Articles written by Lou Glazer
The nation’s report card on student achievement is the National Assessment of Education Progress. It measures how well students across the country perform on high standards tests. The results for the 4th and 8th grades in reading and math were just released.
Given the importance of education attainment to both individual and state economic success I decided to see how Michigan was doing on this vital measure. The answer is clear: not well. And found, once again, that across the board Minnesota was performing at a much higher level. Here are the rankings (out of 51 including DC):
- 4th grade reading: Michigan 38th, Minnesota 8th
- 8th grade reading: Michigan 33rd, Minnesota 9th
- 4th grade math: Michigan 40th, Minnesota 1st
- 8th grade math: Michigan 38th, Minnesota 3rd
In every test Minnesota was above the national average in the proportion of students proficient and Michigan below the national level. And the gap grew larger between 2011 and 2013. Here is the percentage of students proficient and the change over the past two years:
- 4th grade reading: Michigan 31%/0, Minnesota 41%/+6
- 8th grade reading: Michigan 33%/+1, Minnesota 41%/+2
- 4th grade math: Michigan 37%/+2, Minnesota 59%/+6
- 8th grade math: Michigan 30%/-1, Minnesota 47%/-1
My guess is many in Michigan think the difference between the two states is predominantly demographic. So I looked at the results for white kids and non poor kids. For both groups on all four test Minnesota scores better than Michigan. The gap in all tests is actually wider for white kids than black kids. You read that right: white kids in Minnesota are doing even better than white kids in Michigan than the gap between all kids in the two states.
Seems to me one can make a case that this is not just a report card on our students, but also of our policy makers. Certainly not a ringing endorsement of the funding cuts, let just about anyone open a school (including virtual) without any quality standards, ambivalence on high academic standards policy approach we have taken, particularly the last three years.
The odds are over whelming that Michigan kids are as capable as Minnesota kids. The difference in performance almost certainly has far more to do with the expectations that educators and policy makers have of kids and the quality of education that the two states provide.
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Interesting New York Times column on the recent economic fortunes of Minnesota and Wisconsin. And the correlation between that and the policies pursued by their Governors the past three years: Minnesota’s progressive Mark Dayton and Wisconsin’s conservative Scott Walker.
The column’s conclusion: “Which side of the experiment — the new right or modern progressivism — has been most effective in increasing jobs and improving business opportunities, not to mention living conditions? Obviously, firm answers will require more time and more data, but the first round of evidence gives the edge to Minnesota’s model of increased services, higher costs (mostly for the affluent) and reduced payments to entrenched interests like the insurers who cover the Medicaid population.”
The column then goes on to detail the outperformance of Minnesota’s economy. As we have detailed here many times before. Its not just Wisconsin, but every other Great Lakes state (including Michigan) that Minnesota is performing better than with a policy regime of higher state taxes and spending. Which according to convention wisdom should lead to economic ruin.
As readers of this blog know I believe the Dayton approach to growing the economy is more likely to lead to long term prosperity than the Walker approach. But I am skeptical that the outperformance of the Minnesota economy compared to Wisconsin’s the past three years has much to do with the policies of either Dayton or Walker. State tax and spending polices simply are not powerful enough to have an immediate impact on a state’s economic performance. If they matter at all, it is over the long term. Either building or not the assets that matter for long term economic success.
To me the more accurate lesson to learn is Minnesota, under both D and R governors, for at least two decades, has been a higher tax/higher spending state than Wisconsin, Michigan, Ohio and Indiana, also under both D and R governors, and for that entire period has done best on every measure of economic well being with the gap between Minnesota and the rest growing greater over time.
The higher taxes Minnesota has imposed over the long term has enabled them to make more of the public investments that matter most to concentrating talent: education from early childhood through higher eduction; infrastructure; and quality of place to prepare, retain and attract talent. Which leads to a state with higher college attainment than the other Great Lakes states. Which leads to higher employment and personal earnings. The more and better jobs nearly everyone agrees should be the goal of state economic policy.
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Insightful column by Chris Farrell for Bloomberg Businessweek entitled “Innovative States Aren’t Low-Tax States”. Worth reading!
