Outlook for the Wisconsin Economy Noah University of Wisconsin-Madison Center for Research On the Wisconsin Economy (CROWE) https://crowe.wisc.edu
The State of the Wisconsin Economy Tight labor market: low unemployment, high employment-population ratio Long and continued expansion: growth in incomes, recovery across state Labor force challenges: low population growth, aging workforce, net outmigration Comparisons with other states: Minnesota, Illinois Economic policy impacts: MAC (Man. and Ag Credit), minimum wage Foxconn: Fiscal costs but large potential gains
CROWE: Brief Introduction Center for Research on the Wisconsin Economy (CROWE) established in 2017 in the Department of Economics at UW-Madison. Primary mission: support and disseminate economic policy research, with particular focus on Wisconsin economy and state-level economic policy issues. Director (me), economists (2x), fellows in Dept. of Economics Provide economic research opportunities for UW-Madison students, outreach from UW to business and policy
CROWE Research and Events Research Reports: The Impact of the Manufacturing and Agriculture Credit in Wisconsin The Economic Impact of the Foxconn Proposal Economic Performance in Wisconsin Since the Great Recession: A County-Level Analysis The Effects of Minnesota s Minimum Wage Increases More to come: tax reform, UW System, startups and business formation, migration Annual Fall Event: Wednesday, October 17, 4-6 PM on UW-Madison campus. Keynote speaker: John Cochrane, Hoover Institution at Stanford University (possibly others) Let me know if interested: get on our mailing list
The Wisconsin Labor Market is Historically Tight Unemployment: 2.9% (#7, US 4.0), participation: 68.9% (US 62.9) Employment-population 67.0% (#5, US 60.4) 10 Unemployment Rate US WI 68 67 Employment Population Ratio 9 66 8 65 7 64 63 6 62 5 61 4 60 3 59 2006 2008 2010 2012 2014 2016 2018 58 2006 2008 2010 2012 2014 2016 2018
Wage Growth Has Picked Up Private earnings grew by 5.9% over past year (#4, US 2.7) 120 Average Hourly Earnings of All Employees: Total Private in Minnesota, Jan 2011=100 Average Hourly Earnings of All Employees: Total Private in Wisconsin, Jan 2011=100 115 110 Index 105 100 95 90 2008 2010 2012 2014 2016 2018 Shaded areas indicate U.S. recessions Source: Federal Reserve Bank of St. Louis myf.red/g/kt0r
Employment and Labor Force Job growth steady but lower, driven by slow workforce growth 116 114 Nonfarm Employment, 2010=100 106 105 Labor Force, 2010=100 US WI 112 104 110 103 108 102 106 101 104 100 102 99 100 98 98 2006 2008 2010 2012 2014 2016 2018 97 2006 2008 2010 2012 2014 2016 2018
Aging of the Population
Net Outmigration Persistent issue over past decade, but not as severe as IL Declined in Census data: -11,439 in 2016 to -2,086 in 2017
Differences in Sector Shares and Growth Real GDP by State by Industry United States Wisconsin Industry 2016 Share 2011-16 Growth 2016 Share 2011-16 Growth All industry total (billion) $ 16,259 10.5 $ 273 7.4 Private industries 88.0 12.3 89.1 8.9 Construction 4.0 19.7 3.9 21.8 Manufacturing 11.7 5.3 18.6 4.3 Wholesale & Retail trade 12.1 13.2 12.0 12.1 Information 5.5 23.2 3.8 24.5 Finance and insurance 6.3 4.3 7.0 11.0 Real estate and rental and leasing 13.5 11.2 12.5 2.9 Professional, scientific services 7.4 17.6 4.3 13.6 Health care and social assistance 7.5 14.5 8.8 8.4 Government 12.0-0.7 10.9-3.2
Income Distribution As Wisconsin incomes have grown since 2010, any decline in the middle class has been due to movement up to higher incomes. Overall distribution roughly stable
Income Distribution From 2011-2016 real household incomes in Wisconsin have grown across the income distribution, and they ve grown the fastest at the low end.
