9/27/99

KUFM / KGPR

T. M. Power

Comparing Montana to Other Mountain West States

The most often discussed negative characteristics of the Montana economy, its unusually low average pay and income, are also characteristics of some of our neighboring states: Idaho and North Dakota join us in the lowest ten average income states and two other western state, Utah and New Mexico, keep us company at the bottom of that low-income economic barrel. South Dakota just misses joining that elite crew and Wyoming and Arizona are not far behind. That is an impressive geographic concentration of low-income status. Could it be that there is something in the drinking water that has infected us all?

There are, however, clear exceptions to this low-income concentration in the western states. Two western states, Colorado and Nevada, are actually in the top ten states in terms of average income, at the very opposite end of the income spectrum from us. And Washington and California are numbers 11 and 12 in terms of average income. So there is also a concentration of western states floating at the top of the barrel. Obviously geography is not fate. Is it possible that Montana and its neighbors could imitate the policies of these high-income western states and move up the relative income ladder?

Part of the answer is provided by looking at one of the most obvious characteristics of the high-income western states, the high percentage of their population living in large urban areas. The top four western states in terms of average income also are the western states with the highest percentage of their population living in metropolitan areas. California leads the group with 97 percent of its population in metro areas. Colorado, Nevada and Washington have 80 percent or more of their populations living in large urban centers. The lowest income western states have the opposite characteristics; they are among the states with the least percentage living in metro areas. Montana is at the bottom of the income and pay barrel but, not unrelated, it is also at the bottom of the barrel in terms of the percentage of its population living in metro areas. Until last year when Missoula was classified as Montana’s third metro area, Missoula was the least metropolitanized state in the nation. With Missoula’s reclassification, Montana rose from the least metro to fifth from the bottom. The states competing with Montana for being least metro are also the states competing with us for the lowest average income: Idaho, North and South Dakota, and New Mexico. With the reclassification of Missoula, three of our neighboring states, Idaho, Wyoming, and South Dakota sank below Montana in terms of the percent of the population living in metropolitan areas.

This relationship between the percentage of the population living in large urban areas and average pay and income is not a coincidence. Six of the highest income states in the nation are also in the top ten in terms of percent metro. Ten of the 15 lowest income states are also among the 15 with the smallest percentage metro. Of the 25 states with the highest incomes, 20 also are in the top half in terms of how metropolitanized they are. Of course, the same is true of the "poorer" half of the states.

It is not surprising that income and pay in our larger urban areas are higher. As more and more people seek to live in a particular geographic areas and more and more economic activity locates there, the price of the land providing convenient access to economic activity rises. More people compete for a limited local commodity, land. Since about three-quarters of regional differences in the cost of living are tied to housing and land costs, not surprisingly, the cost of living is higher in larger urban areas. The higher productivity of firms that benefit from aggregating together in specific areas helps offset this higher cost for producers. But for them to attract and retain the workforce they need, they have to pay wages that compensate for the higher cost of living. Just for that reason alone, one would expect pay and income to be higher in the largest urban areas.

Besides higher cost of living, there may be other disadvantages to living in large urban areas: congestion, commuting time, higher crime rates, pollution, and other metro ills. Workers have to be compensated for these disadvantages of living in large urban areas too.

This relationship between the percentage of the population living in large urban areas and the level of pay and income confronts Montana with a serious conundrum. If we believe the higher incomes in other states represent superior economic well-being, can we obtain those higher incomes without also imitating their large metropolitan style of living? Still worse, if the higher costs of living and the social and environmental decay of dense urban areas are inseparable from the higher incomes, do we want to be pursuing those higher incomes? If, despite the fantasies of some of our political leaders, we cannot enjoy the incomes of large metropolitan areas while living in small towns and rural areas, what choice ought we to make?

It is important to realize that in terms of public economic policy, we may well have to make a choice here. Of course most of us made that choice individually long ago when we decided to continue living in Montana despite the low pay or chose to move to Montana. It is important to remain conscious of that important choice and resist the Pied Piper tunes of those who pretend that such personal choices do not have to be made as they seek to lead us toward the social and environmental decay that goes with big city incomes.