10/12/98
KUFM / KGPR
T. M. Power
Why Is Pay per Job So Low in Montana?
There is no disputing the fact that the pay associated with jobs in Montana is unusually low compared to the rest of the nation. That fact has become a theme in most of the public dialogue about the changes that have been taking place in the Montana economy. The Governor’s recent economic development proposals have targeted this negative Montana characteristic; recent discussion of hunger and poverty in Montana have also emphasized low pay. The political debate accompanying the approaching elections have generated considerable debate over what can be done about low pay in Montana.
As boring and tedious as it is, it may be useful to look at the quantitative facts surrounding Montana’s low pay before making proposals about how to cure the problem. Although one "big" fact is more useful for sound bites and dramatic impact, that approach mixes a lot of different facts together in a way that confuses more than it clarifies.
The one "big" fact is that in Montana pay per job is 31 percent below the national average. That is a big gap any way you look at it, big enough to give Montana the unwanted distinction of being at the bottom of the national barrel. There are five distinct characteristics of the Montana economy that combine to create this 31 percent gap in pay per job. Let’s look at each of them.
About 3/8ths of the gap is explained in the lower hourly wages paid in Montana after we adjust for the education, occupation, and industry in which Montanans work. That is, if we give Montana the same mix of workers and jobs that typify the rest of the national economy, one finds that Montanans are paid ten to twelve percent less per hour. That, not 31 percent, is the "discount" we pay to live in Montana.
The particular characteristics of Montana’s workers and jobs explain another 1/8th of the gap, or 4 percentage points. Included in this is the mix of jobs found in Montana. That mix of jobs is usually pointed to as the main culprit in driving wages down in Montana, but it actually pays a relatively modest role. If, for instance, we had been able to block the loss of jobs since the mid-70s in metal mining, smelting, forest products, and railroads, only about ten percent of the decline in pay per job would have been avoided.
Montanans work fewer hours per week than workers elsewhere in the nation. This explains almost another 1/8th of the gap. Those who regularly work part-time in Montana clearly indicate that they do so primarily because of other obligations and priorities such as raising families, going to school, and working on other jobs. Only about ten percent say that they are working part-time because that was the only type of job they could find.
Montanans also work fewer weeks per year. That is, more Montanans hold jobs that have a significant seasonal element to them. This explains another 1/8th of the gap. Those industries that historically have been looked at as the state’s economic base also have strong seasonal swings: agriculture, mining, and wood products. Other high paid sectors also swing seasonally, construction and federal government being the most important. Finally, an expanding new industry, tourism and recreation, is also seasonal. Assumedly, we do not want to get rid of any of these economic activities just because they have a seasonal element to them. Public policy is also unlikely to get rid of the seasonal changes in weather that drive many of the seasonal fluctuations in employment.
These four characteristics of the Montana economy explain about three-quarters of the gap in pay per job. The remaining gap is the difference between pay per job and pay per worker. More Montanans hold multiple jobs than any other state in the union. This shouldn’t be entirely surprising because more Montanans hold part-time jobs, allowing them to take on another part time job. Each job has low pay, but the combination of the two jobs brings pay per worker much closer to the national average. Farm family members are one of the group of workers most likely to hold more than one job. The self-employed are too. Montana has an unusually large percentage of its jobs in self-employment, over a quarter. That is the figure one gets when one counts jobs. When one asks workers what their principle job is, only half that number report self-employment. That suggests that half of self-employment jobs and an eighth of all jobs are secondary jobs and part-time in character. One could raise average pay per job by adopting public policies that prevented people from creating part-time work for themselves by starting their own businesses, but this would reduce pay per worker along with family income besides undermining the entrepreneurial character of the Montana economy.
Just which of these characteristics of the Montana economy should public policy seek to change? People choosing part-time work? The seasonal nature of many important Montana industries? Montana weather? People starting their own part time businesses?
The only obvious target is the lower pay per hour which explains only about half of the gap. The common proposal is that we should attract more high wage employers to the state. This assumes that new employers will pay more than they have to in order to get the workers they want and ignores the fact that new employers are likely to come to Montana because wages are lower. In addition, it assumes that new employers will pay higher wages to Montana workers no matter what the characteristics of those workers are: Current minimum wage workers are assumed to be able to jump wholesale into jobs that pay several times the minimum wage. These are interesting hypotheses that appear to be primarily supported by wishful thinking. But, hey, this is the political season and fanciful proposals add color and heat to the verbal posturing that is the primary output of this particular seasonal industry.