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Economic Currents

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Personal Income Growth Slows in 12Q3 for HI & US

Posted December 21, 2012 | Categories: Hawaii's Economy, Blog

The latest data released by the US Department of Commerce Bureau of Economic Analysis (BEA) indicates that personal income growth decelerated in the third quarter of 2012 for Hawaii and the US as a whole. Despite slow growth in the most recent quarter, conditions continue to improve both locally and across the nation.


Personal Income

Personal income is a key economic indicator that measures the aggregate income received by all residents from all sources. It represents the total income that can be used by residents to purchase goods and services, save and invest, and generate tax revenues.

Annualized personal income in Hawaii was $61.5 billion in the third quarter of 2012, up 0.5% from the second quarter of 2012. Growth in the third quarter slowed markedly compared to 1.8% growth in the previous quarter. Personal income growth also slowed across 33 other states and in the US a whole. In the third quarter personal income grew in 49 of the 50 states with the fastest growth in North Dakota, up 1.4% from the previous quarter. South Dakota was the only state to see a contraction with income falling by 1.6%. For the US as a whole, personal income grew by 0.5%.

Despite the recent sluggishness, personal income in Hawaii grew by a healthy  4.1% compared to the third quarter of 2011. Overall US income grew by only 3.2% during the same period; North Dakota had the strongest growth of 8.5% while South Dakota experienced the slowest growth of only 0.3%.


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Personal income is classified by source into three major categories: labor income, investment income, and transfer payments.


Labor Income

Labor income is a measure of the total compensation received by employees as well as the income collected by sole proprietors and partnerships. Labor income in Hawaii accounted for 73% of personal income in the third quarter of 2012, and growth slowed significantly. Hawaii saw robust growth of 2% in the second quarter of this year compared to the national average of only 0.4%. In contrast, third quarter growth was a paltry 0.4%, compared to 0.5% growth at the national level. Despite slow growth in the most recent quarter, labor income in Hawaii grew 3.8% year-on-year, greater than the national average of 3.1%.

Key industries saw only limited growth in the third quarter. After surging by 9.2% in the second, earnings in the health care industry fell by 3% in the third quarter. Earnings in leisure and hospitality edged up by 0.4% in the third quarter after no growth in the second. Public sector earnings growth was also limited. State and local government as well as federal government earnings each only grew by 0.5% in the third quarter. Health care, leisure and hospitality, and the public sector accounted for almost 55% of all labor income in Hawaii.

A handful of industries did see stronger earnings growth though. Construction earnings grew by 2.7% from the second quarter to the third, marking the industry’s seventh consecutive quarter of positive quarter-on-quarter growth. The utilities sector also saw growth of 2.7%. Other sectors with healthy labor earnings growth included retail trade(+1.7%), transportation and warehousing(+1.8%), and real estate rental and leasing(+1.5%).


Investment Income

Investment income includes dividends, interest income, and rental income. Investment income accounted for 18% of Hawaii personal income in the third quarter of 2012.

Investment income for the US overall was flat in the third quarter after growing by 2% in the second. Hawaii was one of the few states with investment income growth in the third quarter, up 0.5%. Year-on-year, Hawaii had the fastest growth of any state; up 5.4% while the national average was only 3.9%. The BEA does not publish individual components of state investment income in quarterly releases. More complete information on investment income will be available when the bureau releases the full 2012 data release, due out in the first quarter of 2013.


Transfer Receipts

The majority of income classified as transfer receipts are funds transferred from various levels of government to individuals. The two largest sources of transfer receipts are Social Security payments and medical benefits paid through Medicare, Medicaid, or military healthcare programs. Transfer payments made up 16% of personal income in Hawaii for the third quarter of 2012.

Transfer payments in Hawaii grew by 0.9% from the second quarter to the third, almost on par with the national average of 1% growth. Transfer payment growth in the third quarter ranged from 1.3% in New Mexico to 0.3% in Alaska. Unemployment insurance benefits, the only component of transfer payments published quarterly by the BEA, fell by 13% in Hawaii from the second quarter to the third while all other transfer payments grew by 1.5%. Year-on-Year transfer payments in Hawaii are up 4.1%, above the national average of 3.2%. As with investment income, more complete information on transfer receipts will be available in the next release with full 2012 data.



