A Comparison of Living Standards Across the States of America

Abstract

We use an expected utility framework to examine how living standards, or welfare, vary across the U.S. and how each state’s welfare has evolved over time. Our welfare measure accounts for cross-state variations in mortality, consumption, education, inequality, and cost of living. While per-capita income is a good indicator of welfare (correlation=0.80), welfare in most states appears closer to that in the richest state than their difference in per-capita income would suggest. Whereas high-income states benefit from higher life expectancy, consumption, and college attainment, low-income states benefit from lower cost of living. All states experienced positive welfare growth from 1999 to 2015, but the annual welfare growth rate varied from 1.38 to 3.76 percent across states due to varying gains in life expectancy, consumption, and college attainment. Per-capita income growth and welfare growth are only weakly correlated (correlation=0.38) and deviations are often large. The welfare results are robust to several modifications such as allowing for endogenous migration across states and including gender, race, and leisure in the welfare measure.