In my previous blog, I showed how per capita and per household income varied between Maine and New Hampshire. However, some folks may dismiss this as one special case where per household income makes a difference to the analysis that a larger private sector share of personal income means greater economic prosperity in the long-run.
So, the charts below show a scatter-plot of the relationship between the private sector and income under the per capita metric (chart 1) and per household metric (chart 2) for the lower 48 states. In both charts, Alaska and Hawaii are excluded from the observations.
The first thing to note is that the r-squared is higher under the per household metric (0.52) versus (0.46). The r-squared measures how closely the observations conform to the predicted line as measured in the equation shown. Even just eye-balling the chart you can see that in chart 2 the observations are more tightly clustered. And Utah, the state that started this saga, has clearly moved from an outlier in chart 1 to middle-of-the-pack in chart 2.
Secondly, the correlation is steeper under the per household metric which means an even greater increase/decrease in income with a bigger/smaller private sector. On average, a 1 percentage point increase/decrease in the size of the private sector yields an increase/decrease in household income of $2,617. That’s a nice chunk of change.