Michigan’s Economy: Past, Present, and Future Presented to: Michigan Association of Administrators of Special Education February 7, 2012

Michigan’s Economy:Past, Present, and Future

Presented to:Michigan Association of Administrators of

Special EducationFebruary 7, 2012

Charles L. BallardDepartment of EconomicsMichigan State University

East Lansing, [email protected]

The recent recession is BY FAR the worst since the Great Depression, and the recovery continues to be long and slow.

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Changes in U.S. Employment, During and After the Four Most Recent Recessions

1982 Recession

1990 Recession

2001 Recession

2007-09 Recession

Number of Months From Beginning of Recession

Empl

oym

ent a

s Per

cent

of E

mpl

oym

ent a

t Beg

inni

ng o

f Rec

essi

on

In the last two years, the U.S. private sector has added 3.1 million jobs.

But public-sector employment has shrunk by 500,000.

Layoffs of teachers and police officers have put a drag on the recovery from recession.

For the U.S. as a whole, Real Gross Domestic Product has grown by nearly 5% in the last two years, while employment has grown by only 2%.

Nationally, employment is now at the same level as in the summer of 2000, but real GDP is 19% higher than it was then.

Thus “growing the economy” is not the biggest challenge. The biggest challenge is to find a way to spread the benefits of economic growth more widely.

Employment Losses During Michigan’s Structural Transformation

April 2000 – December 2000: 27,700

2001:172,700

2002: 22,200

2003: 65,100

2004: 1,500

2005: 27,500

2006: 80,400

2007: 49,700

2008:196,800

2009: 216,500

Total for the Period: 860,100

= 18.3% of the jobs in Michigan at the beginning of the slide.

But employment in Michigan increased in both 2010 and 2011.

Michigan employment is now up by about 100,000 from its low point at the end of 2009.

As a result, Michigan no longer leads the nation in the rate of unemployment.

In December 2011, the unemployment rate in Michigan was lower than in California, Florida, Georgia, Illinois, Mississippi, Nevada, North Carolina, Rhode Island, South Carolina, and the District of Columbia.

But fundamental structural changes in the U.S. economy have created big problems for the Michigan economy for a very long time.

Manufacturing’s Share of the Economy Has Shrunk Dramatically

19631965

19671969

19711973

19751977

19791981

19831985

19871989

19911993

19951997

19992001

20032005

20072009

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10

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30

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Manufacturing as Percent of Gross Domestic Product, For Michigan and the United States, 1963-2010

MichiganUnited States

Year

Perc

ent

In Michigan, the Decline Has Been Especially Severe in Motor

Vehicles

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

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2007

2009

0

5

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15

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25

30

Motor Vehicles and Equipment as a Percentage of Gross Product, for Michigan and the United States, 1963-2009

MichiganUnited States

Year

Perc

ent

Despite our struggles, Michigan is not a poor place.

19291933

19371941

19451949

19531957

19611965

19691973

19771981

19851989

19931997

20012005

20090

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, 1929-2010

MichiganUnited States

Year

Per-

Capi

ta P

erso

nal I

ncom

e (in

201

0 Do

llars

)

Although Michigan is not a poor place, there are poor people in Michigan (and other states).

Incomes are distributed much more unequally than they were 35 years ago.

The increase in income inequality is the biggest economic story of our lifetime.

But in the first half of the 20th century, incomes in America actually became MORE equal.

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9

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25

Percentage of Income in the United States Received by the Top One Percent of Households, 1916-1976

(Source: Thomas Piketty and Emmanuel Saez)

Including Capital Gains

Excluding Capital Gains

Year

Perc

ent

This did not happen by accident:1. Huge increases in educational

opportunity.

2. Tighter regulation of financial services.

3. Stronger labor unions.

4. More progressive taxation.

Since the 1970s, income inequality has increased dramatically:

19761978

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19841986

19881990

19921994

19961998

20002002

20042006

20085

7

9

11

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15

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19

21

23

25

Percentage of Income in the United States Received by the Top One Percent of Households, 1976-2008

(Source: Thomas Piketty and Emmanuel Saez)

Including Capital GainsExcluding Capital Gains

Year

This did not happen by accident:1. The supply of highly skilled

workers increased less than the demand.

2. Deregulation of financial services.

3. Weaker labor unions.

4. Less progressive taxation.

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10

15

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30

Percentage of Income in the United States Received by the Top One Percent of Households, 1916-2007

(Source: Thomas Piketty and Emmanuel Saez)

Including Capital Gains

Excluding Capital Gains

Year

Perc

ent

As shown by Thomas Philippon and Ariell Reshef, financial deregulation is a big

part of the story.

Nationally, the earnings gaps between groups with different levels of educational attainment are large, and larger than they used to be.

