving to cities, and Portland has been one of the leading destinations for well-educated 25- to 34-year-olds.  Since the 1990s, Portland has outpaced the nation in attracting these young adults, and their arrival numbers have continued to grow. As we documented in our 2004 report, and in subsequent follow up reports on the Young and Restless, Portland has been a national leader in attracting well-educated young adults and they’ve settled disproportionately in the city’s close-in neighborhoods.  And after two or three decades of steady influx of young talent, this group, as it has matured into its prime working age years, has transformed the economic performance of the city.  Again, Portland’s key role in powering the state strong economic performance puts the lie to the old Portlandia joke that Portland was a place that young people went to retire (we debunked that at the time:  Portland has above average rates of employment and entrepreneurship among young adults). This steady influx of well-educated workers measurably increased the city’s educational attainment, making it one of the best educated large cities in the country.  A better educated population fueled income growth, something that is now clearly bearing fruit in the economic statistics.

When we look across Oregon, there’s more evidence for this talent/income nexus in the county level income statistics.  The Oregon counties that chalked up the big gains in median household income were the counties with the highest levels of educational attainment.  The following chart shows the fraction of the adult population with a four-year degree in each county and the percentage increase in median household income in that county over the past decade.  There’s a strong positive relationship between education and income growth.

On this chart, each dot represents an Oregon county.  As the regression line shows, counties with higher levels of educational attainment had faster rates of median income growth over the last decade than counties with relatively low levels of education.  Keep in mind, there’s always been a strong relationship between education and income; better educated counties have always had higher incomes.  What this data shows is that those better educated counties are increasing income even faster:  they’re pulling away.  It’s a core fact of a knowledge-driven global economy.

Oregon’s economic growth has promoted equity as well.

Any time we take rising incomes as a measure of economic success, it’s worth asking whether prosperity is widely shared.  The Oregon numbers show a further remarkable success story.  During the past several years, there’s been a dramatic reduction in the economic gap between White residents and people of color in Oregon.  Economist Josh Lehner used data from the American Community Survey to show the trend in poverty rates for persons of color compared to white Oregonians.

Despite the modest claim in the chart’s title “poverty gap remains large, but is narrowing,” this represents prodigious progress in just a few years.  In 2009, poverty rates for persons of color in Oregon were effectively double those for non-Hispanic white Oregonians.  After several years of sharp and steady declines, BIPOC poverty rates fell by ten percentage points, from over 25 percent to 15 percent, and so were now only about four or five percentage points higher than for whites.  And this is after four-decades win which there was no perceptible narrowing of these racial-ethnic differences.  It’s an indication of how tighter labor markets can play a key role in providing more opportunities for those who’ve long been marginalized.  These gains for people of color also strongly correlate with the robust growth of the Portland/Multnomah County economy.  Portland and Multnomah County are much more racially and ethnically diverse than the rest of the state, so a strong city economy translates into more local opportunity for people of color.

What this tells us about how to succeed at economic development

For someone who’s labored for decades in the vineyard of economic development, there’s one key indicator we pay attention to when summarizing a state or region’s economic success:  its level of income relative to the national average.  One of the best metrics is median family income, which effectively reveals how a typical household in the middle of the income distribution is faring relative to the nation.

For most of the past six decades, by this measure, Oregon’s economic performance has lagged that of the nation.  Our friend and mentor, the late Ed Whitelaw trenchantly pointed out that just looking at money income ignored the substantial “second paycheck” Oregonians earned from the state’s abundant and increasingly valuable natural amenities.  To that second paycheck, Oregonians can add another factor ignored in most conventional statistical comparisons:  the very sizable green dividend that Oregonians earn, largely because the state’s more compact development patterns (thanks to land use planning) mean that residents drive fewer miles than people in other more sprawling states, saving them a bundle on the cost of cars and gasoline.  Portland’s income is about $1 billion per year higher because of these savings.

Back in the 1980s, as the chief economic analyst for the Oregon Legislature, I documented the state’s lagging income levels in a series of detailed statistical reports: Losing Ground: The Growing Gap Between Oregon and National Income.   These reports showed that for a variety of reasons (the structural decline of the timber industry, the state’s disconnect from the Reagan era defense build-up, and other factors), that Oregon’s economy lagged the nation, and showed up in most prominently in a big decline in average incomes relative to the rest of the nation.  It was clear then that raising the state’s educational attainment, promoting innovation and building world-class knowledge industry clusters was the key to raising our income.  And over the past twenty years, led by the Portland economy, Oregon has transformed into a better educated, more innovative and more productive state, something that has been largely propelled and supported by investments in quality of life that have attracted and retained talent.

That success flies in the face of old school myths about the importance of business climate to economic success.  Portland’s strong showing, in particular, belies the bad-mouthing the city got during the last recession and disproves some outdated economic development nostrums.  Take, for example, the cynical doom-saying by the Portland Business Alliance, the city’s chamber of commerce, which in 2010 grimly intoned that Multnomah County ranked 198th of 199  Western counties and metro areas in job growth, attributing the problem to a bad business climate and a failure to attract large corporations.  It fretted that a continuing long-term decline in Multnomah County’s economic health would drag down the region and the state:

The Portland-metro region faces a crisis. If unstopped, the loss of jobs in Multnomah County and the stagnant-to-declining wages and incomes across the region will erode our quality of life, not just in Portland-metro, but across Oregon because of the region’s key role in the overall state economy.

These worries were echoed by pundits claiming that Oregon  somehow had an anti-business attitude, was over-taxed and over-regulated, or somehow lacked enough roads or industrial sites to accommodate growth. Far from dragging the region or the state down, Multnomah County’s ability to attract talent propelled the state’s economic success. The region’s strong performance also over the past decade also debunks other myths, like the notion that ours is a freight-dependent economy.  Portland flourished as never before even though ocean container service disappeared and port activity withered in the middle of the decade.  As the record of the past decade shows, these myths and self-serving claims were exactly backwards.  Far from being dragged down by a stagnant economy in the region’s center, the metro area and the state were propelled by income growth in Portland and Multnomah County.  Without the center’s strong showing, statewide growth would have been no better than the national average.

In the end, economic success in the 21st century is no mystery, nor is Portland’s recent surge.  Economic development is a long term proposition, not amenable to quick and easy fixes.  It’s fundamentally about having a well-educated populace and and environment conducive to innovation.  It’s about having the amenities (urban and natural) that knowledge workers find attractive.  It’s about building clusters of dynamic, innovative industries that draw on these resources, and enhance them further. That’s what Portland has done, and its success is powering the state’s impressive income gains.

Technical notes

The key metric we’re tracking here is median household income, the income of the household in the middle of the income distribution for a county, state or the nation.  Half of all households have income above the median, half have incomes below.  The median is a useful statistic for very simply describing the distribution of income.  But using it to compare different geographies (counties and states) over time is challenging.  Medians are influenced by composition effects.  In our case, because some higher income counties are adding households faster than lower income households over the past decade, the growth of the statewide median is greater than the average of the county medians.

For simple comparative purposes, we’ve computed the household-weighted statewide median income (weighting each counties median income by the number of households in that county).  Because we use weights that are based on the number of households in the 2019 ACS, this metric ignores the shifting composition of the state’s population and focuses on the changes in incomes across counties.  We compute that the household-weighted median income for Oregon counties in 2010 and 2019 including and (counterfactually) excluding, Multnomah County. Without the growth in incomes recorded in Multnomah County, statewide median income growth would have been about 3 percentage points less than it actually was over the decade, which would have been enough to erase the gains that enabled statewide income to exceed the national average for the first time.