Charles L. Ballard Department of Economics Michigan State University East Lansing, MI [email protected]

Michigan’s Economy:Past, Present, and Future

Presented to: Winning the Debate: How to Talk About the

Public Sector and Our Unions

April 5, 2011

Charles L. BallardDepartment of EconomicsMichigan State University

East Lansing, [email protected]

Manufacturing’s Share of the Economy Has Shrunk Dramatically

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

0

10

20

30

40

50

60

Manufacturing's Share of Gross Product, for Michigan and for the United States, 1963-2009

Michigan

United States

Year

Perc

ent

The unemployment rate in Michigan has now decreased for 17 consecutive months.

There is good reason to hope that the worst is over.

Despite our struggles, Michigan is not a poor place.

If we want to educate our children properly, and provide other public services, the resources are there.

1929

1934

1939

1944

1949

1954

1959

1964

1969

1974

1979

1984

1989

1994

1999

2004

2009

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Inflation-Adjusted Per-Capita Personal Income, In Michigan and the United States, 1929-2009

Michigan

United States

Year

Per-C

apita

Per

sona

l Inc

ome

(in 2

009

Dol

lars

)

Although Michigan is not a poor place, there are poor people in Michigan, and incomes are distributed much more unequally than they were 35 years ago.

The United States Has Returned to a Degree of Income Inequality Not Seen For 100 Years

0

2

4

6

8

10

12

Percentage of Income in the United States Received by the Top One-Tenth of One Percent of Households, 1913-2007(Source: Thomas Piketty and Emmanuel Saez)

Year

Perc

ent

In the United States, those with the very highest incomes have done EXTREMELY well

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

0

1

2

3

4

5

6

7

Percentage of Income in the United States Received by the Top One-Hundredth of One Percent, 1960-2008

Including Capi-tal Gains

Excluding Cap-ital Gains

Year

Perc

ent

Michigan Has Big Regional Differences in Per-Capita Income (2008)

1. Oakland County $53,650 2. Midland County $41,990 3. Leelanau County $40,656 4. Washtenaw County $39,107 7. Macomb County $36,462 13. Kent County $35,099 Michigan Average $34,953 15. Ingham County $33,685 23. Wayne County $32,094 34. Saginaw County $30,143 43. Genesee County $29,488 68. Ionia County $25,371 83. Luce County $22,158

The Decline of Labor Unions is An Important Reason for the

Increase in Income Inequality.

The Structural Deficit:

None of the major sources of revenue for state and local governments in Michigan keeps up with the economy.

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

0

5

10

15

20

25

30

35

40

45

50

Percent of the Labor Force Who Are Union Members, In Michigan and the United States, 1964-2010

(Source: Barry Hirsch, David Macpherson, and Wayne Vroman)

Michigan

United States

Year

Perc

ent

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0

5

10

15

20

25

30

Percent of the Private-Sector Workers Who Are Union Members, In Michigan and the United States, 1983-2010

MichiganUnited States

Year

Perc

ent

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0

10

20

30

40

50

60

70

Percent of Public-Sector Workers Who Are Union Members, In Michigan and the United States, 1983-2010

MichiganUnited States

Year

Perc

ent

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0

10

20

30

40

50

60

70

Percent of Michigan Workers Who Are Union Members, 1983-2010

Public Sector

Private Sector

Year

Perc

ent

Also, although Michigan is not a poor place, our economy has not grown as fast as the national average.

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

85

90

95

100

105

110

115

120

125

Per-Capita Personal Income: Michigan As Percent of the United States, 1950-2009

Year

Perc

ent

Many of the most successful states have been those with high levels of educational attainment.

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

85

90

95

100

105

110

115

120

125

130

Per-Capita Personal Income in Massachusetts and Michigan, As Percent of the United States, 1950-2009

MassachusettsMichigan

Year

Perc

ent

At a time when education is so crucial to our future, Michigan has pursued a policy of systematic disinvestment in education.

1959

-60

1962

-63

1965

-66

1968

-69

1971

-72

1974

-75

1977

-78

1980

-81

1983

-84

1986

-87

1989

-90

1992

-93

1995

-96

1998

-99

2001

-02

2004

-05

2007

-0810

20

30

40

50

60

70

80

Sources of Funds for Michigan State University, 1959-60 to 2009-10

Tuition & Fees

State of Michigan Appropriations

Year

Perc

ent

In order to be equivalent to the real budget reductions of the last eight years, we would have to cease state support for:

Eastern Michigan, Ferris State, Grand Valley State,

Lake Superior State, Michigan Tech, Northern Michigan, Oakland, Saginaw Valley State, UM-Dearborn, and UM-Flint.

• Michigan is Underinvested in Education, Training, and Skill,

From Pre-School to Ph.D.

• In addition to the big premium for a Bachelor’s degree, the social returns are very large for

(1) early-childhood education, and

(2) high-school completion.

State and Local Taxes As Percent of Personal Income:

• Michigan used to be above the national average, but is now below

• The national average has fallen substantially

Tax Effort Has Reduced Substantially

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

7

9

11

13

15

17

19

State and Local Taxes As Percent of Personal Income, 1972-2008

New YorkMichiganUnited StatesTexas

Year

Perc

ent

State Revenues Have Fallen FAR Below the Constitutional Limit

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-10

-8

-6

-4

-2

0

2

-0.600000000000001

0 0.2

-2.4

-3.9 -4.2 -4.4 -4.2-4.9 -5.3

-4.7

-8.0-8.9

Deviation of Michigan Revenues from Constitutional Limit (the "Headlee Limit")

Fiscal Year

Dev

iatio

n fro

m C

onst

itutio

nal R

even

ue L

imit

(In B

illio

ns o

f Dol

lars

)

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

State Government Employment in Michigan, Fiscal Years, 1970-2010

All State Employees

All But Correc-tions

Thoughts on Gov. Snyder’s Budget Proposals

Moves toward a more level playing field among sectors.

Continues the trend toward greatly reduced public services.

Reduce business taxes.

Moves toward a more level playing field among sectors.

Exacerbates the budget deficit.

Hack away at the thicket of business tax credits.

(This also moves toward a more level playing field among different sectors, and it raises revenue.)

Reduce the preferential treatment of retirement income.

(This moves toward a more level playing field among different sources of income, and it raises revenue.)

Slash funding for K-12 schools.

Slash funding for higher education.

Slash revenue sharing for local governments.

Eliminate the Earned Income Tax Credit.

Other Potential Sources of Tax Revenue:

• Extend the sales tax to services and entertainments.

• Establish a graduated income tax, or at least raise the flat rate of the current income tax.

• Decouple from the Federal Estate Tax, so that we can once again collect estate taxes.

• Convert the excise taxes on beer and wine to a percentage basis, and/or return them to earlier levels.

Better Attitudes for a Better Michigan

• A Culture of Lifelong Learning

• Innovation and Entrepreneurship

• An End to Bitter Partisanship

• A Positive Attitude, to Keep Going Through Difficult Times

Michigan, My MichiganA song to thee, fair State of mine,

Michigan, my Michigan.But greater song than this is thine,

Michigan, my Michigan.The whisper of the forest tree,The thunder of the inland sea,Unite in one grand symphony

Of Michigan, my Michigan.