Minnesota or Indiana?

I want to update a column I wrote for Dome in November 2011. Entitled “Model state for Michigan’s future?” I wrote then:

The Mackinac Center for Public Policy on Monday is hosting an event with Indiana Governor Mitch Daniels as the featured speaker. This is a continuation of a decades-long tradition of inviting Indiana governors — mainly Republican — to tell us the policies they have pursued to grow the Indiana economy, so we can learn from them what to do. One problem: Indiana is today, and has been for decades, the poorest and least educated Great Lakes state. That’s right. Even after Michigan’s awful so-called lost decade, Indiana is poorer than we are.

What Indiana is best at among the Great Lakes states is adherence to the low tax/small government policies advocated by conservatives as the magic elixir to grow the economy. In the 2011 state rankings by the well-respected conservative Tax Foundation, Indiana is the highest ranked Great Lakes state on both overall state business climate (10th) and corporate tax index (21st). The latter is the lever the Snyder Administration has argued is the most important to growing the Michigan economy. So for those who live on Planet Ideology — where all that matters is faithful adherence to a conservative policy agenda — Indiana is a model for Michigan.

But for the vast majority of Michiganians who care about whether they have a job and a good income to raise a family, Indiana doesn’t look so good. Indiana’s per capita income, proportion of households with incomes of $75,000 or more, poverty rate and proportion of adults with a four-year college degree are all the worst among Great Lakes states.

So if Indiana is not the Great Lakes state where residents are doing the best, which one is? Minnesota is the highest rated state in the region on just about every economic measure that real people care about. It is the Great Lakes state with the “more and better jobs” that Governor Snyder has said is his goal for Michigan.

So how are Minnesota and Indiana doing a year and half later on the “more and better jobs” goal? Minnesota remains the best on every measure of economic well being among the Great Lakes States and one of the best in the country. Indiana the opposite. And the gap between the two is growing. Here is the updated status of both states on the economic metrics that matter to whether or not one can pay the bills and save for retirement and the kids college education.

In terms of 2011 per capita income — the best measure of economic well being — Minnesota is the 11th most prosperous state in the nation at $44,560. Indiana 40th at $35,689. Forty-one percent of Minnesota’s households have incomes four times the poverty rate or higher (our metric for middle class and above); Indiana has 30 percent. Indiana also has 30 percent of its households with incomes 1.5 times the poverty rate or lower (our metric for low income); compared to 20 percent in Minnesota.

When you break down per capita income into its components it provides a much clearer picture of how each state’s residents earn their income. Per capita income from private sector jobs (both wages and employer paid benefits) in Minnesota is $29,043 (6th highest in the nation), compared to $20,355 (31st) in Indiana. Private sector employment earnings, of course, are what every state’s economic policy is designed to accomplish. This is the Top Ten every state wants to be in. Minnesota is there; Indiana is not close.

In terms of employment, once again you would rather be a Minnesota resident than Indiana. The  2012 average annual unemployment rate in Minnesota was 5.6 percent, compared to 8.4 percent in Indiana. The far better metric is the employment to population ratio for those between the ages of 25-64 (considered prime working years). In 2011, Minnesota’s employment to population ratio was 79 percent, Indiana’s 72 percent.

What about growth? Many (not us) argue that growth is a more important metric than current level. Here again there is no contest. Per capita income growth in Minnesota since the Dome article (2009 to 2011) was $2,685. In Indiana it was $1,667

The last two years continue the long term trend of Minnesota growing faster than Indiana. Real per capita income growth in Indiana from 1990-2011 was $6,269, compared to $11,337 in Minnesota. So on average, each Minnesota resident saw his or her income, corrected for inflation, grow $5,000+ more than each resident of Indiana over the past two decades. And nearly all that difference came in per capita income from private sector jobs — up $7,352 in Minnesota, compared to $3,113 in Indiana. (Real private sector employment earnings in Indiana actually fell by $599 from 2001 -2011 as compared to $837 growth in Minnesota.)

Maybe most worrisome for those advocating Indiana as the model for Michigan is that Indiana is far more dependent than Minnesota on transfer payments for its residents’ personal income. Transfer payments are those made by government to or on behalf of individuals. They include Social Security, Medicare, Medicaid, TANF cash benefits, food stamps, veterans’ benefits, tuition support like Pell grants and subsidies for college loans, the Earned Income Tax Credit, and more.

Transfer payments account for 20 percent of Indiana’s per capita income and 54 percent of its personal income growth from 1990 – 2011. That compares to 16 percent of Minnesota’s per capita income and 29 percent of its two-decade growth. The exact opposite is the case for the desired private sector employment earnings, which represent 65 percent of Minnesota’s 1990 – 2011 growth, compared to 50 percent in Indiana.

The evidence is even clearer today than two years ago: if you want to achieve the “more and better jobs” goal, you want Michigan to be more like Minnesota than Indiana. The evidence is also clear that you cannot get Minnesota’s economy by pursuing Indiana’s policies. (Minnesota clearly is following a different path to prosperity. In the 2013 Tax Foundation’s State Business Tax Climate Index it is the worst-ranked Great Lakes state — 43rd from the top on its overall state index and 45th on the corporate tax index.) Indiana has been trying its low tax/small government formula for decades and is falling farther and farther behind Minnesota and other prosperous states.

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