This release confirms that conditions in the state continued to improve through the third quarter of this year. Labor income, property income, and transfer receipts all grew from the second quarter to the third albeit more slowly than in the previous quarter. Even with slow growth in the most recent quarter, all three components of personal income posted moderated year-on-year growth rates that outpaced national averages.


-- Jimmy Jones

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Hawaii's Proposed 400MW Wind Energy Project Explained

How will the proposed 400 MW Wind Energy Project contribute to the State’s Renewable Energy goals?

Hawaii has one of the most stringent Renewable Portfolio Standard (RPS)* policies in the country as well as the highest electricity rates due to dependence on oil for electricity generation (Coffman et al., 2012). As such, renewable energy technologies like wind tend to be more cost-effective in Hawaii than elsewhere in the U.S.

After the signing of the Memorandum of Understanding between the State of Hawaii and the U.S. Department of Energy, the Hawaii Clean Energy Initiative, Hawaii increased its’ RPS law to achieve 40% of electricity sales based on renewable energy sources by the year 2030. It specifies that:

  1.      1) 10% of net electricity sales be based on renewable energy sources by the end of 2010,
  2.      2) 15% by 2015,
  3.      3) 25% percent by 2020, and
  4.      4) 40% by 2030.

Renewable fuel/energy types include solar, wind, ocean, geothermal, biomass-based, landfill gas, hydroelectric, CHP/cogeneration, hydrogen, anaerobic digestion, and waste. In the year 2015, energy efficiency ceases to count as a “renewable” energy type and will instead be governed by an Energy Efficiency Portfolio Standard (EEPS).

Using a model of Hawaii’s electric sector, we find that the proposed 400MW wind project will meet about 10% of the State’s energy needs in the year 2030. Figure 1 shows Hawaii’s possible energy mix from 2010 to 2030. The figure represents a scenario where:

  1.      1) the least-cost mix of electricity generation is selected assuming that the 400MW
  2.           wind project is built in the year 2020,
  3.      2) fuel prices (oil, coal and bio-oil) follow the Energy Information Administration’s (EIA)           reference trend, and
  4.      3) the RPS law is met.


It is important to note that the RPS does not govern the use of the other 60% of fossil fuels (which remains oil-dominated)** nor does it distinguish between types of renewable energy (see Coffman, Griffin and Bernstein, 2012). For example, biofuels are counted similarly to solar photovoltaic or wind energy, even though their net energy content and greenhouse gas emissions impacts are quite different. The proposed wind project largely serves to limit the amount of imported biofuel used to meet the RPS.***


Does the proposed 400 MW Wind Energy Project make economic sense?

Using both the model of Hawaii’s electric sector and one of Hawaii’s overall economy, we find that moving forward with the proposed 400 MW wind project has net benefits to Hawaii’s economy because of a positive terms of trade effect. Fundamentally, wind energy serves as a “hedge” against potentially rising and volatile fuel prices, including biofuel prices. Biofuel prices are highly linked to oil due to their high level of substitutability. Even when fossil fuel and biofuel prices are expected to be low (according to the EIA’s Annual Energy Outlook 2012), the proposed wind project retains its net macroeconomic benefits, albeit quite small. We find that the project has a net positive impact of $589 million (in $2007 Gross State Product) over the 20-year model time horizon, translating to an impact of $2.80 per year to households.

Although the economic impacts are relatively small (never over half a percent increase in Gross State Product on an annual basis) they are clearly positive through the model time horizon.


Will the proposed 400 MW Wind Energy Project reduce Hawaii’s GHG emissions?

The proposed project serves to reduce Hawaii’s net GHG emissions by about 10 million metric tons of CO2 over a 20-year time horizon. This is a roughly 4% reduction in electric-sector emissions.


-- Makena Coffman



Coffman, M. and Bernstein, P. (2012). “An Integrated Top-Down and Bottom-Up Analysis of Wind Energy.” Prepared for AUBER 2012, Honolulu, HI.

Coffman, M., Griffin, J., and Bernstein, P. (2012). “An Assessment of Greenhouse Gas Emissions-Weighted Clean Energy Standards,” Energy Policy, 45: 122-132.


* Renewable Portfolio Standards are a mandate placed on electric utilities that require a specified percentage of electricity sales be met through renewable sources of electricity by a certain year.

