Lake County Lags in Wages, Loses 6.6% in 2009

The Bureau of Economic Analysis just released its report on county compensation by industry for 2009. Average compensation per job increased 1.2%, to just about $57,000. Unfortunately, fewer people had jobs, so the total amount of compensation went down 3.2%. Some smalll relief: inflation was only 0.2%.

Two-thirds of our 3113 counties saw compensation go down in 2009. The map shows a familiar pattern (click image to enlarge):

The center of the country does better than the coasts. The most populous counties generally saw larger decreases in compensation (3.7%) than medium and smaller counties (2.2%–2.3%)

South Dakota looks pretty healthy, with lots of counties in the blue upper quintiles (remember, blue is good on this map, while gold shows where there's less gold). But hey, zoom in: what's that gold spot in East River South Dakota?
Discover the Unexpected™: Lake County bucked the statewide trend and landed in the lowest national quintile for compensation growth. Statewide, average compensation per job increased 1.3%, from $32,702 to $33,136. Total compensation statewide went down 0.7%. But in Lake County, the average wage decreased 1.8%, from $28,993 to $28,466. Total compensation in Lake County dropped 6.6%.

Only four counties—McCook, Marshall, Union, and Harding—saw worse declines on total compensation. Harding lost the most compensation, dropping 15.7%, with average wages per job dropping $3200 in one year. Weep not for Union County, though: they have the highest average wage per job in the state, just over $39,000.

Investing in Higher Quality Teachers Yields Economic Returns

Via Dr. Mankiw:

Eric Hanushek's work popped up earlier this month in our blog discussion of how the U.S. isn't producing enough smart kids and how spending more on teachers might boost our kids' math scores. Dr. Hanushek now offers a new paper that quantifies the economic good that may come from hiring better teachers.

According to Hanushek's research, an above-average teacher working with a class of twenty students creates $400,000 in additional student future earnings. Replacing the least effective teachers with just average teachers nationwide would add $100 trillion of value.

I welcome suggestions as to how we identify and recruit higher-quality teachers. But free market rules suggest that attracting quality is relatively straightforward: you get what you pay for. As I apply for jobs that pay $60K rather than $30K, I get the impression that I'm up against a tougher talent pool.

So just imagine: Suppose South Dakota raised its average teacher pay by $10,000 (which would vault us in our national ranking from dead last in teacher pay to 41st place). Suppose that pay boost drew and kept some better talent. If that increased incentive to enter the field replaced only one out of 40 average teachers with above-average teachers, we'd break even on our investment.

South Dakota Cost of Living Spikes Above US Average

Here's news to straighten your curls: South Dakota's cost of living is higher than the national average.

Say what? The last time I ran numbers on cost of living and salaries, I found that in Quarter 1 of this year, South Dakota's cost of living was 92.8% of the national average, the 13th lowest in the nation. When I checked my usual source, the Missouri Economic Research and Information Center (MERIC), I found South Dakota's cost of living jumped in the third quarter to 101.25% of the national average. That ranks us 32nd in the nation.

Hold on—really? I've been following these cost-of-living figures for some time, and South Dakota's has consistently floated around the 90% level. How did we suddenly, in just a couple quarters, boom up over 101%?

I emailed MERIC to find out if they could explain this strange stat. They replied (with admirable alacrity!) that Q2 saw "a huge increase in transportation, housing, and grocery costs" (dang—don't tell me Sarah Palin was right!) and that Q3 saw a big surge in health care costs. MERIC explains that sometimes some cities participating in the C2ER/ACCRA cost-of-living survey misreport or don't report for a certain period, while other experience some price volatility that mucks up the comparisons. MERIC says their own state of Missouri dropped out of its normal position in the top 10 for a couple quarters, then bounced back.

So what do you think, fellow South Dakota shoppers? Have we seen an unusual price spike in the last couple quarters that didn't happen in other states? Or is this sudden 101.25% cost of living just an artifact of gimpy data?

