Simple answers hard to find in debate on Montana wages

Medical

Ed Kemmick/Last Best News

To get an idea of how much Montana’s economy has changed, consider this: the number of people employed in the logging industry statewide is close to the number of people working in healthcare just in Billings. Many of them work in the so-called medical corridor, seen here.

Greg Gianforte, a Republican candidate for Montana governor, has been going around the state arguing that Montana ranks 49th in the nation in wages.

Is he right? Well, sure. But one might also argue that in terms of income, Montana ranks 47th—or 44th, or 42nd, or 41st, or 37th, or 35th or 31st. It depends on who is measuring and exactly what is being measured.

The measurers generally agree that wages here ought to be higher. But exactly how well off Montana is, and what it would take to get better, is not so clear.

Gianforte

Greg Gianforte

Gianforte draws his numbers from the Transactional Records Access Clearinghouse, which divides the total wages and salaries paid in the state by the number of tax returns filed. This essentially amounts to a measure of wages per job rather than wages per taxpayer, who may have other sources of income.

Gianforte’s critics, who include many Montana Democrats, argue that the TRAC figure substantially understates the health of the Montana economy. Critics say:

1. Montana ranks second only to South Dakota in terms of business startups, and business income often is not recorded as wages and salaries.

2. Because of the state’s large number of seasonal jobs, Montanans have the shortest work week in the nation. A Montana Department of Labor Study found that when wages per hour are considered, Montana ranks 44th among the states.

3. Montanans, and Westerners in general, are earning a greater share of their money from investments, Social Security, Medicare, Medicaid and welfare than the nation as a whole.

4. Wages tend to be higher in large cities, and Montana is a rural state. When population centers larger than Yellowstone County are excluded, Montanans’ income is comparable to that in the nation as a whole.

5. While wages in Montana may be low, the state’s other attractions more than offset the pay gap, so people are willing to work here for less money.

For details on these criticisms, see the corresponding numbered items at the bottom of this story.

One criticism that does not appear to hold up is the argument that low wages in Montana are at least partly offset by a lower cost of living. Barbara Wagner, chief economist at Montana Department of Labor and Industry’s Research & Analysis Bureau, wrote in May 2015 that the cost of living in Montana is actually slightly higher than in the nation as a whole.

While critics may quibble with Gianforte’s numbers, he is at least addressing the right problem. Montana’s lowest-income workers make about 99 percent of the national average, perhaps because the state’s unemployment rate is so low and because Montana has a minimum wage higher than the federal minimum.

The real wage gap is for college graduates. Montanans over age 25 who have a bachelor’s degree earn 151 percent more than those with just a high school education, Wagner found. In the nation as a whole, degree holders earn 183 percent of what high school diploma holders earn. Montanans in the 90th percentile of wage earners make more than $9,000 less than the national average.

Wagner

Barbara Wagner

In Yellowstone County in 2014, workers with a bachelor’s degree earned a median wage of $42,650 while high school graduates earned $26,355. In the United States as a whole, those with bachelor’s degrees earned $50,515; high school graduates earned $27,868.

Gianforte’s focus has been on attracting more high-paying jobs to Montana, in part by luring back native Montanans who once left the state for better pay. With modern technology, he argues, many of those jobs can now be performed here, and native Montanans long to return to their home state as they get older and build families.

But in a future installment of the Montana Ethic Project video series, which is appearing weekly at Last Best News, Patrick Barkey, director of the Bureau of Business and Economic Research at the University of Montana, says that Montana has the lowest state support for higher education of any state, a statistic inconsistent with teaching the specialized skills required for high-paying jobs.

Gianforte has said he would cut taxes and focus higher education more on job training, perhaps through tax credits for businesses that offer apprenticeships.

Montana Democrats argue that Montana already has a favorable tax environment. State Rep. Kelly McCarthy, D-Billings, cited statistics from WalletHub showing that Montana has an effective state and local tax rate 35 percent below the national average—third best in the nation.

McCarthy also forwarded a spreadsheet he put together himself based on U.S. census data showing Montana 41st among the states in income.

