Rick Haglund: Whitmer should address Michigan worker pay in her State of the State speech

Gov. Gretchen Whitmer speaks at the Mackinac Policy Conference, May 29, 2019 | Andrew Roth

Gov. Gretchen Whitmer will have plenty of topics to tackle in her second State of the State speech on Jan. 29.

We’ll no doubt hear about a new road funding plan after the Republican-controlled Legislature refused to raise even a single penny toward her request for a 45-cent hike in the gas tax last year.

Other topics are likely to include Michigan’s lagging education performance, civil rights protections for LGBTQ residents, improving job-readiness skills and even toxic green ooze slithering onto a major metro Detroit freeway.

But I hope she’ll also spend time talking about a critical issue that threatens Michigan’s economic future: wages and benefits that aren’t keeping up with other states in the competition for talent.

For decades, we’ve heard from mostly Republican elected officials, who have largely controlled Lansing during that time, about how tax cuts and improving the business climate would make us wealthier. 

Whitmer’s State of the State address slated for Jan. 29

Policymakers have largely accomplished what they set out to do. Total state tax revenue as a percentage of personal income is at its lowest point in 40 years. And the state’s business tax climate ranking jumped to 12th this year, up five spots from a year ago, according to the Tax Foundation.

Michigan residents have seen a healthy jump in incomes since the end of the Great Recession in 2009. Median household income rose 25% between 2010 and 2018, from $45,413 to $56,597.

But adjusted for inflation, household income is still below pre-recession levels. And a new nonpartisan Senate Fiscal Agency report says much of the recent income increases are coming more from interest, dividends and rental income to investors, and government transfer payments than from wages.

Wages and unemployment estimates | U of M’s Research Seminar in Quantitative Economics (RSQE)

New research by University of Michigan economist Don Grimes for Michigan Future Inc. also shows that wages and benefits paid to Michigan workers aren’t keeping up with those earned by workers nationally.

Grimes’ data shows that Michigan has fallen from eighth in the nation in employer-paid wages and benefits in 1990 to 21st in 2018.

During that time, average compensation in Michigan went from $3,743 per worker above the national average to $4,416 below it, adjusted for inflation.

It’s a similar story in Wayne and Kent counties, the respective homes to the state’s two largest cities, Detroit and Grand Rapids.

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Average compensation in Wayne County was $10,333 per worker above the national average in 1990. By 2018, it had slipped $4,417 above it. In Kent County, average compensation per worker was $658 below the national average in 1990 and fell even further to a whopping $9,712 below the national average in 2018.

Much of Michigan’s falling compensation compared to the national average likely had to do with the loss of hundreds of thousands of good-paying auto manufacturing jobs over the past several decades.

A study by Ann Arbor-based Center for Automotive Research found that inflation-adjusted wages for U.S. production and nonsupervisory workers in auto manufacturing fell by 18% between January 1990 and November 2019.

Additional data provided to me by Grimes shows that growth in compensation for Michigan workers lagged that of U.S. workers by $6,874 between 2001 and 2018.

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Almost 40% of that gap is attributed to the auto manufacturing sector, according to Grimes’ data. But Michigan compensation also trailed the national average in most other sectors, including finance and Insurance, professional and technical services, retail trade and corporate offices.

The wage gap could be contributing to a “brain drain” of younger Michigan workers who are leaving the state for higher-paying jobs and more vibrant metro areas elsewhere, according to census data compiled by Bridge.

While Michigan’s population is growing overall, the latest census data shows that outmigration — people leaving the state — is accelerating. Those leaving tend to be younger and better educated.

That’s bad news for a state that demographically is looking more like the retiree haven of Florida. Michigan ranks 44th in labor supply, according to Forbes’ ranking of the best states for business.

State government can’t just wave a magic wand and boost workers’ earnings to a more competitive level. But there are many steps that can be taken, including boosting the minimum wage, strengthening cities, working to improve educational attainment and promoting economic diversification. 

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Michigan Future’s work has found that the highest-income non-energy-producing states generally have a large percentage of adults with four-year degrees, an over-concentration of knowledge-based industries, such as health care, professional and business services and corporate headquarters, and strong metro areas anchored by vibrant core cities.

Whitmer favors many of the above policy ideas to improve the state’s economic well-being. Her challenge will be to convince the Republican-controlled Legislature that the job is bigger than focusing on tax policy and creating a friendly climate for businesses.

Her State of the State speech would be a good time to start.

Disclosure: Rick Haglund previously wrote reports on the economies and public policy stances of metro Minneapolis and Minnesota for Michigan Future.