The Michigan Diaspora–State Policies Drive Out Residents, Jobs

Michigan residents continue to flee the Great Lake State and are doing so at a near-record rate, according to one vital measure.

A leading indicator of a Michigan diaspora, or dispersion, comes from United Van Lines (UVL), which annually releases its household moving data for the calendar year.

Citizens Moving Out

In January 2006, Michigan was tied with North Dakota for number one among the 48 contiguous states for outbound client traffic, at 66 percent. Through October 2007, Michigan stood alone in UVL rankings at number one, with 66.4 percent of its traffic being outbound.

This is only one-half of one percentage point off Michigan’s all-time high of 66.9 percent, a figure the state has not seen since 1981, when the state’s annual unemployment rate was 12.5 percent.

Saginaw-based Stevens Worldwide Van Lines reports numbers similar to those posted by UVL. Morrie Stevens, chairman and CEO of the 102-year-old company, told the Mackinac Center that in calendar year 2007 his company’s shipments were running 2 to 1 in favor of leaving Michigan.

Stevens believes the outbound traffic is “a function of the weak economy as displaced workers and young people leave to find better opportunities elsewhere.”

Today Michigan has the worst unemployment rate in the nation, 7.7 percent, but even that figure is deceptive, masked by the state’s ability to export its unemployed.

Policies Prompt Flight

Michigan policymakers have done little to slow this outbound migration. In fact, both political parties have done the opposite, by catering to special interests that benefit from higher taxes or advocate for the imposition of additional regulatory burdens. Such policies raise the relative cost of living and working in Michigan.

Lansing’s most recent policy mistake–a nearly $1.4 billion tax hike imposed in 2007–has not gone unnoticed by political and business leaders alike.

Since the Michigan legislature and governor approved the tax hike last year, the state of Indiana has erected billboards near the border encouraging Michiganians to “Come on IN for Lower Taxes, Business and Housing Costs.” (They’ve also taunted Illinois, another neighbor on a tax-hike spree.)

Indiana is running radio ads with the same message on Lansing, Michigan’s WJIM. None of this Hoosier activity is funded with tax dollars.

Tax Revenues Drop

Adding to the pain, as more people leave the state, housing prices may drop further, and with them property tax assessments and tax revenues, reducing revenue to schools and local governments. Michigan is already dead last in home price appreciation (-3.7 percent), according to the Office of Federal Housing Enterprise Oversight, and sixth in property foreclosures, according to RealtyTrac.

People are the basis of all economic development. It is people who create, produce, employ, work, and generate wealth. Thus few things will have a stronger effect on a state’s economy than stanching the flow of its people to “opportunity states” by making itself more attractive to people and job providers alike.

The impact of Michigan’s diaspora may be starting to sink in with lawmakers. State Demographer Kenneth Darga was invited to speak at the state’s annual Consensus Revenue Estimating Conference, held on January 11. This is the first time a demographer has been invited to testify at this conference since at least 1980, and may be the first time ever.

GDP Plummets

Michigan’s current economic troubles have no precedent. Customarily, the state has done better than other states when the national economy is growing and relatively worse when it contracts. This time it’s different: Michigan’s relative economic performance as measured by its rank among the states in per-capita state Gross Domestic Product has plummeted–during a period of economic growth nationally.

State GDP is the value of all the goods and services produced within the state’s geographical borders. In 1999 Michigan ranked 16th in the nation in nominal state GDP per capita. By 2006 it had fallen to 39th place, and it is likely to drop further.

Reforms Long Advocated

Despite all these problems, the Michigan malaise can be reversed. For starters, we recommend the state adopt many of the hundreds of policies the Mackinac Center has already proposed. Below are four categories on which the Center has written exhaustively.

Tax Reform. Repeal the new Michigan Business Tax (which replaced the Single Business Tax) and replace it with nothing

Budget Reform. Adopt the more-than $2 billion in spending reductions recommended by the Mackinac Center in major budget studies, commentaries, and special Policy Briefs.

Regulatory Reform. Reverse the rapid growth of business regulations, especially in environmental permitting and property rights infringements.

Labor Reform. Adopt labor reforms, such as enacting a right-to-work statute and repealing Michigan’s prevailing wage law.

Economic history over the centuries and from around the world makes it clear that only these types of policies will restore Michigan’s status as a magnet for people and commerce. History also shows what happens to places that fail to attract these.

Michael D. LaFaive ([email protected]) is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. Michael Hicks ([email protected]) is an adjunct scholar with the center and associate professor of economics and director of the bureau of business research for the Miller College of Business at Ball State University in Indiana.