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Original article URL: http://bridgemi.com/2013/03/average-michigan-wage-earner-is-5000-behind-other-americans/

Economy & competitive position

Average Michigan wage earner is $5,000 behind other Americans

When politicians talk about Michigan’s “lost decade” of the 2000s, they usually focus on the huge number of jobs shed by the state.

Michigan lost 863,300 payroll jobs between April 2000 and July 2009, at the bottom of the state’s downturn, or nearly one out of every five jobs.

But a less-discussed element of that bleak era is how that job loss translated into smaller paychecks for Michigan residents still employed, compared to those of wage earners in other states.

“With respect to wages, Michigan has lost significant ground to the nation over the past 11 years,” said University of Michigan economist George Fulton in a late 2012 state economic forecast that contained the wage data.

Fulton and fellow U-M economist Don Grimes found that, in the first quarter of 2001, the average annualized private-sector wage in Michigan was $38,532 – almost $1,100 above the national average wage ($37,436).

By the first quarter of 2012, however, the state’s average annualized wage of $47,465 had fallen $4,076 below the national average private-sector wage ($51,541).

Adjusted for inflation, annual private sector wages fell $2,488 in Michigan during the period, but rose $3,008 for all U.S. workers.

This $5,500 gap is the equivalent of nine months’ average rent in the Detroit area or nine months’ worth of groceries for a four-member family in Grand Rapids.

“It’s been a hard time for the people of Michigan who haven’t done as well as those in other regions of the country,” said Charles Ballard, a Michigan State University economist.

Fulton and Grimes also found that the average wage paid by every size of business establishment in Michigan between the first quarter of 2001 and the first quarter of 2012 was lower than the national average.

Separate data compiled by state labor market analysts on 22 occupational groups found the average wage in Michigan was lower than the national average wage in 16 of those groups in 2010.

Economists say the near collapse and restructuring of the Michigan’s signature auto industry during the 2000s have dragged down the wages paid by businesses in much of the rest of the state.

Plus, Michigan now has poorer mix of industries compared to the nation than it did a decade ago.

“We have a disproportionately large share of relatively low-wage industries, probably mostly reflecting a relatively small share of the knowledge-economy industries,” Grimes said.

Auto shift led inexorably to wage shift

For decades, the high wages and sterling benefits of the auto industry forced other businesses in Michigan to boost compensation in order to compete for talent with auto companies and their major suppliers.

Labor unions were able to negotiate high wages for low-education-attainment workers. But global free trade policies and the rise of low-wage manufacturers, including those in China, Mexico and South Korea, zapped the power of organized labor.

“Wages in Michigan have been artificially held up by the heavy unionization of the auto industry,” Grimes said. “That was going to end, and it did.”

In 2007, the United Auto Workers agreed to a once unthinkable two-tier wage system that created a starting wage in the auto industry that is half of what current workers earn.

Per capita income in Michigan rose 5.2 percent in 2011, the fifth-fastest rate in the country. But that figure includes a variety of nonwage income, including interest, dividends, welfare payments, pensions and Social Security payments.

The share of personal income being earned in Michigan through private-sector wages has been falling, which some say is an ominous sign for the health of the state economy.

A 2011 study by Michigan Future Inc. found that per capita earnings from private sector wages in the state, adjusted for inflation, were flat at about $20,000 between 1990 and 2010.

Virtually all of the state’s income growth in that period came from public sector wages and government transfer payments.

“We have become increasingly poor and more dependent upon transfer income — not a good start to the 21st century,” Michigan Future President Lou Glazer said.

Supporters of Michigan’s new right-to-work law say the measure could attract more union-wary employers to Michigan, giving a lift to the private sector. But there is conflicting data on whether right to work boosts jobs and living standards.

Ballard said Michigan must improve the education of its work force if it wants higher wages. The state ranks 34th among the states in the percentage of adults with a college degree.

Recent support for more spending on early childhood education is a good start, he said, in a long-term effort to revitalize Michigan’s economy.

“If we had understood that 30 years ago, we might have taken some steps that would have made us better off than we are today,” Ballard said.

Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.

8 comments from Bridge readers.Add mine!

  1. Big D

    The free market at work…leave it alone. If employers need skills, they can raise wages (if it’s a good business decision). If the unskilled want skills, they can go to school (if they don’t have the money to go to school, they can go to a less expensive school, and flip burgers on weekends). If the State wants to help, they can pay Disney $40 million so a few Pontiac residents can get low paid bit parts in a mostly-made-digitally-in-Caifornia movie. Oh wait, that last one is not the free market at work. Its just a waste of Michigan’s money.

  2. Robert

    Yes, too much reliance on the auto industry left us high and dry when the economy went into the tank. So what will lead us back to greatness? Right to work?? HA, that will only further depress wages. What will lead us back to greatness for ALL of Michigan is investment in education, from early childhood to university to skilled worker training. Investment in infrastructure is also critical for our businesses to succeed. Oh wait, the tea party thinks low taxes is the way to prosperity. It is, for the rich. You get what you pay for, so is it any surprise what we are getting now?

  3. sam melvin

    it tales at least $ 2000 a months for one person ..add $ 500 per person….add an other $300 for the babysiter fro a single mom/dad..get the idee.

  4. sam melvin

    Time to put a job desription and a wages too it .plus benefits so all of us bring a dish to the table.. Plus how many hours…vacation (like 4 weeks till you are 30 then 5 week till you are 40 ,6 weeks till you are 50 ..7 week til you are retried ..benefits healthinsurance , babysitter, sickdays , maternal leave for parents to bee share like the european countries due. WE only live once …

  5. sam melvin

    THE HIGHER the wages the more intaxes ….da da ..

  6. Matt

    Michigan spent the last 30 or 40 years creating a bad regulatory/labor/tax climate. It didn’t matter if the small -mid sized companies largely avoided us, we had the auto companies who weren’t going anywhere, so it didn’t matter. These small – mid companies were the ones that had the better paying jobs but didn’t have the clout or appeal with Lansing like the autos so we never got our share. Snyder is doing the right thing (with still much more to go) to get us in line, without just resorting to bribery, but it’s not going to turn in two or four years (especially with a low growth national economy), probably 8 -10 to see MI wages get into line.

    1. Richard

      No one who has a machine shop in Iowa is going to shop states looking for some kind of better tax structure if they are already in Iowa. No one outside of Michigan thinks of building a small to mid-size business in Michigan. If you want to stimulate the economy you invest in it like with the bailout. Being 34th. in college degrees is not good enough and it will take substantial investment to correct. If you want to have a thriving economy people must have money in their pockets to spend and that is not accomplished by raising taxes on the people who exist to “attract” businesses that will not come in a million years. Sorry, Governor Snyder no more unsolicited tax breaks for business without guarantees of jobs. Sorry armchair economists, Michigan does not have 8-10 years to wait for businesses to suddenly pay higher wages like Scrooge after the Three Ghosts.

  7. ron

    My daughter and her husband lived down state last year and had good paying jobs. They paid $ 27300 ayear for rent and childcare for one child. This did not include any utilities or other necessities. They moved North took large pay cuts and pay approximately $14000 ayear for day care, property taxes, house payment, and now drive less than 2 miles a day for work instead of a combined 90miles each day in 80 mile and hour commutes. They were the fortunate ones what about the rest of the working poor. This at will employment, and right to work favors mostly the employers, and what evidence is there that it has increased employer hiring.

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