Friday, February 5, 2016

Good Job Dreams

Greg Gianforte, whose grasp on the facts always seems a bit tenuous, has been trying to make the case recently that Montana’s economy is a disaster. And David Parker, over at the Big Sky Political Analysis blog, has called him out on it.

If you’ve heard one thing from Gianforte lately, it’s the claim that Montana is “49th.  in wages.” That sounds pretty bad, but as Parker, who teaches political science at MSU, noticed, it doesn’t seem to square with what we know about the state’s rankings in household and per capita income, the unemployment rate, and employment growth, all of which are really pretty decent. So Parker did some digging around, and it turns out that the measure of “wages” that Gianforte is relying on, and at which we appear to be so miserable, is, to put it mildly, deeply flawed.

 Measuring state wage levels in a way that means something is tricky, and different measures mean different things. For example, if we want to know what kind of living a Montanan can provide for herself by working – and that’s what I think we're talking about here - then average annual wages per worker seem like a pretty good index.* But as Parker discovered, the measure Gianforte is using, which was calculated by an outfit called Transactional Records Clearing House (TRAC), is not that at all. It is, rather, the total wage income reported by Montanans on their 2013 Federal tax returns, divided by total number of returns. If you are interested in annual wages per worker, that number is going to be way too small.

Why? Well, as Parker notes, some wages get left out of this calculation when self-employed folks – and we’ve got a lot of them in Montana - report wages as business income rather than listing them on a W2 form. And then there’s the fact that there are more returns than there are workers earning wages, because people with non-wage income have to file too; that means wages per return are smaller than wages per worker.

Now Gianforte could argue here that sure, TRAC’s wage figures are too low, but they’re too low for every state, so however you calculate it, Montana probably still comes in in 49th. place. That’s plausible, but not helpful, because it reminds us that rankings really don’t tell us much. Sure, being 49th. sounds awful, and it suits Gianforte’s purposes for you to think it sounds awful, but if the actual dollar difference in wages between Montana and the rest of the country  is  small, why should we care?

None of this is meant to deny that wages in Montana are below the national average. That’s a fact of life that’s been with us for a long time. And it’s important to understand how far below average we are, and why.

The way Gianforte tells the story, Montana wages fall so far behind the rest of the country’s because we don’t have enough “good jobs.” The notion is that compared to the rest of the country, we have too many people collecting the minimum wage by flipping burgers, or greeting people at Walmart, or loading chairs at Snowbowl, and not enough well paid people mining coal, or drilling for oil, or writing computer code or performing brain surgery. And what Gianforte wants us to believe is that if he is governor he can create a lot of those good, well paid jobs – after all, he’s done it before! – and haul Montana out of the wage basement. Exactly how the guy flipping burgers is going to make the transition to brain surgery is a little murky, but I guess that’s a detail we can work out.

How Gianforte’s going “create good jobs” isn’t clear either – at this point he’s adhering to the old time Republican religion of deregulating businesses and slashing their taxes – but the real problem with his strategy for raising Montana’s wages is that it simply won’t work.

To see why that’s true you can go to this very handy data set from the Bureau of Labor Statistics. It lists, for Montana, the average annual wages per job, and the number of jobs, in 574 different occupations. There’s a total of almost 428,000 jobs spread across all those occupations, and in 2014 the average wage for all jobs was $39,752. The list obviously contains both good jobs – chemical engineers, for example, who average $95,000 a year – and not so good ones, like veterinary technicians, who average $24,600.

The data set also provides this information for the country as a whole. It turns out that nationally there are 129 million jobs in this same set of occupations, and the 2014 average annual wage for all those jobs was $47,175, so there’s a $7,423 wage gap between Montana and rest of the country. Now Gianforte attributes that gap to the fact that in Montana we work at relatively more bad jobs and relatively fewer good ones than other Americans. He doesn’t seem to recognize another possibility, namely that all jobs in Montana – good, bad, or indifferent – pay less than their national counter-parts.

To sort this out, we can engage in a little thought experiment. What if we held the wage for each occupation constant at its Montana value, but changed the distribution of jobs among occupations so that we had exactly the same mix of good and bad jobs as everybody else? What would happen to the $7,423 Montana wage gap? Well, according to Gianforte, it should largely go away.

But if you run the numbers, that’s not what happens. The average wage would rise by $1,596. That ain’t chickenfeed, but it means that Montana would still be $5,827 behind the rest of the country. Stated otherwise, the bulk of the Montana wage gap is there because pay levels are generally lower in all occupations, and not because we are cursed with a lack of good jobs.

There are lots of reasons why Montanans tend to earn less than their occupational counterparts in the rest of the country, not all of which are necessarily bad.** But if we really think we’ve got to close the wage gap, it’s not enough to fantasize about “creating good jobs.” It may seem like common sense and make for a good political soundbite, but it just isn’t going to work.

* But it gets complicated.  There are workers who only want to work part time, for a whole bunch of reasons, and they will drag the average wage of all workers down, which will understate the earning opportunities of people who work full time. There is also a lot of data available that refers to wages per job, which sounds like the same thing, but isn’t, because a worker can hold multiple jobs, or a fraction of one job. If you really want to contemplate the grizzly details, you can consult Post-Cowboy Economics: Pay and Prosperity in the New American West, which Tom Power and I published back in 2001.

** Again, take a look at Post-Cowboy Economics for an extended discussion of this issue.