Low Pay in Montana: Lessons from Our Neighboring States

Governor Marc Racicot once was quoted as saying that “living in the Last Best Place should have nothing to do with being dead-last economically.” He was commenting on the fact that when pay is measured in terms of annual pay per job Montana had the lowest pay in the nation. If we measured pay in more familiar terms, say per hour or pay per worker, things would not appear to be quite as bad, but the picture still is not pretty.

It may help us understand our state’s economic position by looking at it in the context of other states in the region. Such comparisons may help us understand whether the problems are unique to Montana and, therefore, likely to be caused by state policies or other features of the state that we might change. Alternatively, such comparisons may suggest that the problem is not associated with Montana itself but is part of a larger regional phenomenon.

Interestingly, the poorest four states in terms of pay per job are all contiguous Great Plains states: Montana, Wyoming, North and South Dakota. To our West, Idaho is the seventh poorest. Elsewhere in the Mountain West, New Mexico and Utah are among the 15 poorest states and none of the Mountain West states has average pay above the national average.

So Montana is at the center of a cluster of the poorest states in the nation, if one trusts this particular measure of economic well-being. This tells us some important things.

Those surrounding states are not known for their strong environmental stances, in fact, states like Wyoming and Idaho have been outspoken in their hostility to environmental regulation. That does not seem to have helped them very much, however, when it comes to average pay. Will Montana’s decade-long effort to weaken its environmental laws be anymore effective at boosting pay?

Tax policies in those states vary considerably too. Wyoming and South Dakota have no income tax. Idaho and North Dakota have property tax rates that are 40 percent below Montana’s. All of these states rely on general sales taxes while Montana has rejected that type of tax. Yet none of these dramatically different approaches to taxation has kept our neighboring states out of the economic basement in terms of pay per job. Is there any reason to believe that dramatic changes in Montana’s taxes would be any more effective in triggering an economic renaissance?

If we vault over Idaho and look at Washington and Oregon there are some interesting lessons to learn there too. There has been spectacular economic growth in the Portland and Seattle areas built around high-tech industry and high wage service jobs. But in both states there is constant talk about “the other Washington” and “the other Oregon,” those parts of the states outside of the Portland and Seattle areas, including the huge regions east of the Cascades. Across the vast majority of these states’ landmass, average pay is very low. As with Montana, commentators regularly say that eastern Washington and Oregon have been “left behind” during the economic expansion of the 1990s.

If one looks more closely at the “other” Washington and Oregon, they begin to look quite familiar. If we calculate economic density for the parts of those states that lie outside of the greater Seattle and Portland areas, one finds that they are as sparsely settled as Idaho and South Dakota, almost as sparsely settled as Montana and Wyoming. And, unsurprisingly, they have the low pay that one finds associated with almost all low-density areas. On the other hand, the Seattle and Portland regions have economic densities similar to California or Illinois and the higher pay that goes with such much more densely settled areas.

We can go at this in a slightly different manner. If one looks at all of the states with unusually low average pay, they all have another characteristic in common, only a minority of their population lives in large urban areas: Vermont, Wyoming, Montana, South Dakota, Maine, Idaho, West Virginia, and Mississippi all are states of small cities and rural area. For the nation as a whole, over 80 percent of the population lives in metropolitan areas; for Montana, Wyoming, and Idaho, it is closer to a 35 percent.

The level of economic density by itself explains fully 90 percent of the variation in average pay among the states. Montana sits right on the correlation line, at the bottom of that line: second lowest economic density, lowest average pay. If “economic density” is “economic destiny,” we had better get used to low pay or figure out how grow big Portland- or Seattle-sized cities under the Big Sky.

Of course, maybe we shouldn’t be wringing our hands at all. Consider the example of the “other” Oregon and “other” Washington again. In the Portland area average pay was 35 percent above that elsewhere in Oregon. Yet net in-migration to the rest of Oregon was greater during the 1990s than into the Portland area. In the Seattle area average pay was almost 50 percent greater than elsewhere in the state, yet net in-migration to the rest of the state was as high as the net in-migration to the Seattle area. People, voting with their feet, were evaluating their overall economic circumstances in these low pay areas as being as good or better than what was found in the high-pay big cities. What does that tell us about what people have to agree to in order to earn big-city wages? The answer to that question may dampen the enthusiasm for building a Portland-sized city in Montana. But, then, the lack of any public advocate for such folly, suggests that we already know why we live in Montana.