Alabama Personal Income

There was a time when folks in Northern states like Michigan thought of Alabama as impoverished and backward: "I heard Mr. Young sing about her, I heard ol' Neil put her down," as Lynyrd Skynyrd sang. Now, Neil Young had excellent reasons to be critical of Alabama back in the early 1970s, before civil rights laws had had much effect in the South. But if experts and political leaders in Michigan take potshots at Alabama today, the words are bound to ring hollow, because Alabama’s economy is poised to overtake Michigan’s in the important task of providing opportunities for workers to find good jobs. Those of us who live and work in Michigan might want to set aside our Northern pride and learn from their example.

If the trend of the last five years holds, a majority of right-to-work states will have higher per capita disposable incomes than Michigan by 2010, at which point Michigan will be the real right-to-work-for-less state.

In the Mackinac Center’s recent report, "The Economic Effect of Right-to-Work Laws: 2007," we described the numerous advantages that right-to-work states like Alabama have over non-right-to-work states, Michigan in particular. A state right-to-work law prevents workers from being forced to pay union dues or fees as a condition of employment, while leaving the rest of the labor law, including collective bargaining, intact. Our research showed that the economies of right-to-work states grew faster and created jobs at more than twice the rate of states that allowed forced unionism. Naturally, with so many jobs being created, right-to-work states had lower unemployment.

The one advantage that non-right-to-work states have held is in incomes. The average per capita personal income for right-to-work states is $2,400 lower than for states that allow forced dues, leading union officials and other forced-union-dues advocates to deride right-to-work as "right-to-work-for-less." But they neglect to mention that right-to-work states have been gaining over the last five years, especially when compared to Michigan. The right-to-work states of Florida, Kansas, Nebraska, Nevada, Texas, Virginia and Wyoming have higher disposable incomes than Michigan today. If the trend of the last five years holds, a majority of right-to-work states will have higher per-capita personal incomes than Michigan by 2010, at which point Michigan will be the real right-to-work-for-less state. Alabama would overtake Michigan in 2011.

Michigan no longer compares well with Alabama, "where the skies are so blue," and where the auto industry is flourishing. While GM and Ford slashed their payrolls, automakers in Alabama were building new plants and creating jobs. According to the U.S. Census Bureau, between 2001 and 2006 employment in auto manufacturing in Alabama more than tripled, and employment in parts manufacturing increased by more than a third.

But it isn’t just cars. According to the Bureau of Labor Statistics, between 2001 and 2006 Alabama added 73,000 jobs, increasing payrolls by 3.9 percent, while Michigan lost 220,000 jobs, a loss of 4.8 percent. Alabama’s unemployment rate averaged 4.7 percent during that period, compared to 6.5 percent in Michigan. In 2001, per-capita disposable income was $4,000 higher in Michigan than in Alabama, but by 2006, that advantage had shrunk to less than $2,000.

We should be prepared to learn from and even emulate Alabama. That means freeing up our workforce with reforms like a right-to-work law. Repeal or reform of Michigan’s strict prevailing wage law, which requires the payment of union wages on state-financed construction, would also be helpful. The prevailing wage adds 10 percent to the cost of construction, adding roughly $250 million to the cost of government. Prevailing wage also costs jobs; Alabama, which does not have a restrictive prevailing wage law, added 5,000 construction jobs between 2001 and 2006, while Michigan lost 26,000.

Finally, we should look at our tax burden. According to the Tax Foundation, state and local governments in Michigan take 11.2 percent of personal income. Reducing the tax burden to Alabama’s 8.8 percent could spur the creation of new businesses that create new jobs. (Note: On Aug. 7, 2008, the Washington, D.C.-based Tax Foundation released its newest State-Local Tax Burden Ranking of the 50 states. This report included a change in the methodology used to compute and rank tax burdens which led to a significant drop in the position Michigan held in Tax Foundation rankings — from 14th to 27th among the 50 states.)

Above all else, if we are going to restore Michigan’s economy, we will need to quit repeating our failures and start emulating successes. Michiganians might have been justified in looking down on Southern states once, but those days are over. When it comes to solving Michigan’s current economic crisis, Sweet Home Alabama is a good place to look for answers.

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Paul Kersey is director of labor policy with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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Summary

Right-to-work states like Alabama are on pace to pass Michigan for per capita disposable income.

Main Text Word Count: 692

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