If Sweden and Germany Became US States, They Would be Among the Poorest States
[NB: The graphs and source data in this article has been updated in "These US States Have Higher Incomes than Nearly Every European Country" published in June 2018.]
The battle over the assumed success of European socialism continues. Many European countries like Sweden have gained a reputation as being very wealthy in spite of their highly regulated and taxed economies. From there, many assume that the rest of Europe is more or less similar, even if slightly poorer. But if we look more closely at the data, a very different picture emerges, and we find that the median household in the US is better off (income-wise) than the median household in all but three European countries.
Worse than Mississippi?
Last year, a debate erupted over how Britain would compare to individual US states. In the UK Spectator, Fraser Nelson explained "Why Britain is poorer than any US state, other than Mississippi." A week later, TIME shot back with an article titled "No, Britain Is Not Poorer than Alabama." The author of the TIME article, Dan Stewart, explained that, yes, Britain is poorer than many US states, but certainly not all of them. (See below to confirm that the UK is, in fact, poorer than every state.)
The main fault of the Spectator article, its critics alleged, was that it relied primarily on GDP and GDP per capita to make the comparisons. The critics at TIME (and other publications) correctly pointed out that if one is going to draw broad conclusions about poverty among various countries, GDP numbers are arguably not the best metric. For one, GDP per capita can be skewed upward by a small number of ultra-rich persons. After all, it is just GDP divided by the total population. That gives us no idea of how the median household is doing is those areas. Also, it's best to avoid averages and stick with median values if we're looking to avoid numbers that can be pulled up by some wealthy outliers.
This same criticism was applied to a 2007 study by Swedish economists Fredrik Bergström and Robert Gidehag (and an article by Mark J Perry) who had asserted that according to their calculations, Sweden was poorer than most US states.
The Bergstrom and Gidehag study was no back-of-the-envelope analysis, but given that they did rely largely on GDP per capita data, I thought it might be helpful to use data that relies on median income data instead, so as to better account for inequalities in income and to get a better picture of what the median resident's purchasing power. Click for full size:
The nationwide median income for the US is in red. To the left of the red column are other OECD countries, and to the right of the red bar are individual US states. These national-level comparisons take into account taxes, and include social benefits (e.g., "welfare" and state-subsidized health care) as income. Purchasing power is adjusted to take differences in the cost of living in different countries into account.
I began with the OECD's "median disposable income" metric. This is a metric developed by the OECD to compare among all member states. The measure takes into account taxes and social benefits provided.
Then, we must adjust the numbers for purchasing power parity using the World Bank's index. At that point, we can see how the US compared to other members using dollars across all countries. I provided an analysis at the national level here.
But, in order to compare to individual US states, we have to come up with a way to make US states comparable. The OECD does not measure individual US states, so I had to use the Census Bureau's measure of median income for a place to start (2012-2013 2-year average medians). The Census numbers are much higher than the OECD numbers for a variety of reasons. In fact, the OECD income number of the US is only 59 percent of the Census number.
So, to roughly adjust state income levels for OECD methods, I cut down state level income levels to 59 percent of their Census total. This brought the median income level in Illinois, for example, down from approximately $54,000 (Census value) to $32,000 (to estimate OECD value). Similarly, one could also adjust for OECD methods by taking the OECD median income for the US ($30,616) and then adjusting to fit each individual state's median income in relationship to the nationwide median. For example, since Wyoming (according to the Census) has a median income that is 109% of the national median income, we simply set Wyoming's median income at ~ $33,600 which is 109% of the OECD median income value of $30,616.
When adjusting for cost of living in US states, I then adjusted each state using the regional price parity numbers provided by the Bureau of Economic Affairs. Naturally, median income numbers for individual states are already in US dollars.
Is median income a good metric for poverty comparisons? Maybe, but in any case it's what OECD and UNICEF use. Typically, the "poverty rate" is calculated as either 50% or 60% of the national median income. So, apparently, the UN and OECD do think it's a relevant figure, and if poverty rates are going to be invoked as reasons for new public policy, then median incomes must be analyzed.