Comparisons with Other States Common in the press to compare Wisconsin economy with Minnesota (especially) and Illinois. Minnesota: similar size and rough demographics, differences in policy but also structure Illinois: whole state very different (Chicago, downstate IL), North IL and South WI more comparable Popular discussions too quick to infer policy impact. More below.
Real Output Growth: Level and Per Capita Real GDP, 2010:4=100 Per Capita Real GDP, 2010:4=100 112 110 IL MN WI 112 110 108 108 106 106 104 104 102 102 100 100 98 98 96 96 94 2010 2012 2014 2016 2018 94 2010 2012 2014 2016 2018
Urban Concentration: Wisconsin vs Minnesota Share of WI Emp in MKE Share of MN Emp in MSP 0.31 0.68 0.305 0.675 0.3 0.67 0.295 0.665 0.29 2000 2005 2010 2015 0.66 2000 2005 2010 2015 115 110 Milwaukee Minneapolis St. Paul Employment, 2010=100 105 100 2006 2008 2010 2012 2014 2016
Economic Performance by County The discussion so far has been based on state-level data, but not all parts of the state have done equally well economically. While there has been talk about areas left behind, I find strong evidence of convergence in living standards. Counties that had the highest unemployment rates, poverty rates, lowest incomes before the recession have seen the largest improvements in the following decade. Counties which suffered the most during the recession have had the largest improvements during recovery But divergence in overall size: counties that had larger employment, labor force, or population before the recession experienced faster average growth in those measures
Unemployment by County Wisconsin County Unemployment Rates June 2018 Not-Seasonally Seasonally Adjusted Adjusted US 4.2% 4.0% WI 3.4 2.9 < 2.9% 3.0% - 3.4 3.5% - 3.9 4.0% - 4.4 4.5% - 4.9 5.0% - 5.4 5.5% - 5.9 6.0% - 6.4 6.5% - 6.9 7.0% > Not-Seasonally Adjusted Unemployment Rates for Wisconsin Counties Lafayette 2.5% Iowa 2.7 Taylor 2.7 Dane 2.8 Sauk 2.8 Green 2.9 Richland 2.9 Calumet 3.0 Clark 3.0 Columbia 3.0 Dodge 3.0 Kewaunee 3.0 Monroe 3.0 Sheboygan 3.0 Trempealeau 3.0 Vernon 3.0 Washington 3.0 Chippewa 3.1 DETI-17241-P (R. 7/2018) Door 3.1% Oconto 3.3% Waushara 3.7% Eau Claire 3.1 Polk 3.3 Sawyer 3.8 Jackson 3.1 Walworth 3.3 Wood 3.9 Marathon 3.1 Winnebago 3.3 Kenosha 4.0 Ozaukee 3.1 Grant 3.4 Price 4.1 Pepin 3.1 Manitowoc 3.4 Racine 4.1 Barron 3.2 Oneida 3.4 Bayfield 4.2 Brown 3.2 Vilas 3.4 Burnett 4.2 Fond du Lac 3.2 Dunn 3.5 Langlade 4.2 La Crosse 3.2 Green Lake 3.5 Rusk 4.2 Outagamie 3.2 Marquette 3.5 Douglas 4.3 St. Croix 3.2 Pierce 3.5 Marinette 4.4 Shawano 3.2 Buffalo 3.6 Milwaukee 4.4 Waukesha 3.2 Florence 3.6 Adams 4.6 Waupaca 3.2 Crawford 3.7 Ashland 4.6 Jefferson 3.3 Portage 3.7 Forest 5.0 Juneau 3.3 Rock 3.7 Iron 5.2 Lincoln 3.3 Washburn 3.7 Menominee 6.3 WI Dept. of Workforce Development, Labor Market Information 7/25/2018
Unemployment by County
Unemployment by County Change in Unemployment Rate: 2010 2017 Unemployment Changes in Wisconsin by County 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 Change in Unemployment Rate: 2007 2010 Change in Unemployment Rate 2007 2017 Unemployment Changes in Wisconsin by County 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 4 6 8 10 Unemployment Rate in December 2007
Labor Force by County Growth Rate of Labor Force 2010 2017 Labor Force Changes in Wisconsin by County 10 5 0 5 10 15 10 5 0 5 10 Growth Rate of Labor Force 2007 2010 Growth Rate of Labor Force 2007 2017 Labor Force Changes in Wisconsin by County 15 10 5 0 5 10 15 20 8 10 12 Log Labor Force in 2007
Impact of the Manufacturing and Agriculture Credit The MAC took effect in 2013, provides credits which largely offset the taxes faced by businesses in those sectors in the state. I analyzed how much of manufacturing employment growth 2013 was due to the policy by analyzing counties on either side of the Wisconsin border. Estimated that for 2013-2016 MAC accounted for total gain of over 20,000 manufacturing jobs (a 4.6% increase) and over 42,000 total jobs (a 1.8% increase) in Wisconsin. Even more since then!