Just in case these numbers are legit, permit me to run my favorite cost-of-living calculation: teacher pay purchasing power:

State	Avg Teacher Pay (AY 2008-2009)	% US Avg	TP Rank	Cost of Living Index (2010 Q3)	COL Rank	Teacher Purchasing Power
SD	$35,070	64.56	51	101.25	32	63.77
ND	$41,654	76.68	50	98.59	24	77.78
MN	$51,938	95.62	20	103.4	34	92.47
IA	$48,638	89.54	26	94.51	16	94.74
NE	$44,957	82.76	42	90.78	6	91.17
WY	$54,602	100.52	16	99.61	29	100.91
MT	$44,426	81.79	46	99.43	28	82.26
US	$54,319	100		100		100

Short form: by current cost of living data, public school teachers choosing to live and work in South Dakota will have less than 64% of the purchasing power than the national average. If those teachers leave South Dakota for any neighboring state they will make more money and be able to buy more with that money. Even in Minnesota, with the highest cost of living in the neighborhood, teachers would enjoy 45% more purchasing power than they do in South Dakota... at least by Q3 numbers.

Daugaard Perpetuates SD Teacher-Pay/Cost-of-Living Myth

Myth, Dennis. Myth, myth, myth. Have you not been reading the Madville Times?

The Heidepriem campaign fires off a missive on last night's gubernatorial debate before the electrons are dry on your TiVo. Evidently GOP candidate and current Lieutenant Governor Dennis Daugaard justified our lowest-in-the-nation teacher salaries with the old saw that South Dakota's low cost of living makes up the difference.

Wrong, Dennis. Wrong, wrong, wrong. As I have documented on numerous occasions, our teachers—heck, all of us!—are near the bottom of the pay pile even after factoring in cost of living.

Heck, if Dennis hadn't been so busy fundraising and instead paid attention to the blogs, he'd have heard the same thing from conservative blogger Dr. John Schaff three years ago.

But fine, Dennis. You were distracted. So now that we have your attention, let's run the numbers one more time:

1. Average teacher salary in South Dakota (AY 2008-2009): $35,070.
2. Average teacher salary in North Dakota: $41,654.
3. Average teacher salary nationwide: $54,319.
4. SD average as percentage of nat'l average: 64.5%
   
5. Most recent calculation of South Dakota's cost of living (Q1 2010): 92.8% of national average (13th lowest in nation).
6. Purchasing power in South Dakota of average South Dakota teacher salary compared to purchasing power of average national teacher salary, factoring in cost of living: 69.5%.
   

Dennis, you have paid staffers who can update those numbers for you so you're not comparing 2009 salaries and 2010 COL data. But here you have the basic proof that you really shouldn't resort to the smiley "South Dakota's low cost of living makes up for our crappy wages!" myth. Myth myth myth (say it ten more times before you go to bed). Now you can concentrate on coming up with a better answer for the next debate.

You're welcome.
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Update 2010.08.14: As noted below by the eminent LK, Daugaard's statements are not worthy of the title myth. Daugaard is peddling mere propaganda.

South Dakota Pays Lowest Wages per Job

The latest Prairie Business popped out of our mailbox yesterday. Among other things, we learned that South Dakota has the nation's lowest compensation per job. In 2008, the per-job average here was $40,726. The next lowest state, Montana, posts $1462 more per job. The national average per job is $56,116.

South Dakota's average compensation per job is 73% of the national average. South Dakota's cost of living is 91% of the national average. Our median household income is 88% of the national average. Our per capita personal income is 94% of the national average, ranking us 25^th in the country. Evidently we make up the difference by working more hours and more jobs.

That's South Dakota's great quality of life: you get crap wages, so you work more hours and get to brag about your great work ethic. Yay.

Where Can You Earn More, Sioux Falls or Sioux City?

South Dacola fills my morning with the daily recommended allowance of wage data. Taking umbrage with an anti-Sioux City wisecrack on KSOO, "Poly43" compares 90th percentile wage data for similar jobs in Sioux Falls and Sioux City. At the 90th percentile, we're talking about the people with some of the best qualifications in the field.

The results: in the jobs listed, Sioux City workers make an average of 20% more than their Sioux Falls counterparts.

