JUL 20, 2015 @ 4:06 PM 6,934 VIEWS
GUEST POST WRITTEN BY
Noah Williams
Mr. Williams is a professor of economics at the University of Wisconsin at Madison.
Before Governor Scott Walker took office in January of 2011, Wisconsin was seeing high unemployment, stagnating incomes and a high tax burden. Fast-forward four years: The state enjoys strong growth in employment and improvements in living standards through higher after-tax incomes. Thanks to a fiscal policy of reducing tax and regulatory burdens while balancing the budget, Wisconsin now outperforms many of its neighbors.
(Disclosure: Mr. Williams has been serving as an informal adviser to Gov. Walker’s presidential campaign.)
But this economic performance has not always been recognized. For example, on his recent trip to the state President Barack Obama contrasted Wisconsin with Minnesota, which has seen increases in taxes, government spending and the minimum wage. The president, echoing earlier press reports, cited Minnesota’s lower unemployment rate and higher median income as signs that these “middle class economics” policies were working. But to see the effect of policies, we need to look at changes since they were implemented.
Comparing Wisconsin to the rest of the country
Minnesota had a lower unemployment rate and higher income than Wisconsin at the start of 2011. But since then, the unemployment rate has fallen more in Wisconsin and per capita output growth in Wisconsin has outpaced Minnesota each year. Since 2012 real per capita disposable personal income—a broad measure of average after-tax income—has fallen in Minnesota. In Wisconsin, due to reductions in state taxes, real after-tax incomes have increased twice as fast as the nation as a whole.
The labor market in Wisconsin tightened substantially under Gov. Walker, with the unemployment rate falling from 8.1% in December 2010 to 4.6% in May 2015. In addition, labor force participation has been roughly stable over the past few years around 68%. By contrast, participation nationwide has fallen to under 63%, levels not seen since the late 1970s. Some of this decline has been demographic, but an important component has been discouraged unemployed workers leaving the labor force.
A useful statistic including these workers is the employment-population ratio, measuring the fraction of the population that is working. In May, it stood at 59.4% nationally and 64.8% in Wisconsin, the 10th highest in any state.
While Wisconsin has seen strong employment growth, some press reports focus on a different measure: job growth on nonfarm business payrolls. By that metric Wisconsin lags the national average—but not without explanation. The recession was not as severe in the state, so slower job growth should be expected in the recovery. In addition, shifts out of farm and self-employment nationally have increased nonfarm job growth but not net employment. But most importantly, (working age) population growth in Wisconsin has been half that of the nation as a whole.
With slower growth in labor supply, it is difficult to create jobs at a faster rate. For these reasons, measures of household employment give a more accurate picture of the state of the labor market. Similarly, per capita measures of income and output, capturing improvements in living standards for an average worker, are better indicators than aggregate measures of overall size.
http://www.forbes.com/sites/realspi...sin-has-prospered-keep-that-in-mind-for-2016/
