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The D.C. area had slower income growth than any other major metro area last year. Here’s why.

This has been a fantastic couple of decades for the Washington, D.C. metro area. As Greg Jaffe and Jim Tankersley documented Monday, it has been a boomtown featuring incomes and wealth that have risen much faster than in the rest of the country.

But 2012, as it turns out, was not a great year for Washington. Personal income per capita in the region rose only 1.5 percent -- the lowest among large metropolitan areas and well below the 3.4 percent for the United States as a whole. The D.C. area is still doing better than most of the country -- the $61,743 in per capita personal income was a whopping 41 percent higher than the $43,735 level for the nation as a whole. But, in 2012 at least, the rest of the country was gaining on Washington.

So what's going on?

Spending cuts agreed to as part of the 2011 debt ceiling deal were being carried out in 2012, which meant downward pressure on wages from government agencies and contractors.

The data fit this story: In the Washington area, total wages from professional, scientific, and technical services industries (a category that includes many government contractors, particularly in the Washington area) rose by 2.8 percent, compared to a 6.4 percent increase in the category nationally. If the sector in the Washington region had grown at the same rate it did nationally, it would have meant an extra $2.5 billion in income for Washington area residents.

The numbers on direct government wage income are even more dramatic. Total wages paid to civilian federal employees in the Washington area actually declined slightly in 2012, about half a percent. Over the previous decade, that number had risen an average of 6.8 percent each year.

Here's a chart of percent change in Washington area wages paid to federal civilian employees:

Source: BEA

In other words, a downshift in federal government spending is making its way into Washingtonians' wages, depressing overall growth in incomes. So while the story of an ever-more affluent Washington suckling at the federal teat has a solid basis over the longer-term, last year the trend reversed a little bit.



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Neil Irwin · November 21, 2013

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