Link between Real Income and Future Population Growth

Thinkstock/Ryan McVay

People might think that cities with good amenities, high wages and a low cost of living would see relatively higher population growth over time and that cities with less favorable conditions would see relatively lower population growth.

A recent Economic Synopses essay examined whether this is true by looking at the link between real (price-level adjusted) income and population growth for the largest U.S. metropolitan statistical areas (MSAs). Economist Maximiliano Dvorkin and Research Associate Asha Bharadwaj found that real income in the early 1970s influenced population growth over the next few decades.

To see if higher average real income was correlated with higher population growth, the authors first adjusted nominal income for cost of living differences across locations and over time. Dvorkin and Bharadwaj then plotted average real income in 1970 against population growth over the period 1970-2015.

They noted that there seems to be a positive correlation between the two variables and cited the following examples:

• Seattle, Denver, Anchorage and San Diego had relatively higher real incomes in 1970 and high population growth.
• Detroit, Philadelphia and Pittsburgh had lower real incomes in 1970 and lower population growth.

The authors also pointed out some exceptions: Atlanta, Houston and Dallas all had low real incomes in 1970 but high population growth. “Incomes in these MSAs, however, have grown rapidly since 1970, which could be a main reason for the population growth,” they explained.

(For a figure showing real income and population growth across the largest U.S. MSAs, see the Economic Synopses essay “City Growth and Real Income.”)

Dvorkin and Bharadwaj noted that other factors, such as an MSA’s amenities, could have also influenced population growth.

“The link between an area’s average real income and subsequent population growth, however, suggests that areas with currently high average real incomes will experience higher population growth in the coming years,” they concluded.

• Economic Synopses: City Growth and Real Income
• On the Economy: Which States Have the Highest Cost of Living? Lowest?
• On the Economy: Income and Living Standards across China