However, we get a different picture if we look at all jobs. Overall, the average annual salary in Sioux Falls (as of May 2008) was $35,420. The average annual salary in Sioux City was $33,190. So if I understand this correctly, for workers toward the top of the wage scale in certain jobs, the two-hour drive down I-29 from Sioux Falls to Sioux City could produce a 20% pay boost. But over the entire labor sector, moving to Sioux City produces a 6.3% pay cut. Factor in cost of living (Iowa’s cost of living in Q3 2009 was only 2.5% higher than South Dakota’s) and that's an 8.6% cut in purchasing power.

One field where Sioux Falls really kicks Sioux City's can: chief executive pay. Sioux City has 90 CEOs averaging $139,810 a year. Sioux Falls has 190 CEOs averaging $178,590, 28% better. That rushing sound Todd hears from Harrisburg is northbound Lexuses (Lexi?!? :-D )

So if you're trying to win an argument about who makes more where, Sanford Falls or Sewer City, cost of living isn't as big a factor as the type of jobs and employees you're looking at.

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Iowa does beat South Dakota statewide. Our average annual wage was $32,770. Iowa's was $35,910, 9.6% higher (6.8% higher after figuring cost of living).

South Dakota Compensation Growth Ahead of Curve; National Growth Lags Inflation

The center holds: in 2008 compensation showed the strongest growth in the Great Plains. [Click image to enlarge; source: U.S. Bureau of Economic Analysis]

We're richer than we thought... or at least we're getting richer faster than the Coasts: even as the housing bubble burst and the country slid into recession, South Dakota and the great American midsection showed the strongest compensation growth in the country. Most South Dakota counties posted compensation growth of 3.9% or better; all those dark blue counties on the map beat 6% growth.

Nationally, compensation grew 2.3%, while inflation was 3.3%.

Now sure, our wages grew faster than the national average, but we've got room to grow. South Dakota's average compensation per job in 2008 was $40,726. Across the U.S., average compensation per job is $56,116. Adjust for cost of living, and South Dakota's average wages are still 79% of the national average.

Locally, wages are even thinner: Average compensation in Lake County is $36,439.

Some interesting facts from the BEA data:

• In the 618 counties of the Plains region (from ND to MO), 46.5% of compensation is concentrated in just 10 counties.
• Nationwide, 168 large metropolitan counties (out of 3112 counties total) account for 65.8% of compensation. That means nearly two thirds of our wages are made by folks who supposedly aren't real Americans.
  
• The sector providing the fastest growing compensation on the Plains: mining, up 16.6%.
• The sector contracting fastest on the Plains: information, down 0.8% (and here I thought going to DSU would be a moneymaker!).
• In the economically largest counties (those with total compensation of $10 billion of more), the sector paying the largest share of compensation is professional, scientific, and technical services (10.7% of total compensation).
• In the next tier of counties (paying out $1 billion to $10 billion), the sector paying the largest share of compensation is health care and social assistance (11.7% of total compensation).
• In the vast bottom tier of counties paying out less than $1 billion (72.8% of counties), the sector generating the biggest share of compensation is local government (16.5% of total compensation).
  

Teaching in South Dakota: Financial Suicide for Young Grads

I happened upon this job placement data from Dakota State University's Career Services office—you know, the folks who help make sure we don't just sit around and think big thoughts after we get our degrees. Among the numbers of note for the 2008 grads DSU was able to track down:

• We kept 80% of them in South Dakota, at least for the first year. Not a bad return on investment.
• Average entry salary for all 2008 grads: $33,189. Not bad: by my calculations from state wage data, that puts these fresh faces just above the 25th percentile for South Dakota wages, not to mention making a bigger first-year paycheck than I've ever received from a single South Dakota job. (50th percentile is $38,406—keep working up the ladder, kids!)
• The 125 four-year degree holders who chose not to become teachers averaged $35,205 for their first annual salary.
• The 40 noble souls who did become teachers averaged $31,642. Three-quarters stayed in state (thank you!) and averaged $24,874. One quarter jumped the border and averaged $31,642.
  
• The 37 who took the associates degree route (respiratory care, health IT, network admin programs) all stayed in state (thank you!) and averaged $30,532.