As we did in our last two posts, Farrell looks at the actual performance of the top and bottom states on the Tax Foundation’s 2014 State Business Tax Climate Index and adds the top and bottom on the conservative American Legislative Exchange Council Rich States, Poor States rankings. He then compares those lists to Milken Institute’s State Technology and Science Index 2012 and the 2010 State New Economy Index, by the Kauffman Foundation.
He finds: “The two kinds of state rankings don’t exactly overlap. Still, going through the various lists, it’s striking how low-tax states such as South Dakota and Wyoming hold a place of pride in fiscal rankings, while such states as California and Minnesota dominate innovation lists. A spurious correlation? Probably not. In general, low-tax states have historically been dependent on natural resources or on mass production industries, relying on low costs rather than innovative capacity to gain a competitive advantage. “But innovative capacity (derived through universities, R&D investments, scientists and engineers and entrepreneurial drive) is increasingly what drives competitive success,” write the Kauffman study scholars.”
Farrell’s bottom line: ”The lesson isn’t that high taxes are good or lead to dynamic growth, but that investment in human capital, technology, science, and knowledge matter in an intensely competitive global economy. The Milken Institute scholars hit the right note. “Technology and science are important to states and by extension the nation because innovation drives economic growth and bolsters the ability to compete in the global economy,” the Milken Report says. “State governments must recognize this and adopt policies that maximize their ability to innovate.” (Emphasis added.)
More evidence of a central Michigan Future theme: low cost places aren’t winning. The path that Michigan has been on for way too long of trying to become a low tax, low wage state to grow the economy hasn’t worked and almost certainly won’t in the future. Michigan does reasonably well on the Tax Foundation and ALEC rankings — 14th and 20th. And yet we are plagued by chronically high unemployment and low per capita income. Its time we pay attention to different state rankings to drive policy.
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The Lansing State Journal provides extensive coverage of our latest report in their Outlook section today. Worth checking out! Included are columns by me and Doug Stites, who just retired from his long-time position as CEO of Capital Area Michigan Works.
And there is an editorial on what the findings in the report mean for the future of metro Lansing. The Journal’s editors write:
Economic development leaders have spoken eloquently about the need to attract young professionals to the region. They can speak at length about the importance of the knowledge-based service sector — jobs in health care, insurance, professional services — to the region’s prosperity. But in the hearts of many a Michigander beats the proud history of manufacturing. That’s true in mid-Michigan, too, where the region continues to celebrate successes of its two state-of-the-art General Motors Co. plants even as it watches new companies such as Niowave work to develop superconducting linear particle accelerators. Manufacturing, particularly advanced manufacturing, has a role in the region’s future. Yet two decades of data compiled by Michigan Future Inc. strongly suggest that the knowledge economy will support the middle class of the future and that’s where the region and the state must devote more attention and energy.
… The good news is, we have a road map. Greater Lansing needs more educated workers: More high school graduates, more community college graduates, more university graduates. And we need them to stay here, which means protecting the quality of life not only with basic public services but with amenities that set the community apart. Nurture talent and companies with jobs will come. If the region succeeds, prosperity follows. (Emphasis added.)
Metro Lansing has the assets needed to be prosperous in the future. Mainly a big research university in Michigan State as well as a growing cluster of IT and insurance companies. The asset though that is missing most is talent. College educated adults, particularly young talent. Stites has it exactly right when he writes:
The key to creating this economy is by growing places where young talent want to live — that is, dense, walkable and urban communities with excellent public transportation. Lansing cannot be Chicago or Minneapolis, but we can be a successful mid-sized metro region with a major research university almost identical in size to Madison, Wis.. We have 8,000 25- to 34-year-olds with four-year degrees here in the metro Lansing area. Madison has 24,000. Our per capita income is $33,273; Madison’s is $42,456. Young talent matters
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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!
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Nearly a year ago I did what turned out to be one of my most popular posts which looked at how states ranked highly by the Tax Foundation did in terms of economic performance. Its time for an update.
Then, as today, being highly ranked in business climate rankings seems increasingly to be the goal/measuring stick of economic policy makers and too many pundits. Rather than having a good economy. The problem is Michiganders can’t pay their bills or save for their kids education or their retirement with business climate rankings. What matters to them is do they have a job and how much it pays.