**The model represents all current laws and financial incentives for commercially available technologies. For example, the solar photovoltaic federal and state tax credits are accounted for to the extent that they are currently written into law. The exception, however, is coal. Although there is no law explicitly prohibiting the growth of coal use in Hawaii, we exclude more coal in this scenario because the Hawaiian Electric Company has publicly stated its commitment to limiting future use of coal. The full paper shows a wider array of scenarios.

***We assume that biofuels are imported because of the least-cost framework. It is certainly possible that locally produced biofuels are used to meet the RPS, but at a price premium.

20 years of Agriculture in Hawaii: Very Small and Shrinking

Posted September 21, 2012 | Categories: Hawaii's Economy, Blog


Adapted from the "Wealth and Health of Nations" re-creation by
Source: UHERO

Mouseover the year to move forward and backwards through time.
Mouseover the circles and wait for the tool tip to see the sector name.

This chart shows a sector-by-sector overview of the Hawaii economy between 1990 and 2010 with an emphasis on the agricultural sector. The chart uses employment and labor earnings as a framework to assess the agriculture sector's "impact" on the Hawaii economy.

The main conclusion we draw from this data is that the agriculture sector in Hawaii has a very small impact on the overall state economy when viewed through this labor earnings framework. Agriculture provides employment for a very small number of people and the people who work in agriculture earn less than workers in any other sector. As a result, the portion of total state earnings generated from agriculture is very small and shrinking.



The vertical axis displays a very broad measure of employment in each sector using data from the U.S. Department of Commerce Bureau of Economic Analysis (BEA) . This series includes hired labor as well as proprietors (the self-employed and individuals working in partnerships). Note that this measure of employment does not include unpaid family workers or volunteers, only hired labor and proprietors.

We can see that between 1990 and 2010 employment in Hawaii's agriculture sector has fallen both in absolute numbers and in the proportion employed in agriculture. In 1990, the agriculture industry employed roughly 14,600 individuals, representing 2% of the state's overall employment. By 1995, almost 20% of all farm jobs had been cut, agriculture employment fell to 11,800. For the next 15 years farm employment fluctuated around the 12,000 level. In 2010, roughly 12,200 individuals were employed in the farm sector, only 1.5% of total state employment.


Labor Earnings per Job

The horizontal axis displays inflation adjusted labor earnings per job. a measure of the average compensation paid out to each worker in each industry. This is in contrast to the more common gross domestic product per worker measures that quantify the value of the goods and services that each worker produces. Labor earnings is a broad based measure of compensation that consists of three components:
1. Wage and salary disbursements: This includes gross monetary compensation paid out to hired labor such as wages, salaries, bonuses, and tips. Wage and salary disbursements are all measured before any deductions such as for income taxes, payroll taxes, or union dues.
2. Supplements to wages and salaries: This component includes employer contributions to employee pension and insurance funds; things like 401k matching or the employer portion of an employee's health insurance premium. This component also includes employer contribution to government social insurance programs; this is the employer's portion of Social Security, Medicare, and Unemployment Insurance payroll taxes.
3. Proprietors' income: This component measures the net income collected by sole proprietors and partnerships after all other expenses have been paid.

To compare average compensation between industries and over time, we perform two simple transformations on the labor earnings data. First, we adjust for inflation using the Honolulu CPI to convert from nominal dollars into 2010 dollars. Second, we divide labor earnings by total employment in each sector.

In the agriculture sector, real labor earnings per job have fallen over the last 20 years. In 1990, average labor earnings per person in the agriculture sector were $35,600 per year after adjusting for inflation. In 2010, this same figure was down to $25,700, and was the lowest of any industry. They key take away is that, from a monetary compensation standpoint, the average agricultural worker is significantly worse off than the average agricultural worker 20 years ago—both in absolute dollar terms and relative to the rest of the workforce. And, labor earnings are measured before deductions for taxes and include non-cash supplements; actual take home pay is significantly lower!