Average Earnings in 2010, for Those Aged

45-54 Who Worked Full-Time Year-Round

(For the Entire U.S.) Men Women Professional Degree $185,034

$102,278 Master’s Degree

$112,622 $ 74,218 Bachelor’s Degree $ 90,314 $

63,004 Associate’s Degree $ 60,980 $

47,723 Some College (No Degree) $ 59,852 $

41,117 High-School Graduate $ 50,216 $

34,410 Some H.S. (No Diploma) $ 37,754 $

23,775 Less Than 9th Grade $ 31,114 $

19,996

Michigan Has Big Regional Differences in

Per-Capita Income (2009)

1. Oakland County $50,334 2. Midland County

$41,853 3. Leelanau County $39,815 5. Washtenaw County $37,859 8. Macomb County

$36,004 11. Kalamazoo County

$34,502 Michigan Average $34,315 14. Ingham County

$34,083 15. Kent County $33,635 24. Wayne County

$31,888 38. Saginaw County

$30,137 42. Genesee County $29,526 43. Jackson County

$29,488 57. Shiawassee County

$27,322 70. Tuscola County

$26,094 83. Oscoda County $22,934

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

19501953

19561959

19621965

19681971

19741977

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19861989

19921995

19982001

20042007

201085

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115

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Per-Capita Income: Michigan as Percent of the United States, 1950-2010

Year

Perc

ent

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

19501953

19561959

19621965

19681971

19741977

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19861989

19921995

19982001

20042007

201085

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Per-Capita Personal Income in Massachusetts and Michigan, As Percent of the United States, 1950-2010

MassachusettsMichigan

Year

Perc

ent

Per-Capita Income in Selected States, 2010:

Top Five, Bottom Five, and Some Between

1. Connecticut $56,001 24. Florida $39,272

2. Massachusetts $51,552 27. Wisconsin $38,432

3. New Jersey $50,781 34. Ohio $36,395

4. Maryland $49,025 36. Michigan $35,597

5. New York $48,821 41. Indiana $34,943

11. Illinois $43,159 46. Arkansas $33,150

12. California $43,104 47. West Virginia $32,641

13. Minnesota $42,843 48. Utah $32,595

16. Pennsylvania $41,152 49. Idaho $32,257

23. Texas $39,493 50. Mississippi $31,186

United States Average: $40,584

College attainment has a decisive influence on per-capita income

15 20 25 30 35 4030,000

35,000

40,000

45,000

50,000

55,000

60,000

33655

43922

3433932257

4385243021

56245

40375

39064

34849

42078

32994

42540

34543

3750938886

31936

36091 36368

48164

50897

34953

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36356

34622

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4093643423

51473

33389

48809

35249

39874

3588935969 36365

39762 41261

32495

38644

34833

37809

32050

38700

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42747

31634

37770

48580

Income and College Attainment for the 50 States, 2008

Percent of Population with at Least a Bachelor's Degree

Per-

Cap

ita In

com

e

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

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-72

1974

-75

1977

-78

1980

-81

1983

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1986

-87

1989

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-0810

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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 nine years, we would have to cease state support for:

Central Michigan University, Eastern Michigan University,

Ferris State University, Grand Valley State University,

Lake Superior State University, Michigan Technological University, Northern Michigan University, Oakland University, Saginaw Valley State University, University of Michigan - Dearborn, University of Michigan - Flint, and

Western Michigan University.

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.

As long as we stick with a nineteenth-century school year of only 180 classroom days, we simply cannot claim that we are serious about preparing for the workforce needs of the future.

Tax Effort Has Reduced Substantially

1972

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2008

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

New YorkMichiganUnited StatesTexas

Year

Perc

ent

The Structural Deficit:

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

Potential Sources of Tax Revenue for Michigan:• 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.

More Potential Revenue Sources

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.

Continue to chip away at the vast array of small tax expenditures.

What does the future hold?

In the words of Yogi Berra:

“It’s tough to make predictions, especially

about the future.”

2011 was a bumpy year:• Tsunami in Japan

• Turmoil in the Middle East

• Debt worries in Europe

• Sluggish growth in the U.S.

• Debt-ceiling circus in Washington

Historically, the recovery from a financial crisis has often been long and slow.

European debt is the biggest concern for the U.S. economy in the near term.

The growth of federal government debt is the biggest concern for the U.S. economy in the medium to long term.

In the last 42 years, the Federal Government has balanced its budget only four times.

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estim

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Federal Government Receipts and Expenditures as Percent of GDP, 1930-2009, with Estimates to 2015

ReceiptsOutlays

Year

Perc

ent

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1966

1969

1972

1975

1978

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estimate

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estimate

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Federal Government Receipts and Expenditures as Percent of GDP, 1954-2009, with Estimates to 2015

ReceiptsOutlays

Year

Perc

ent

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est.

2015

est.

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Gross Federal Debt as Percent of GDP, 1940-2009, With Estimates to 2015

Year

Perc

ent

It’s not just the Federal Government that forgot how to save.

Private citizens in the U.S. also forgot how to save. That’s why we borrow so much from abroad.

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12Pe

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Net Private Saving As Percent of Gross National Income, For the United States, 1950-2008

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.