In the early 1980s, when the entire nation was suffering
under the strains of a severe recession, job providers and other people were
leaving Michigan in droves. The outflow was so great that the going joke at the
time was that the last one to leave the Great Lake State should remember to turn
out the lights. Data released today from the nation’s largest household mover
suggests that if Michigan doesn’t make significant changes to its economic
opportunity landscape soon, someone may have to reach for the switch. The
company graciously allowed the Mackinac Center an early look at its data set.
United Van Lines operates in all 50 states. Since 1977 it
has collected and published data on its client moves in the continental United
States. For example, UVL reports that in 2006, 64 percent of all North
Carolina-related UVL movement was inbound, making the Tar Heel state the number
one destination for UVL clients in America.
By contrast Michigan was the number one departure state,
tied with North Dakota. Sixty six percent of all UVL moves were outbound. This
is an eye-popping 2.1 percentage points higher than just one year ago —
representing the continuation of an upward trend. United Van Lines has not seen
this type of outbound traffic from Michigan since 1981, when 66.9 percent of
Michigan moves involved a departure from the state.
Mackinac Center for Public Policy adjunct scholar Michael
Hicks performed a statistical analysis of United Van Lines data last year and
found that it was highly correlated with U.S. Census data. In other words, UVL
moves represent overall American migration patterns. Indeed, a Census report
released in December showed Michigan was just one of four states to suffer an
absolute decline in population (about 5,000 people according to published
reports). The other three states include New York, Rhode Island and Louisiana,
which has not yet recovered from Hurricane Katrina.
What makes these departures all the more troubling is that they have
occurred during a time of robust national growth. In 1981 the entire nation was
in a recession and Michigan had a double-digit unemployment rate. Comerica Bank
reported last week that the state’s economy hasn’t been this soft since 2001.
Moreover, the national economy may be showing signs of slowing. Even a mild
national recession could be a catalyst for greater emigration rates from the
state because Michigan has typically suffered more than other states during
These facts have vital public policy implications. People
are the building blocks of economic growth and development. As people leave a
nation, state or region they take employment and entrepreneurial talent and
their consumption or investment dollars with them. Something must be done to
stanch the outward flow of Michigan residents and attract new ones.
Where have Michigan expatriates taken their personal and
financial capital? The federal government collects data tracking the movement of
U.S. citizens through Internal Revenue Service tax filings.
In calendar year 2004, the number one destination state for
Michigan residents was Florida, which gathered 14 percent (more than 19,300
people) of all Michigan emigrants nationwide. This is twice rate of the next
nearest destination state, which surprised the authors given the great distance
between the Wolverine and Sunshine states. Key factors in moves to Florida
probably included weather, local amenities (greater recreational opportunities)
and better economic opportunities. In addition, Florida has no personal income
tax, is a right-to-work state and is ranked third in federally estimated,
inflation-adjusted state Gross Domestic Product growth in 2005. By contrast,
Michigan was ranked 48. The growth estimates were published by the Bureau of
Economic Analysis in October.
The next two states to receive the most Michigan
expatriates are Ohio and Illinois, and such choices are relatively easy to
explain. Both Ohio and Illinois have pockets of economic growth and are adjacent
to Michigan. Migration researchers use what is known as a "gravity model" to
explain this type of economic migration because both the size and proximity of
desirable locations influence migration choices.
People don’t just survey a nation for the fastest growing
region and then move there. Other considerations, such as distance from family,
influence such decisions. The implication is that close regions that are large
and growing are going to absorb the state’s residents at a faster rate than more
distant areas. As an aside, UVL also ranks Ohio and Illinois as high outbound
states. They have relatively high economic growth rates (Ohio barely so) than
Michigan, which may help explain why our residents are moving to those
What should policymakers do to stem this tide? First, they
must avoid raising the price of living, working and investing in Michigan, all
of which exacerbate existing problems.
The drumbeat for higher taxes has already begun in some
circles as predictions of a $500 million shortfall in the current fiscal year
were announced last December.
