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Put an R after that B—Anna Bahney writes a bang-up article on South Dakota's last-in-the-nation wages, $16.53 an hour. Ms. Bahney knows whereof she speaks: marriage brought her to Sioux Falls after living and journalizing in New York City (NY state: $25.48 an hour, fourth highest in the U.S.) and Washington, D.C. ($32.37 an hour, best wages). Even our neighbors in North Dakota, where they have a state income tax and crappier weather, kick our butts at $18.75 an hour.
Why do our wages suck? Bahney finds South Dakota economists to lay out some reasons:
- Low brain power: "...what we're missing is the high knowledge-based and high human-capital type services," says USD economist emeritus Ralph Brown. Bahney cites Richard Florida, who finds a corrleation between high wages and high education levels. (Note to folks hoping to raise SD wages: Russ Olson and the Republicans voted to balance our state budget mostly by hacking education.
- Bad policy: "We attract out-of-state firms with our low corporate and low personal income tax. But it is a development strategy that will leave us in last place," says Augie econ prof Reynold Nesiba. He says we need to quit chasing smokestacks and focus on "economic gardening," growing our own entrepreneurs. (That's what I've been saying!)
- Wide open spaces: Doc Brown says this is the biggest factor. Bahney explains: "greater density leads to greater worker productivity and higher wages attributed to what economists call 'agglomeration.' In cities, there is a knowledge spillover as a result of greater specialization." (Now explain how equally desolate North Dakota beats our wages by over 13%.)
- Low taxes: Again, Doc Brown: "The results indicate that state differences in tax burden are capitalized into wages. This indicates that workers living in high-tax states receive a compensating wage to account for the higher tax burden." Tax increases don't automatically kill growth; the market compensates.
- No unions: Says Nesiba, "Power matters in economics, and workers have very little power here.... Workers able to come together and bargain collectively for higher wages and benefits is an important factor."
South Dakota's average 2008 wage was 76% of the national average. Our cost of living generally floats around 90% of the national average. So even if you factor some of our lower costs, South Dakota still comes out behind. I don't have 2008 cost-of-living data handy, but when I factor by the current COL, I find South Dakota wages only go 84% as far as the national average.
You can thus say that our low cost of living means we don't really have the lowest average hourly wage in the nation; factor in cost of living, and we tie with Mississippi for the fifth lowest purchasing power by hourly wage, at 84% of the national average. By cost-of-living adjustment, worse off than South Dakota are Montana, Vermont, Maine, and, worst of all, Hawaii, where folks have 58% of the national average purchasing power. Pierre's propaganda about our great low cost of living misses the fact that people moving here will find it harder to make ends meet in South Dakota than they will in all but four other states.
Speaking of moving here, check this out: South Dakota has the second lowest number of foreign-born immigrants in the country. Just 1.9% of our population has come from another country. The only state with a lower proportion of foreign-born immigrants is West Virginia, with 1.3%. Nationally, 12.5% of us are from elsewhere.
The Migration Policy Institute data I'm looking at includes estimates of illegal immigrants. The data show states with higher immigrant populations tend to have higher wages. This makes sense: if people are coming to America, they may tend to pick states with more economic opportunity. And they apparently aren't picking South Dakota.
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Read more!
- Wage data available in the March 2010 Monthly Labor Review from the Bureau of Labor Statistics.
- Play with the data yourself on this Excel spreadsheet. (If that link doesn't work, give me a shout, and I can e-mail you the sheet!)
When making cost of living comparisons it is largely ineffective to compare state by state as these numbers vary a lot by region within a state. You get a misleading impression when lumping together the cost of living of Madison with a median income of $37,158 with Sioux Falls with a median income of $53,256. If you compare the cities you mention above, Washington DC costs 63% more, so the wage differential is significant if using the $32.37/hr from the article, although I question that number when I find the median income only $57,936; while the cost to live in Sioux Falls is 167% less than New York city, making their wages suck in comparison(compared using 100k in SF).
ReplyDeleteI would mostly agree with the reasons cited for the income differences. The debate comes with how significant the respective impacts are and how these same things effect the cost of living and the quality of life. Just because the income is higher doesn't mean you have more free income to spend.
The cities that top the charts in factors influencing wages according to the article:
Education: Arlington, VA
population density: Los Angeles, CA
new business vitality: St George, UT
Highest Tax Burden: New York, NY
Unionization: likely New York, NY
By cost-of-living adjustment, worse off than South Dakota are Montana, Vermont, Maine, and, worst of all, Hawaii ...
ReplyDeleteWith the possible exception of Montana, high-tax states all.
The data show states with higher immigrant populations tend to have higher wages.
And more generous government programs? Or an existing immigrant population to which newcomers can more easily relate? Possibly a somewhat less skeptical general population?
Lots of factors at work, here. Maybe someone should ask immigrants where they prefer to go, and why.
Cory, you need to find someone with whom you always agree other than Nesiba. He is the textbook case of a guy who has never done anything in the real world and is so ignorant of business in the real world he doesn't even know what he doesn't know.
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