Thursday, November 15, 2007

Michigan's Troubled Economy: It Could Be Worse

DETROIT -- Bad news on the automotive front pushed Michigan's October unemployment rate up to 7.7%.

The jobless rate is the state's highest in 15 years (see chart above, click to enlarge), two-tenths of a percentage point higher than September's rate, and it almost certainly guarantees that Michigan will continue to post the worst state unemployment rate in the nation.

But hey, it could be worse. It could the late 1970s, when Michigan's jobless rate averaged 8.15% from 1976-1979. It could be the 1980s, when the average was almost 11% (10.81%), and a whopping 13.22% during the first half of the decade. And as bad as a 7.7% unemployment rate sounds today, it's actually slightly below Michgian's average monthly unemployment rate of 7.9% from 1976-2007 (see chart above).

Consider also that Michigan has a $405 billion economy (2006) that would be the 17th largest economy in the world if it were a separate country, ahead of Belgium ($393b), Turkey ($392b), Sweden ($385b), Switzerland ($377b), Taiwan ($355b), and Saudi Arabia ($348b).

So as bad as economic conditions might appear in Michigan, it survived the 1970s and 1980s, and it has a $400 billion economy that will survive the relatively high unemployment rates today.


At 11/15/2007 12:18 PM, Blogger happyjuggler0 said...

If you put a recession bar on the chart, you'll see that each major upswing in the unemployment rate is correlated with recessions. They spike up during recessions (and immediately following them), and then gradually fall during economic expansions.

In other words, there is a huge cyclical component to the unemployment rate (no duh!). What is noteworthy however is Michigan's inability to lower its unemployment rate during this economic expansion. Clearly there is a major structural problem with Michigan right now.

If you can't do well during an economic expansion when the wind is at your back, then during the next recession you're going to be in a seriously dire situation.

In my opinion Michigan needs to abolish its corporate tax, as well as its capital gains tax and tax on dividends. Additionally it ought to amend its constitution to make it a right to work state.

These steps will encourage outside investors to invest in Michigan, discourage current MI located businesses from leaving, enable those who want to stay to grow more rapidly (i.e. regulations and taxes are taxing), and finally encourage entrepreneurs to start up new businesses. All of which collectively will radically increase demand for workers, lowering the unemployment rate and making overall wages higher than they would have been in the absence of fiscal and regulatory restructuring.

Besides the Big Three there are half a dozen auto manufacturers "making it" in the US. They all have one thing in common though, they pointedly refuse to make it in Michigan. This despite the fact that MI has the experienced workers and training infrastructure that one would think that these companies would love to have.

MI needs to look in the mirror and realize that that is their own damn fault that their unemployment rate is that high. All these other companies have all the same national tax and regulatory constraints that MI companies have. MI even has low real estate costs like the South does. The sole difference is state and local taxes and regulations, noting that the entire South is right to work, thus making that a virtual prerequisite.

Running expensive ads on CNBC won't fool anyone (at least not those with money to invest) into thinking that Michigan is a good place to do business.

At 11/15/2007 12:55 PM, Anonymous Anonymous said...

Unlike the 70's and 80's, most of the auto jobs are gone for good. That is not cyclical but permanent. What are the options? Move out of the state or stuff lettuce into Subway sandwiches.

At 11/29/2007 9:22 AM, Anonymous Anonymous said...

This article seems a bit shallow given the credentials of the author. Like saying the American auto has been and will always be the standard of the industry. Or maybe like claiming we need to raise taxes on cigarettes to fund health care (all the while passing laws to try to get people to quit).

At 12/04/2007 4:36 PM, Anonymous Anonymous said...

We lived in Michigan for a little over 4 years, and absolutely loved the Western Michigan beaches and life style. Unfortunately my job was amoung the man that were shipped out of the United States. While we were living in Michigan, all we heard was this company is moving to Mexico, then another, another, another.... can anyone remember the "flusing sound" that was mentioned with NAFTA??? Anyway, as I stated, my department had been told that our jobs would be off-shored, so I took an offer with a company in Missouri. Unfortunately it meant that I had to move... I'm not the only one, at least 50% of my friends have left the state, as I have. Unfortunately this also means less income for the state of Michigan to support their bloted infrastructure.

At 6/29/2008 11:27 AM, Anonymous Anonymous said...

The real reason other companies won't build their cars here is that they don't want anything to do with UAW, and, frankly, it's hard to blame them.

At 9/06/2008 1:39 AM, Anonymous Anonymous said...

Michigan continues to suffer economically as it is the first state to be tested for the "New World Order" whereby all solvent businesses leave the US for China and other countries where the work can be done for less than half the price it costs here.

Michigan will take decades to recover..if it EVER does. The politicians know this up there..and they keep the truth from the people. If the people knew the truth..they'd be leaving the state in much larger numbers than they are search of jobs that support families and homes they can KEEP.

Michigan spends over 1.9 BILLION dollars a year keeping people in prison...its their biggest expense..yet the FREE people of Michigan suffer and lose their homes and their jobs. The priorities of the politicians are confused...but they refuse to tell the people the truth because they fear the Exodus that would surely follow would cut the tax base as well as the half.

After all..those who run the state are not suffering..they can afford the price of gasoline..they don't get food stanps and they are not losing their homes...Wake up people...REPEAL the "truth in sentencing" law and release prisoners at their FIRST eligibility...and free up millions of tax dollars and put them into the working economy.
Michigan spends more on its prisons than it does for all of its universities put together....whats up with THAT?


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