The Pittsburgh region had the fourth fastest growth in per capita income among the top 40 regions over the past 20 years (1985-2005) and the ninth fastest growth rate between 2000 and 2005. That's a sign of economic strength, right?

		Harold D. Miller is president of Future Strategies LLC, a management and policy consulting firm based in Pittsburgh. He also publishes www.PittsburghFuture.com, a resource on regional economic development issues. His column appears monthly.

Not necessarily. A common fallacy is that high and growing per capita income means that jobs are paying well and that average wages are increasing faster than in other regions. But that isn't always true. In fact, the Pittsburgh region had the ninth lowest average wage per job among the top 40 regions in 2005 and it had the fifth slowest growth in average wages over the past 20 years.

How can our per capita income be growing so rapidly when wages are growing so slowly? The reasons lie in the way per capita income is calculated. First, the "income" in the numerator is more than just wages and salaries. It includes two other factors: 1. dividends, interest and rent and, 2. transfer payments, primarily Social Security, Medicare and Medicaid benefits.

Thanks to our large population of senior citizens, nearly one of every five dollars in the Pittsburgh region's economy comes from transfer payments, a higher share than any region in the country other than New Orleans. And that percentage has grown over the past five years (from 16.9 percent in 2000 to 19 percent in 2005). Social Security benefits increase every year with inflation, even when wages and salaries don't, and Social Security recipients don't get laid off the way workers do. So our above-average level of transfer payments in the Pittsburgh region increases our per capita income ranking over what it would be otherwise.

But the primary reason our per capita income has been growing faster than other regions is that the denominator is the total population, not wage earners or even income recipients. To understand the importance of this, imagine a married couple, both of whom work and earn a total of $60,000 per year. The "per capita income" of their household is $30,000 ($60,000 divided by two people). If they have a baby, their per capita income drops by 33 percent to $20,000, because the same income is now spread across three people, rather than just two. Conversely, if their child were 18 years old and moved out, their household per capita income would increase by 50 percent (from $20,000 back to $30,000).

The same thing happens within and across regions. Everything else being equal, regions with fewer children will have higher per capita income. The Pittsburgh region has had one of the lowest birth rates in the country (which is one of the reasons that we have been losing population), and the fewer children and fewer lower-wage-earning young people here make our per capita income higher. So even though total income here has grown more slowly than in most regions, our per capita income grew faster than other regions because we have had less population growth, particularly children, than any region in the country.

The bottom line is that per capita income growth is not a good measure of how attractive our economy is to workers and potential residents. The right measures are the growth in jobs and the average wages per job. And on those measures, we're not doing well at all -- we had the fourth worst rate of job creation among the top 40 regions over the past three years and we have the ninth lowest pay per job.

Clearly, encouraging more high-wage job creation needs to be a priority for the region. As noted in last month's column ("Cutting Worst State Business Taxes Will Lead to More Jobs," June 3), a key part of the solution is to reduce Pennsylvania's uncompetitive business taxes, which will encourage existing businesses to grow and help attract new businesses to the region.