In a recent post the Mackinac Center argues that Mississippi should be a model for Michigan because it has a high per capita income growth rate. They specifically cite its performance over the most recent five years (2003-2008). Over that period Mississippi’s per capita income grew 27.7% as compared to 24.5% nationally.
I was curious why are they growing somewhat faster than the nation. Our analysis has been the two factors that now contribute the most to high state income are human capital (the proportion of adults with a four year degree or more) and concentrations in oil and natural gas in a period of high energy prices. Neither are a Mississippi strength.
So I asked Don Grimes to look into it. What he found is real interesting. We divided per capita income growth into three categories: government employee earnings growth, transfer payment growth (items like Medicare, Medicaid, food stamps, etc.) and all other personal income growth (basically private sector earnings and investment earnings).
So how is it that Mississippi has a faster five year growth rate than the nation? Big government! Income from transfer payments accounted for 8.2 percentage points of the per capita income growth in Mississippi, compared to 4.8 percentage points nationally. Government employees earnings grew faster in Mississippi than the nation, up 4.1 percentage points compared to 2.9 percentage points. But when it comes to private sector earnings growth Mississippi is a laggard, accounting for only 14.3 percentage points out of their total growth of 27.7% as compared to 16.9 percentage points points nationally out of total growth of 24.5%
So much for Mississippi being a model for Michigan. Its ironic that the Mackinac Center is singing the praises of a state whose income is growing faster because of more government – mainly federal – spending. But for us that is not the path back to high prosperity.
The most reliable way a state will have high prosperity in the future is if it is over concentrated in the growing and high wage part of the American economy which is knowledge-based. In that economy the asset that matters most is human capital. Unless Michigan substantially increase the proportion of its adults with college degrees we will be one of the poorest states in the country.