Labor Earnings as a Framework for "Impact"

When we take an industry's average labor earnings together with its employment, we can get an idea of its impact on the local economy from a labor perspective. In the chart, there are two visual indications of a sector's impact on the local economy. The first is the position of the sector relative to the axes on the chart. Sectors higher on the vertical axis employ more people, sectors further to the right have more generous compensation; moving away from the origin in either direction indicates greater impact. The second measure is the size of each bubble  reflecting that sector's contribution to total labor earnings for the State. The larger the bubble, the  larger the impact. There are a number of ways to measure a sector's relative importance.  We could look at the number of jobs, or output, or export capacity, etc.; here we are using labor earnings. We take Hawaii's total labor income (both employees and proprietors) and calculate each industry's share.

From a labor earnings perspective, agriculture has a low impact on the local economy and it has contracted over the last 20 years. In 1990, the agriculture industry employed 14,600 people and provided average compensation of $35,600 per worker adjusted for inflation for a total of around $5.2 million paid out in total labor earnings. This $5.2 million represented 1.5% of the state's overall labor earnings in 1990. In 2010, the agriculture industry employed 12,200 people and provided average compensation of $25,700 for a total of close to $3.1 million in total compensation; representing only 0.8% of overall labor earnings. Comparing to other sectors, the agriculture sector had the smallest contribution to overall labor earnings in 2010. The second smallest sector, private education services, provided roughly $6.5 million in total income; more than double that of agriculture.

-- Jimmy Jones

Visualization and Research Support: Inna Cintina and Ben Trevino


Upcoming Seminar: Tax Expenditures in Paradise

Posted September 8, 2012 | Categories: Hawaii's Economy

Title: Tax Expenditures in Paradise

Speaker: Donald Rousslang (Hawaii Department of Taxation)

Date and Room: Friday, September 14 at 3:00-4:15PM, Saunders 515


This paper examines tax expenditures in Hawaii's General Excise Tax (GET) and net income taxes. More specifically, it identifies the tax expenditures and provides estimates for their revenue cost. A tax expenditure is a tax break, most commonly an exemption, a deduction or a tax credit, that is granted to selected taxpayers or for selected activities. Tax expenditures can be viewed as spending programs implemented through the tax code. Tax expenditures are often hard to identify: In fact, it is sometimes not possible to determine whether a particular feature of the tax code should be considered a tax break. The exercise is one-sided in that it considers only tax breaks and ignores unduly high tax burdens that might exist for some taxpayers or activities. It is also limited to identifying and quantifying the tax expenditures; no attempt is made to determine whether they are worthwhile or achieve their intended goals.

This seminar is co-sponsored by UHERO and the Department of Economics. 

Hawaii jobs report improves in July, just not fast enough

Posted August 17, 2012 | Categories: Hawaii's Economy, Blog

The Bureau of Labor Statistics released the State Employment and Unemployment Summary today, and just like the national numbers for July, the numbers for Hawaii were an improvement over the past few months. Employers added 2,800 net jobs during the month, making up part of the 5,400 jobs lost during the previous two months. And Hawaii was one of the few states to see no increase in its unemployment rate (See Bill McBride's analysis of the state by state numbers here).
From the BLS:

"Regional and state unemployment rates were generally little changed or slightly higher in July. Forty-four states recorded unemployment rate increases, two states and the District of Columbia posted rate decreases, and four states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-four states and the District of Columbia registered unemployment rate decreases from a year earlier, four states experienced increases, and two had no change. The national jobless rate, at 8.3 percent, was essentially unchanged from June but 0.8 percentage point lower than in July 2011."

Statewide the unemployment rate held steady at 6.4% despite a drop in he number of people reporting they were employed during the month. Employment fell by 4,700 persons, but the labor force fell by 5,200 leaving the unemployment rate unchanged from June and only .7 percentage points below its peak of 7.1%. The Hawaii Department of Labor will release county unemployment rates on Monday, and UHERO will report seasonally adjusted county data in the latest addition to its chart gallery.

From the payroll survey, the detailed job counts are as you might expect except that the gains in leisure and hospitality earlier in the year have paused in the last two months. We saw an increase of 800 jobs in the beleagured Construction and Mining sector, and small gains in Manufacturing, Trade and Transportation and Utilities. Professional and Business Services saw the largest gains of 1,800 jobs.

Overall, the private sector added less than 3,200 jobs in July and government shed almost 400 jobs. For the first seven months of 2012, total non-farm jobs have grown by 1% compared to the same period last year, an increase of less than 6,000 jobs. And we are still more than 29,000 jobs shy of the peak job count in December 2007.

--Carl Bonham

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