Taxation matters. In his 2006 analysis, economist Scott
Moody of the Maine Heritage Policy Center looked at the taxation levels of all
50 states between 1994 and 2004 and analyzed how the 10 states with the highest
and lowest tax levels, respectively, performed relative to three metrics:
personal income, employment and population growth. Moody found that the 10
states with the lowest tax burdens had personal income growth almost 32 percent
higher than the states that taxed the most — employment growth was 79 percent
higher and population growth was a staggering 172 percent higher than high-tax
states. This is not the only study to show a possible link between migration and
Moreover, Michigan taxes itself in ways that are not
explicitly taxation. The Great Lake State has no right-to-work law, which is
akin to having an effective labor market tax. A right-to-work statute says that
a worker need not financially support a union as a condition of employment. A
1996 study by University of Minnesota professor and Federal Reserve consultant
Thomas Holmes found that, from 1947 to 1996, states with right-to-work statutes
saw manufacturing employment expand 150 percent while non-right-to-work
manufacturing employment was "virtually the same today as it was in 1947…" In
other words, Michigan must not only compete against low-tax states, but ones
with friendlier labor climates too. This is just one example of how Michigan
burdens its economy and chases away opportunity and people.
Some pundits and politicians have proffered their own ideas
for righting Michigan’s listing economic ship. One of the most common ideas
batted about is spending more tax dollars on higher education to stimulate
economic development. This is a bad policy choice.
Anecdotal and empirical evidence show that the opposite is
true. Consider one case study. Economist Richard Vedder, executive director of
the Center for College Affordability and Productivity, a Washington, D.C.-based
research institute, looked at higher education spending in Illinois, Michigan
and Ohio and subsequent economic growth for his book, "Going Broke by Degree:
Why College Costs Too Much."
Of these states in fiscal 1980, Michigan spent more as a
percentage of personal income on state universities — as much as one-third more
than Illinois. In the following 20 years Michigan substantially increased its
funding. By 2000, according to Vedder, the state of Michigan was sixth in the
nation for higher education spending as a percentage of personal income — nearly
double the rate of Illinois. Yet it was Illinois that economically outperformed
Michigan as measured by changes in per-capita personal income. Indeed, the
income advantage Illinois initially held over Michigan actually doubled during
that time period, according to Vedder. This is not the only such example.
Vedder points out that North Dakota (which is tied for the
number one UVL outbound state with Michigan at 66 percent) and South Dakota are
two of the most similar states in America. They each have similar climates, are
agricultural, sparsely populated and similar in size.
Yet they are not similar in what they spend on higher
education: North Dakota has spent more per-capita than South Dakota since at
least 1977. Over the next two decades, North Dakota hiked its spending while
South Dakota reduced its proportion of expenditures that went to higher
education until North Dakota was dedicating about twice the proportion of its
income on higher education than South Dakota.
Yet South Dakota has had faster per-capita income growth
and less out-migration. In fact, United Van Lines has ranked South Dakota as a
2006 "high-inbound" state with 55.9 percent of its traffic moving into the
state. It would not strain the bounds of credulity to suggest that North Dakota
taxpayers have long been subsidizing the education of South Dakota’s newest
In coming weeks and months there is going to be a lot of
talk about raising taxes to cover shortfalls in government spending. Michigan
should not do more damage than its current policies have already done by
reaching deeper into the pockets of job providers and other taxpayers. The state
must balance its books by trimming its budget, not forcing taxpayers to trim
Over the past decade the Mackinac Center for Public Policy
has made hundreds of recommendations for trimming the state’s bloated budget.
Some ideas have been adopted, others ignored. If Michigan wants to stop, and
hopefully reverse, its outbound-migration, it must turn away from higher taxes,
higher spending and the economic gimmickry of government "development" programs.
The Great Lake State was once a magnet for opportunity
seekers. It could be again, if only it would stop giving people a reason to
leave — or never arrive. Doing otherwise foretells a night the lights go out in
Michael LaFaive is director of the Morey Fiscal Policy
Initiative at the Mackinac Center for Public Policy, a
research and educational institute headquartered in Midland, Mich.
Michael Hicks is an adjunct scholar with the Center, an assistant
professor of economics at the Air Force Institute of Technology in Ohio and a
research professor at the Center for Business and Economic Research at Marshall
University. Permission to reprint in whole or in part is hereby granted,
provided that the authors and the Center are properly cited.