Consider: a student who chooses a DSU associates program can make almost $6000 more in year one of work than a student who decides to teach in South Dakota will earn in year one.

Or look at it this way: suppose you and a friend just started at DSU this year. You both are taking student loans of $4000 a year. You take the associates route, finish in 2011 with $8000 in student debt, go straight to work. Your friend takes the bachelor of education route, finishes in 2013 with $16,000 in student debt, goes straight to work. Ignore possible raises, inflation, side jobs, layoffs, etc. All things being equal, by summer 2014, you will have earned $91,596. Your teacher friend will have earned $24,874. Subtract your student debts, and you are $83,596 to the good. Your friend is $8,874 to the good. Assume a really frugal $10,000 a year in living expenses: you're ready to walk into the bank and drop a 20% down payment on a nice house. Your friend has bupkis.

But don't worry, aspiring educators: you can still marry rich.

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Math Update 17:40 CDT: If you tinker the state's wage figures, you may come up with different averages and percentile breaks for the statewide workforce. I took straight averages of the given percentile figures; I did not weight my averages based on the number of workers in each occupation. Thus, my percentile figures are skewed high by the handfuls of really high-paying jobs, like doctors, psychiatrists, and advertising managers. Feel free to recalculate your own numbers (spreadsheets are such fun!)

Merit Pay: Even Corporations Can't Do It Right

Every now and then when we talk teacher pay here, commenters will bring up the idea of merit pay, increasing or decreasing teacher salaries based on how well they do their jobs. That's how things work in the free market; why not run school more like a business?

I doubt we want to run our schools or anything else like these businesses:

Rick Wagoner, chief executive of General Motors Corp., announced earlier this month the company had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting a $39 billion loss in 2007, a year when its stock price fell by about 19 percent, without adjusting for dividends.

And Wagoner? His pay rose 64 percent, to $15.7 million [Rachel Beck and Matthew Fordahl, "CEO Pay Rose Higher in '07 Despite Economic Woes," AP via Yahoo News, 2008.06.15].

Lose market share, lose jobs, get paid more. Hmm....

...KB Home lost almost $930 million in 2007 and its stock lost 60 percent of its value. But [CEO Jeffrey] Mezger still made $24.4 million, as valued by the AP, including a $6 million cash bonus.

He pocketed that bonus because he exceeded certain objectives the board had set out for him. Among them were improving performance on a customer satisfaction survey and developing senior leadership in his first year as CEO [Beck & Fordahl, 2008.06.15].

And I thought value for shareholders was the bedrock metric for corporate performance. Hmm....

...Profit at insurer XL Capital fell more than 80 percent last year, and its stock price slumped about 30 percent. But Chief Executive Brian O'Hara made $7.5 million, a raise of 23 percent.

In its proxy statement, the company called its profits "unsatisfactory" but said operating earnings, which exclude certain factors, were better than planned.

O'Hara, who plans to retire later this year, was also given 62,500 shares of restricted stock and 250,000 stock options, which were not included in the calculation of his total compensation. The company said that was to "reflect the importance of Mr. O'Hara's role in the CEO succession process" [Beck & Fordahl, 2008.06.15].

Far be it from me to expect rational behavior from the insurance industry....

Merit pay sounds great in principle. Do good work, get paid well: that's exactly how the world is supposed to work (never mind that business about the rain falling on the good and the not-so-good alike).

Alas, in practice, tying pay to performance is a mess. Someone has to pick the metrics for performance, and even corporate executive boards, the folks who should be the best experts at figuring out things like market value, appear to end up gaming the system to help their buddies. Stocks lost value? Well, we'll base pay on that customer satisfaction survey. Profits tumbled? Well, we'll getting us through the succession process was really important. Even corporations can't come up with solid, objective performance pay metrics that make sense outside their crony circles. And they are well-removed from the small-town politics that would make merit pay even harder for South Dakota school administrators to make fair, pay-determining assessments of individual teacher performance.

I remain interested in hearing practical proposals for merit pay in our school systems. Just don't look to corporate America for your model.

Update 09:24 -- Well, not every corporation gets it wrong: AIG canned its CEO (on a Sunday, no less) after seeing its stock price drop 40% in six months.