04/19/2017

The West Virginia Productivity Miracle. Really!

Tyler Cowen, Bloomberg News

After so many articles on America’s troubled Appalachian region, how about a contrarian view? These days, when I hear talk of the economic problems in, say, West Virginia, I think instead of the West Virginia productivity miracle, and I wonder how such an impressive achievement could be possible. I know that sounds crazy, but bear with me.

The per capita income of West Virginia is about $37,000 a year, which makes it one of the poorest states in the union. Still, at about three-quarters of the national average, that’s higher than many people expect. And because it is cheaper to live in West Virginia than where most Americans live, the per capita income is higher when adjusted for purchasing power parity.

In contrast, per capita income in France or Japan, by purchasing power parity measures, is in the range of $40,000 to $41,000. In other words, if we consider that living in West Virginia is especially cheap, its people may have real incomes roughly equal to the French or Japanese.

I have found that even raising such a comparison provokes outrage. After all, we are told, France and Japan have higher-quality public goods, and West Virginia has an opioid epidemic, one of the lowest rates of labor-force participation in the U.S., and one of the highest rates of uptake on disability insurance.

But that’s exactly what I mean by the West Virginia productivity miracle. The more burdened some of the state’s residents are, the higher productivity must be for those who are hard at work. The state has a brighter future than many observers are expecting. There are numerous metrics for success, not all of them positive for West Virginia, but over the past 10 years, the compounded rate of growth for net earnings has been estimated by the Bureau of Economic Analysis at 2.1 percent -- not exactly a train wreck. And, if you’re wondering, the top 1 percent in West Virginia captures a below-average share of the income in that state.

The West Virginia productivity miracle is fairly explicable. The state has a presence in chemicalsbiotechaerospace, metals, biometrics, forestry and tourism, among other areas -- including, of course, a declining coal-mining sector. Chemical and biotech companies DuPont Co. and Bayer AG have seen fit to locate production there, as have aerospace companies Pratt & Whitney and Lockheed Martin Corp., among others. Morgantown, with West Virginia University, has a branch of the National Energy Technology Laboratory, in addition to research centers in the neurosciences and in medicine.

Maybe you’re not overwhelmed, but is that so bad for a state with less than 2 million people, and whose largest city, Charleston, comes in just barely above 50,000 inhabitants?

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