(At the request of state Rep. John R. Moolenaar, Mackinac Center Director of Fiscal Policy Michael D. LaFaive sent the following letter on May 20 concerning Michigan’s economy.)

May 20, 2005


The Honorable John R. Moolenaar
District 98
Michigan House of Representatives
P.O. Box 30014
Lansing, MI 48909-7514


Dear Representative Moolenaar:

Several weeks ago, you asked me to provide you with some information about the state of Michigan’s economy. I am happy to do so.

During my television interview in April with Midland Daily News Reporter Ralph Wirtz, we noted that Michigan’s unemployment rate stood at 7.1 percent, tied for worst in the nation. The figure now stands at 7.0 percent, still up from 6.9 percent in March. We once again rank worst in the nation, though we are now in sole possession of last place.

I have attached for your review the Joint Economic Committee jobs statistics that I’ve used in the past. As you can see, Michigan was listed as one of only two states in 2004 to have lost net jobs (46,500). Ohio was the other state, but their loss amounted to just 200 jobs. The most recent figures from the JEC indicate that from March 2004 to March 2005, only Michigan and South Carolina lost jobs in net terms.

In late 2004, the Pacific Research Institute in California released its “Economic Freedom Index” of the 50 states. This index may be the most comprehensive one of its kind in the world. The PRI grouped 143 economic variables into five major sectors: fiscal policy, regulation, judicial quality, government size and welfare policy. Scholars at PRI then ranked the states based on how they scored in each of these categories. Michigan finished 34th. This is not a good sign; the index’s authors also found an empirical relationship between a state’s economic freedom and its economic well-being. If you’d like, I can arrange for you to receive a copy of the study.

Other studies have shown a relationship between a state’s emigration and its tax burden, meaning that the higher a state’s tax burden, the greater the migration from the state is likely to be. These findings dovetail with the PRI study. If the PRI study suggests that less economic freedom produces less economic wealth, these findings suggest that people respond to limited freedom and wealth by voting with their feet.

Michigan ranks relatively low in the Tax Foundation’s annual Business Tax Climate Index. The foundation’s index rates a state’s business climate based on 100 different variables, such as the extent to which a cost of the tax can be clearly distinguished from a good’s purchase price. A sales tax would be transparent; the SBT would not. According to the index, Michigan’s overall business tax climate was 36th in 2004. The state’s Single Business Tax led the foundation to rank the state’s corporate tax 50th — the worst — in the United States.

The issue of emigration and taxes brings me to the United Van Lines survey that I have cited recently. Every year since 1977, United Van Lines has published data regarding where its trucks move people. They track each state’s outbound and inbound traffic, and they label each state as either a net “outbound” or “inbound” state.

Michigan’s outbound traffic composed 60.9 percent of all of Michigan’s interstate moves in 2004, meaning that roughly three people left Michigan for every two that moved in. This ranked Michigan as a “high outbound” state in the survey, and according to the survey, Michigan’s outbound UVL movement is at its highest point since 1982, when unemployment stood at 15 percent. You can read the press release (which includes a great map) for the UVL survey at http://www.unitedvanlines.com/media/migration.htm.

United Van Lines has also provided me with data for January through April 2005, showing that during this period, UVL moved 1,360 residences out of Michigan, but moved only 942 in. The outbound migration rate for these five months is thus 59.1 percent — basically unchanged from 2004. The top destination states for Michigan residents are California, Florida and Texas.

In April, the National Governors Association and the National Conference of State Legislatures published their most recent State Policy Reports newsletter. The newsletter showed Michigan ranked 50th among the states in economic momentum. The calculation was based on how Michigan performed on three key economic indicators: personal income, employment and population.

According to federal figures, Michigan also ranked 50th in percentage employment growth from December 1995 through December 2004. I highlight these years because 1995 marks the beginning of Michigan’s aggressive increase in state-directed “economic development” efforts, including such programs as the Michigan Economic Growth Authority.

Even when you focus only on private-sector employment growth and expand the time period to December 1994 to December 2004, Michigan placed 50th in the nation. This record, as I have observed elsewhere, suggests that the state’s economic development programs have not had the impact state officials hoped for when the programs were established.

Other data underscore the economic weakness suggested by Michigan’s employment growth in recent years. In Mackinac Center President Lawrence Reed’s “State of the State” speech, titled “Michigan at the Crossroads,” he drew on U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis data to track Michigan’s per-capita gross state product and per-capita personal income. I quote from his discussion of those two key metrics of a state’s economic well-being:

From 1993 to 1997, Michigan’s percentage increase in per-capita gross state product was 18th in the nation, but from 1998 to 2003, it had fallen to 44th, suggesting a shift from somewhat respectable at best to dismal at worst. Michigan is traditionally a wealthy state, but by 2003, our per-capita personal income had dropped to 19th in the nation. Our per-capita personal income growth was an anemic 43rd in the United States from 1995 to 2003.

When the federal government updates its gross state product figures, I’ll provide you with new numbers.

I hope the material I’ve provided above helps. Please don’t hesitate to contact me if I can be of any further assistance.

Sincerely,

Michael D. LaFaive
Director of Fiscal Policy
The Mackinac Center for Public Policy

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Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.