Kelly McCarthy

Kelly McCarthy

“This should also be factored into the kind of talent that we attract to Montana,” he added. “Most people don’t come here for high wages … . We’re here for quality of life. My bonus check is the fly fishing, mountain trails, skiing and mountain bike opportunities.”

Thomas Power, professor emeritus of economics at the University of Montana, sounds a similar theme in his Montana Ethic Project video: “Nobody brought us here, forced us to come here, we aren’t trapped here, it’s not that we’re ignorant about the fact that pay is higher elsewhere, we have made a choice. And we need to be conscious about the fact that it is a good choice.”

In his campaign announcement, Gianforte also cited a loss of logging jobs for Montana’s low wages. But timber jobs are a fairly small part of the Montana economy, just 6,530 workers in 2011, according to BBER. In 2014, Billings alone employed nearly that many workers just in healthcare, according to the U.S. Bureau of Labor Statistics.

Whatever Montana’s rank among the states, wages here remain inadequate, according to some analyses. The Alliance for a Just Society, which does an annual study, found that half of Montana job openings pay less than a living wage for a single adult, which it pegs at $14.40 an hour.

There are six job seekers for each of those openings, the Job Gap Economic Prosperity Series for 2015-2016 found. For a single adult with two children, the study found, 82 percent of Montana jobs don’t pay a living wage.

But there is some evidence that things are getting better. Wages in Montana dropped from 32nd in the nation in 1978 to 47th in 2013, according to the Quarterly Census of Employment and Wages. But Wagner, the Department of Labor economist, said that Montana had the fifth-fastest wage growth in the country from 2005 to 2013.

Another DOL study found evidence that those workers in the lowest-wage jobs also are moving up to better-paying jobs, although it acknowledged that numbers are difficult to pin down. Long-term low-wage workers saw their pay increase 6 percent above inflation from 2008 to 2012, faster than the industry average.US-MT wages

And a University of Montana BBER study of the state’s high-tech industry last year found that it will grow eight to 10 times faster than the projected statewide growth rate, with average wages at about $50,000—twice the median earnings per Montana worker.

Those are exactly the kind of jobs Gianforte says he wants the state to get. If that happens, then the whole debate about low wages might just go away.

Notes:
1. According to David Parker, a political scientist at Montana State University Bozeman, Montana ranked 38th in the nation in per-capita household income in 2014 and 34th in per-capita income. He argues that the TRAC methodology fails to take into account people who file income tax returns but have no income from wages because their money comes from retirement or investments, or because they are students or have capital gains.

TRAC’s figures for adjusted gross income, which include total wages and salaries, gross dividends, total interest income, and gross rents and royalties, ranked Montana 42nd among the states in 2014.

2. This information comes from Barbara Wagner, chief economist at the Montana Department of Labor.

Montana’s wage picture may also be distorted by its largest industry, which is agriculture. Montana has 27,800 farms and ranches, down from 45,000 a hundred years ago, according to Montana Agricultural Statistics for 2015.

According to the Montana Stockgrowers Association, the average annual net farm income in Montana is $41,855. But income is unpredictable and varies widely from farm to farm, depending on size. Farmers also often have income from other sources, such as outside jobs.

Agriculture also is heavily subsidized by the government. Montana had $7.1 billion in farm subsidies from 1995 to 2014, according to the Environmental Working Group.

3. According to Headwaters Economics in Bozeman, 60 percent of the growth in personal income in the West over the last decade has been from non-labor income, which includes income from investments (including the stock market), payments associated with aging such as Social Security and Medicare, and payments due to economic hardship, such as welfare and Medicaid.

For the United States as a whole, 54 percent of the growth in personal income over the last decade has been from non-labor income. Yellowstone County residents got nearly 35 percent of their income that way in 2011.

4. This comes from Ray Rasker, executive director of Headwaters Economics. He told the Associated Press last year, “What drives up the wages in most states are the higher-paying jobs in the cities. We don’t have a Denver, or a Seattle or a Phoenix. We just don’t have a big metropolis.”

5. Montana’s “scenery tax” has been widely discussed, including in this story, but rarely with precise numbers attached. The University of Montana’s Patrick Barkey said it amounts at most to pennies on the dollar.

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