Staggering Statistics Scream for Dramatic Policy Changes

New unemployment statistics are the latest in a seemingly endless series of reminders of Michigan’s economic woes and policy miscalculations. The state’s unemployment rate leapt to 15.2 percent in June, the 40th consecutive month Michigan has had the highest unemployment rate in the nation. To put things in even greater perspective, consider that Puerto Rico’s unemployment rate — 14.5 percent — is lower than Michigan’s, the first time it has been lower than any state in the union since 1976, save for one month after Louisiana was blasted by hurricane Katrina.

Michigan’s unemployment rate may be just one reason that — as of June 30 — mid-year migration data from United Van Lines indicates that 70 percent of its Michigan-related moves involved people departing the Great Lake State, up from 67.1 percent for 2008. No other state endured an outbound rate of even 60 percent. A proven leading indicator presaging dismal Census figures to come, this is yet more evidence that our state is depopulating as people vote with their feet.

This is also just the latest demonstration that enacting ever larger numbers of discriminatory tax breaks and corporate welfare programs as a substitute for genuine business climate reforms is a doomed policy. Only bold, across-the-board initiatives, such as eliminating the Michigan Business Tax and replacing it with nothing, have any chance of staunching the flow of people, talent and investment dollars to other states.

Indeed, there may be no better measure of relative quality of life and competitiveness than migration. United Van Lines is the largest mover of household goods in America, and has tracked the comings and goings of clients since 1977. Through rigorous statistical analysis, the Mackinac Center has found that UVL numbers correlate strongly with actual Census data.

It won’t surprise most people that state unemployment rates and interstate migration are related. A high unemployment rate is an economy’s way of telling residents something they probably already know, which is that opportunities in the state are limited. A low rate in another state also sends a message: Potential rewards await those willing to make the financial and psychological commitment to up-stakes and seek greener pastures.

In 2008 and 2009, we created a statistical model designed to estimate the reasons causing people to leave Michigan. We found that for every 1 percentage point increase in Michigan’s unemployment rate, 900 additional people depart the state in each succeeding year. Since 2000, the state’s unemployment rate has leapt from 3.2 percent to 15.2 percent. Thus, going forward we can expect some 10,000 more departures each year than would have been the case otherwise.

This is just one factor that makes people leave. We also found that for every 10 percent increase in per capita state and local personal taxes, 4,700 of our neighbors flee for friendlier tax climes in each succeeding year. In 2007, our Legislature and governor increased state personal taxes by 11.5 percent, along with a 22 percent surcharge on state business taxes, which is also likely contributing to the current exodus.

The bottom line underscored by our research is that people tend to migrate to states with lower per-capita personal income taxes, greater labor market flexibility and more days of sunshine. We can’t change the weather, but other policy levers are within the grasp of policymakers.

The Mackinac Center is not alone in providing empirical evidence of a link between a freer economy and greater economic well-being. Both the Pacific Research Institute in California and the American Legislative Exchange Council recently published new indices of economic freedom, or “competitiveness,” and found that states with more open, market-friendly policy mixes enjoy more inbound migration. People really do vote with their feet.

Michigan’s economic woes are not a recent phenomenon. While depressing, a quick recap of the statistics behind Michigan’s decline is instructive:

  • Since 1995, when the state began “investing” more aggressively in economic development departments and programs, Michigan finished 50th among the 50 states in employment growth. Ours is the only state to lose jobs over that term.
  • From 2002 through 2007 — roughly the period of America’s last economic expansion — Michigan also experienced negative growth as measured by real state GDP (-1.7 percent).
  • From 1999 through 2008, Michigan was the only state in the union to experience a negative state GDP growth rate. 1999 happens to be the year the Michigan Economic Development Corp. was born — the latest incarnation of this state’s “jobs” department.
  • Michigan’s per-capita personal income ranking also tumbled from 1999 through 2008, from 16th to 34th. Incomes in Michigan now average 11.2 percent below the national average, the lowest point ever since statistics began in the early years of the Great Depression.

Other important evidence drives home these statistical indications that our current public policy mix is not just failing to remediate the effects of auto industry restructuring, but may be making the state’s problems worse: An annual survey by CEO Magazine asks corporate leaders questions about the best and worst states in which to do business. For the past four years, Michigan has ranked as one of the five worst states. The magazine’s summation included this note:

Expressing the prevalent attitude among CEOs, one said, “Michigan and California literally need to do a 180 if they are ever to become competitive again. California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster, as is Michigan.”

Such a verdict will not be reversed by our governor and legislators continuing their counterproductive meddling with a steady stream of new and expanded “economic development” programs intended to “create or retain” jobs, mostly administered through the Michigan Economic Development Corp. Increasingly, they are abandoning any pretense that these targeted incentives are part of a logical, systematic policy framework, and are instead catering to each politically influential “rent-seeker” who comes forward, without regard to the cost this imposes on “ordinary” job providers, and to the state’s reputation as good place to do business. Is it no wonder, then, that the MEDC has become less transparent in its reporting over the years? Data used to analyze economic development programs that were once easy to obtain no longer are.

Stating this more explicitly, to believe that the MEDC has been successful, one must also believe that that Michigan’s economy might be worse off had not a few hundred highly paid government bureaucrats redistributed taxpayer wealth from the many to a few. “It’s a stretch” would be an understatement.

Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Michael Hicks, Ph.D., is director of the Bureau of Business Research at Ball State University, and an adjunct scholar with the Mackinac Center. Permission to reprint in whole or in part is hereby granted, provided that the authors and the Center are properly cited.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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