New Job Loss Figures for Michigan Confirm the Need for Policy Reforms

Published June 1, 2008

Figures recently released by the national Bureau of Labor Statistics (BLS) show Michigan is in dire need of transformational policy reform.

Once again the state is the national leader in job loss and unemployment, according to the report released in March.

Michigan lost 1.5 percent of its employment from 2006 to 2007. The state’s unemployment rate rose from 6.9 percent in 2006 to 7.2 percent in 2007–highest in the nation and the highest average annual rate the state has suffered since 1993.

Since 2002 Michigan has lost 5 percent of its total nonfarm employment. Overall, national employment over the same period increased 6 percent. The only other state to lose jobs over this period was Ohio, which lost 0.4 percent of its jobs.

Economic Decline

Michigan’s economic decline has been deep and broad. Losses include 19 percent of its manufacturing jobs, 17 percent of its construction jobs, 12 percent of its natural resources and mining jobs, 11 percent of its information jobs, and smaller losses in financial activities, professional and business services, and government.

“While the employment figures for Michigan continue to be distressing, they are not surprising,” said Tricia Kinley, director of tax policy and economic development at the Michigan Chamber of Commerce. “The state continues to grapple with the fallout of auto sector restructuring, and the results exacerbate our home foreclosure crisis and drain family discretionary spending.

“Unfortunately,” Kinley continued, “the legislature and administration added salt to the wound by raising business and income taxes in order to increase government spending.”

Wages appear to be growing for the auto workers who remain. Between 2001 and 2006, average wages at auto manufacturing plants in the state increased 27 percent, according to the Quarterly Census of Employment and Wages. Average compensation is now more than $88,000 annually, excluding benefits packages.

Central Planning

Observers say Michigan policymakers are largely failing to implement policies that would improve the state’s economic situation, focusing instead on promoting fringe industries in alternative energy and on re-regulating Michigan’s electricity generation. Not only do such diversions ignore the fundamental problems facing the state, but they steer state policies farther away from a competitive market, analysts say.

“Legislators are still trying to centrally plan the state’s ailing economy with targeted tax credit programs,” said Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Michigan-based Mackinac Center for Public Policy. “Their latest brainstorm is refundable tax credits for filmmakers. Do legislators really believe they will be able to offset the damage they’ve done by handing out goodies to a favored few?”

Targeting an area where pending legislation could improve Michigan’s business structure, a bill introduced by state Rep. David Agema (R-Grandville) would prevent the Department of Environmental Quality from enacting environmental rules more stringent than federal policies.

The proposed legislation would decrease the regulatory burden on businesses while maintaining safety measures that meet federal guidelines.

Playing Favorites

Economists including LaFaive say what’s lacking in Michigan is a serious discussion of labor and tax reforms that would truly improve the state’s stagnant economy. The state, he points out, can no longer afford status quo arguments that benefit one group at the expense of the state as a whole.

Only significant reforms, such as a right-to-work law and the elimination of one of Michigan’s major taxes–sales, income, or business–will reverse the precipitous economic decline, LaFaive says. Until such a transformational change takes place, Michigan residents can expect further depressing numbers from BLS, he says.

James M. Hohman ([email protected]) is a fiscal policy research assistant with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan.