2/28/2000

KUFM / KGPR

T. M. Power

Job Creation and Economic Well Being

Debates over economic development in Montana continue to dominate the political news. The conventional wisdom, which has blossomed into nearly a political consensus, is that the Montana economy is lagging and something dramatic must be done to jump-start it. Conservative Republicans have not only jumped on the bandwagon but seek to lead the political intervention into the economy, something conservatives usually believe the government should stay clear of.

Often the debate focuses on job creation: What can the government do to accelerate the expansion of economic opportunity in the state. What is puzzling about these public efforts is that there has been no shortage of job creation in the Montana over the last decade. Each year between ten and twenty thousand new jobs have been created without any government intervention. Many of these new jobs have also been well-paid jobs. Despite a job growth rate that has often been above the national average, real pay in Montana has not increased significantly leaving Montana well behind the rest of the nation. Despite this uninspiring record of substantial job growth not boosting real pay, some of our political and business leaders call for more of the same as a solution to low pay in Montana.

Consider the Flathead economy. Recently the Kalispell city council offered several million dollars of public money to a footloose business that promised to create 500 jobs with starting pay at $7.50 an hour. During most of the 90s the Flathead economy added between 2,000 and 3,000 jobs a year. About a third of those jobs were in relatively high paid industries, those paying $15 per hour or $30,000 a year or more. Yet, despite this rapid employment growth, including high paid employment growth, annual real pay did not increase, the pay gap relative to the national average deteriorated, and the unemployment rate remained well above average.

This outcome of job creation not doing anything to boost average pay or relative income should not be surprising. As we have created more jobs, more people have moved into Montana to take those jobs. Because there has been a reservoir of people who would like to live in Montana and are willing to accept jobs here despite the relative low pay, job creation simply increases the number of poorly paid workers rather than increasing pay.

Why then does the drum beat to generate still more jobs even if it requires state and local government to subsidize that job creation continue? One explanation is that we are confusing economic policies that may well work at the national level but which are inappropriate for local economies. The big difference between the national and local economies is that our national immigration policies act to control the number of people seeking work within the nation; our national economy is partially close to outsiders moving in. But at the local level, our federal constitution forbids states from trying to exercise that type of population control. Any American who wants to is free to move to Montana and try to live here. Our economy is open to all comers. As a result, when new economic opportunities are created, we tend to attract new workers and new residents. If Montana were not perceived to be an attractive place to live, there might not be very many people willing to move here to compete for the new jobs that are created. With a relatively limited workforce, the new jobs might bid up pay levels. But that is not the case. Economic policies that might work at the national level to boost pay are unlikely to work at the local level. In fact, of course, they have not worked in Montana or the Flathead over the last decade to boost pay.

Our business leaders, however, may not simply be confused about what policies will work to boost pay at the local level. They may not actually be very interested in boosting average pay. They may, instead, be interested in boosting the value of the property they own. Pure quantitative growth in the number of people, number of jobs, and total income circulating within the local economy may well boost the value of fixed assets like conveniently located real estate, existing local business, etc. Although most of the rest of us may not be made better off by this type of quantitative expansion of the economy, real estate and business values may rise significantly. While most of us may be made worse off because we continue to see low pay but face increased congestion and a higher cost of living, many local businesses may see a steadily improving bottom line. For that reason, the local business community may promote subsidized job creation, even when it does nothing to boost average pay. The “public interest” in doing something about low pay is simply used as an excuse for policies that boost one segment of the population’s wealth. The public interest is used as a screen to obscure the private interests that our public economic development policies are actually serving.

Whether it is confusion or greed or some combination of the two, the public has to get much more critical about the economic development policies being adopted in their name and paid out of their pockets. Montana has a decade of experience showing that job creation, subsidized or otherwise, does not boost real pay. Let’s stop allowing our low pay to be used as an excuse to spend our own dollars to line someone else’s pockets.