Impact of the Manufacturing and Agriculture Credit
Effects of Minnesota s Minimum Wage Increases In 2014, Minnesota began increasing minimum wage, Wisconsin has kept minimum wage constant since 2010.
Effects of Minnesota s Minimum Wage Increases: Jobs Over 60% of employees in restaurant industry in MN make minimum wage or less. Following min wage hikes fast food employment fell by 4% in MN relative to WI.
Effects of Minnesota s Minimum Wage Increases: Youth Workers below age 24 account for 54% of min wage earners. Youth employment fell by 9% in MN after the minimum wage increases, increased by 10.6% in WI over the same period.
Effects of Minnesota s Minimum Wage Increases: Prices Increased wage costs employers faced have been passed on to consumers through higher prices. Relative price of restaurant food in the Minneapolis fell by 2% in 4 years before the min wage hikes, rose by 6% in 4 years after
Economic Forecasts Recently at CROWE we have constructed an empirical model for the US and WI economies We adapt an approach that was used the Federal Reserve Bank of Minneapolis to forecast the U.S. economy. Our approach uses the relationships among 28 variables: 17 national and 11 at the state level. State-level variables depend on national but not vice versa. We estimate the model and then use it to project over the next two years.
National Forecast: GDP Growth
Wisconsin Forecast: Unemployment Rate
Wisconsin Forecast: Employment
Foxconn Planned investment of up to $10 billion, initial employment of 3,000 increasing to up to 13,000 State subsidies over 15 years tied to scale: 15% of investment, 17% of payroll. At full operation, we estimated 32,000-39,000 total direct and indirect jobs including Foxconn s supply chain and other induced activity Estimated that state subsidy leads to a 13.8X cumulative multiplier for state GDP. Only counting direct output. Even if all output produced by Foxconn except direct labor income went out of state, cumulative multiplier of 3.9 on the state s subsidy costs.
Illinois-Wisconsin Worker flows There were many popular concerns that Foxconn opening would largely benefit Illinois workers. Relatively few workers from Illinois commute to Southeast Wisconsin, more Wisconsin workers go the other way. Expect more WI workers to stay at home, more from IL (and elsewhere) to move here.
Large Plant Openings: Heterogeneity Significant heterogeneity, two examples: - BMW in South Carolina: 1992 promise of 2000 jobs. By 2014 employing over 7600, with estimated 22,000 induced and indirect jobs - Mercedes in Alabama: 1993 promise of 1500 jobs. Within 5 years lost more than 800 supplier jobs Important to develop infrastructure and supply chain within the state to support the investment. Multiplier estimates in the literature range from 1.5 to more than 3. Those most relevant to this case are in the 2.5-3.0 range, which suggests with 13,000 direct jobs, an additional 19,000-26,000 indirect and induced jobs. But much variation on either side of that estimate.
Conclusion Wisconsin economy is strong and we project continued strength, but faces challenges. Economic policy has helped improve the state economy, but more remains to be done. Future work at CROWE will tackle some of these issues. We welcome input and suggestions. Follow us at https://crowe.wisc.edu Hope to see you on October 17 in Madison!