As we explored in our last post being in the top ten in business cost rankings has little or nothing to do with Michigan families ability to pay the bills or save for their kids college or their retirement. (As in the last post this is an update of a post I did nearly a year ago.)
Instead of aiming for a top 10 business climate ranking we believe Michigan policy makers should be aiming to be a top ten state in non-natural resources private sector employment earnings (both wages and benefits) per capita.
As we wrote in our latest progress report on Michigan’s Transition to a Knowledge-Based Economy: “We have come to believe that the measure long term that matters most to both the country’s and each state’s prosperity is private sector employment earnings per capita. What we focus on here is non-natural resources private employment earnings. There are only a handful of states that have sufficient natural resources available from commodities to be a driver of their state’s economy. Michigan, for example, gets only a minuscule 0.7% of its per capita income from farming, mining, forestry and fishing combined. For most states and regions, non-natural resources private employment earnings is an essential ingredient in being prosperous in the long term, and it is what policy makers at the state and local level are primarily focused on when they put forward economic development policy and programs.”
(The list and analysis below would be basically the same if we used the top ten in private sector employment earnings per capita including natural resources. North Dakota would rank sixth, California drops out of the top ten, ranking 12th.)
First lets look at the top ten states and how they rank on the Tax Foundation’s 2014 State Business Tax Climate Index.
- Massachusetts: 25th
- Connecticut: 42nd
- New York: 50th
- New Jersey: 49th
- Minnesota: 47th
- Illinois: 31st
- New Hampshire: 8th
- Delaware: 13th
- Colorado: 19th
- California: 48th
Hard to make the case that doing well in business cost rankings has anything to do with generating employment earnings for a state’s residents from private sector employers.
If business climate ratings don’t predict getting on this top ten list, what does? The two defining characteristics of high prosperity states is they are over concentrated in the high education attainment sectors of the economy ––primarily health care, education, finance and insurance, professional and technical services and information––and the proportion of adults with a four year degree or more.
Here is how the top 10 ranks on those metrics. (Proportion of wages from high education attainment sectors is the first number, proportion of adults with a four year degree or more is the second.):
- Massachusetts: 2nd/1st
- Connecticut: 5th/4th
- New York: 1st/9th
- New Jersey: 6th/6th
- Minnesota: 11th/10th
- Illinois: 17th/13th
- New Hampshire: 13th/8th
- Delaware: 3rd/19th
- Colorado: 8th/3rd
- California: 9th/14th
Seems like a pretty compelling case that Michigan policy makers should be far more focused on increasing Michigan’s concentration in the high education attainment sectors of the economy and the proportion of adults with a four year degree than reducing business costs.
For the record Michigan is 34th in non natural resources private sector employment earnings per capita, 32nd in proportion of wages from high education industries, 35th in the proportion of adults with a four year degree and 14th in the Tax Foundation’s 2014 State Business Tax Climate Index. End of story!