Lets look at one of the most respected business climate rankings to see if doing well in the ranking translates into a better economy for a state’s residents. Below are states ranked from 1-10 in the Tax Foundation’s 2014 State Business Tax Climate Index and their ranking in per capita income in 2012. Per capita income being the best measure of the standard of living of a state’s residents. (Governor Snyder agrees the Tax Foundation’s rankings matter. They are featured in an op ed he wrote last year for Forbes.)
- Wyoming, 7th
- South Dakota, 18th
- Nevada, 37th
- Alaska, 10th
- Florida, 27th
- Montana, 36th
- New Hampshire, 9th
- Utah, 46th
- Indiana, 39th
Below are the states ranked 41-50 (those judged to have the worse business climate) in the Tax Foundation’s 2014 State Business Tax Climate Index and their ranking in per capita income in 2012.
- Maryland, 5th
- Connecticut, 1st
- Wisconsin, 26th
- North Carolina, 38th
- Vermont, 21st
- Rhode Island, 14th
- Minnesota, 11th
- California, 15th
- New Jersey, 3rd
- New York, 4th
The average ranking in per capita income for the ten states with the best business climate ranking is 24.1 for the ten worst 13.8. Given that the ten worst business climate states on average have a higher standard of living than the best ten, it is real hard to make a case that being ranked a top ten business climate state is a reliable path to a higher standard of living for Michiganders.
At the very least, it calls into question whether the lowering business cost agenda––that has been the almost exclusive priority of Lansing policy makers the past three years––is the right agenda for returning Michigan to a high prosperity state.
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We have in our last few reports deconstructed per capita income into its components. Doing that has made clear the importance of wages and benefits paid by private sector employers to the future prosperity on the country. We measure that with private sector employment earnings per capita corrected for inflation.
Our new report –– The New Path to Prosperity: Lessons for Michigan From Two Decades of Economic Change –– makes even clearer that private sector employment earnings per capita are the predominant engine of long term, sustainable growth in the standard of living.
The report’s focus is the long term, looking at what happened to the American and Michigan economies over the last two decades, from 1990 to 201. In doing so, we grouped together two very different decades: the boom times from 1990-2001 and the, at best, anemic growth from 2001-2011. The differences between the two periods are stark:
- Employment growth of 27.2 million in 1990-2001 compare to 10.3 million in the next decade.
- Per capita income growth adjusted for inflation of $6,300 compared to $2,000
- Private sector employment earnings per capita adjusted for inflation growing by $5,000 in the first period, compared to a loss of $700 in the second.
- Transfer payments per capita adjusted for inflation accelerating, growing by $1,200 from 1990-2001 compared to growth of $2,100 from 2001-2011
Despite these differences we are comfortable combining the two periods because the underlining structural trends are the same. We do not know if the coming decade or two will be more like 1990-2001 or 2001-2011 or someplace in between. As we explored in my last post, what we are confident of is that, primarily due to the ongoing force of globalization and technology, the American economy will become more and more service, rather than goods producing, based. And in that economy, knowledge-based services are almost certain to be where job growth is the strongest and average wages are the highest.
But it is also clear that for the country to do well—to become more prosperous—those trends will have to be reversed. Slow, let alone declining, real private sector employment earnings growth, combined with rapid growth in transfer payment income, is not a sustainable path to a rising standard of living.
You can see the power of private sector employment earnings growth in the difference between Michigan and Minnesota over the two decades. In 1990, per capita income in Minnesota and Michigan was close: $33,200 in Minnesota compared to $31,600 in Michigan. No more! Per capita income corrected for inflation grew by $11,300 in Minnesota over the two decades, compared to $4,700 in Michigan.
Real private sector employment earnings per capita grew over those two decades in Minnesota by $7,400, accounting for 65 percent of the state’s per capita income growth. In Michigan, those earnings grew by only $1,000, 21 percent of the state’s per capita income growth.
Its clear that Michigan and the country need the kind of real private sector employment earnings growth that Minnesota is experiencing to achieve a sustainable rising standard of living.
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