There has been long running debate around the world about the causes and consequences of economic growth. This study objectively measures economic freedom both nationally and from a local level in Michigan, and it demonstrates correlations between greater freedom and economic well-being. It overwhelmingly and repeatedly finds positive connections between economic liberty and outcomes that many policymakers profess to want, such as low unemployment rates and population growth.
This study uses an economic freedom index for the 383 U.S. Metropolitan Statistical Areas, using data through 2017 across three major components of government policy: spending, taxes and labor market regulation. That index, originally published by the Reason Foundation, is modeled after similar ones created for nations and states. Previous research has found those same positive correlations between liberty and economic well-being at the national and state levels.
The results demonstrate that Michigan MSAs generally underperform the nation in their overall economic freedom scores and in their performance on measures of well-being. Only the Midland MSA received an overall economic freedom score higher than the national average, and only by a small amount. That placed Midland 193rd of 383 MSAs in the country. The table directly below reports each Michigan MSA’s overall economic freedom score as well as where it ranks nationally, and in each of the three major policy areas.
Graphic 1: Economic Freedom Scores in Michigan MSAs, 2017
* Metropolitan Division of the Detroit-Warren-Dearborn MSA.
Note: Ranks are out of 383 MSAs. Since the Metropolitan Divisions are not comparable to MSAs, they are not given a rank.
We also find, nationwide, that MSAs with the worst labor market regulation scores have unemployment rates that are one-third higher than those with the best scores. Only four of Michigan’s 14 MSAs had unemployment rates lower than the average MSA across the country in 2017. In addition, our analysis discovered that MSAs with the largest government bureaucracies had 40% higher unemployment rates than those with the smallest ones.
The findings for employment growth were particularly strong. Nationwide, MSAs in the least-free quartile had employment growth from 2017 through 2019 of just 1.32%. In the most-free quartile, it was 3.54%, or more than 2.5 times higher.
These are just three examples of our findings. We examine the economic freedom scores in MSAs nationwide and for 14 metro areas in Michigan and compare these to data of unemployment rates and employment and population growth. We focus specifically on labor market regulations, such as minimum wage burdens and bureaucracy size. The findings suggest that MSAs with greater levels of economic freedom tend to perform better in economic terms compared to those with less economic freedom.
It is important to note that correlation is not causation, and that there are other variables across nations, states, provinces and local units of government that impact these economic outcomes. Policymakers should, however, understand that many academic scholars have looked at questions surrounding economic liberty and associated outcomes, while controlling for many other variables, and they overwhelmingly find positive outcomes. Our findings are consistent with that previous work. This study contains a robust review of that literature.
Given the overwhelming evidence that economic freedom is good for employment growth, the unemployment rate and population growth, lawmakers would be wise to approach policy through a freedom lens. Would a particular policy increase the tax burden on Michigan citizens or impose job-killing labor regulations? If so, it should be reconsidered. Lawmakers could likewise do much good by adopting policies more conducive to free and voluntary association, ones that give individuals more economic agency, opportunity and very likely, prosperity.