Michigan Plummets in Economic Outlook Rankings Among States

There is troubling news for Michigan’s economy, according to the American Legislative Exchange Council’s annual “Rich States, Poor States” state competitiveness index. The index ranks states on both economic performance in the past and the outlook for the future.

In the 2015 index Michigan experienced the worst decline of any state on economic outlook, dropping 12 places to No. 24. The index is based on 15 state policy variables found to be important indicators of where a state is heading economically. The factors include eight measures of taxation plus measures of state debt, government employment, minimum wage mandates and right-to-work status.

The economic performance ranking, meanwhile, incorporates state domestic product, domestic migration, and nonfarm payroll employment changes from 2004 through 2013. Michigan’s overall rank in this category is 50th among the states, the same as the previous year. ALEC calls this a “backward-looking” index because it measures performance over the preceding 10 years, which in Michigan's case still includes a good portion of its “lost decade” of the 2000s. Unless the state experiences a sudden economic reversal it is likely that this ranking will begin to improve going forward.

In 2009, Michigan’s outlook ranking hit an all-time low of 34th place. It improved to 26th in 2010, 25th in 2011 and 17th place in 2012. The state dipped back to 20th place in 2013 but then leapt to 12th best in 2014. Then, in the past year it has fallen to 24th place. Why such dramatic movement from one year to the next?

The improvement in economic outlook to No. 12 was largely a result of Michigan becoming a right-to-work state in 2013. The drop since last year can be attributed to two events: Increasing the state’s minimum wage to $8.15 per hour as of next Sept. 1 (rising to $9.25 in 2018), and recently legislated tax changes (in 2013 and 2014) that increased the tax burden by 66 cents per $1,000 of personal income, compared to a 72-cent decline in the previous report.

These indexes provide insights into which places constrict economic liberty the least, a key component of nations’ and states’ economic well-being. The public and policymakers should not ignore the potential consequences of losing ground in these comparisons.