Michigan residents below average in 'real' income

New federal statistics that adjust personal income by the real cost of living in different cities or regions show Michigan is losing ground to other states.

Michigan’s “real per capita income” in the new measure was $38,317 in 2012, the most recent year available. That’s up 1.5 percent from $37,751 in 2011 with Michigan’s growth rate matching the national rate.

Despite the rise, the state’s ranking fell from 38th in 2011 to 39th in 2012 in terms of how far a paycheck will stretch in Michigan, just below Georgia. Michigan’s per capita income, and income growth also was the lowest among Great Lakes states in 2012.

“It doesn’t change the fundamental picture,” Michigan State University economist Charles Ballard said of the data, put out by the U.S. Bureau of Economic Analysis (BEA). “The fundamental picture now is that we are a somewhat-below-average income state.”

Within Michigan, real per capita incomes in the Midland, Detroit, Ann Arbor and Benton Harbor metro areas exceeded that of the state.

Ballard and other experts say adjusting incomes for living costs in different regions and metropolitan areas gives economists, residents and businesses a better idea of how much money it takes to support a family in different areas.

“For the first time, Americans looking to move or take a job anywhere in the country can compare inflation-adjusted incomes across states and metropolitan areas to better understand how their personal income may be affected by a job change or move,” U.S. Commerce Secretary Penny Pritzker said in a statement.

And businesses considering relocating or building new plants “now have a comprehensive and consistent measure of differences in the cost of living and the purchasing power of consumers nationwide,” she said.

Regional differences

The BEA analysis uses what it called “regional price parities” to account for regional differences in the prices of goods and services, along with a second measure, a Personal Consumption Expenditure index, which measures national price changes over time.

Michigan had an RPP of 94.4 in 2012, meaning that living costs in the state were 5.6 percent lower than the United States as a whole. The state ranked 28th in living costs in 2012.

The prices of goods and services in Michigan were roughly 3 percentage points above the state’s overall RPP, but rents were significantly lower – 7.6 percentage points below the U.S. average in 2012.

“I think this idea that you need to make an adjustment for cost-of-living differences is really important,” said University of Michigan economist Don Grimes.

While states such as California, Massachusetts and New York boast among the highest personal incomes in the country, living costs can eat up a big chunk of those higher paychecks.

Personal per capita income in California, for example, in 2012 was $46,477. But after adjusting for living costs, income there fell to $38,888, just $571 above Michigan’s personal income.

Michigan’s per capita income – that is, total personal income in the state divided by population – rose slightly after adjusting for inflation and the cost of living, from $38,291, to $38,317 in 2012.

The BEA also calculated real personal income for the nation’s 381 metropolitan areas, including 14 in Michigan. NPR has a fun graphic to explore how most metro areas fared.

The Ann Arbor, Detroit, Midland and Niles-Benton Harbor metro areas exceeded the state average in real per capita income in 2012. Income in the Grand Rapids-Wyoming metro area was just slightly below the state average at $38,293.

The rest of the state’s metro areas had incomes below the state average in 2012. But a strong manufacturing recovery boosted income growth rates above the state average in most of the metro areas.

Mixed results

Real personal income growth fell below the state average in Niles-Benton Harbor, Jackson, Kalamazoo-Portage, Lansing-East Lansing and Midland. Incomes in Lansing-East Lansing and Midland actually dropped slightly in 2012, as wages failed to keep up with living costs.

Local economic developers say they’re studying the new data, released in April, to determine how they might use it to attract new businesses and residents. Several said because the statistics are so new, it will take time to know how effective the data will be for them.

“Any tools that help us attract businesses and talent is certainly something we’re going to take a look at,” said Greg LaMarr, a spokesman at Saginaw Future, a local economic development agency.

Economic developers have long known that living costs across regions drive business and talent location decisions. But comparing those costs by state and metropolitan regions hasn’t always been easy.

Now developers have an authoritative source to point to in seeking business investment and workers, LaMarr said.

Why people move

But economists warn that these statistics are only one factor among many that drive how people and businesses make moving decisions. People decide where they want to live and businesses choose where they want to locate for a variety of reasons that go well beyond the cost of living, they say.

“For example, in making household location decisions, a high quality of life might easily offset low real wages, and in making business location decisions, high worker productivity due to good schools or other factors might offset high wages and prices,” Tim Bartik, senior economist at the W.E. Upjohn Institute for Employment Research, wrote in an email.

Ballard said a software engineer who has been offered a job at Google in California likely would find it attractive, even though Silicon Valley has one of the highest living costs in the country.

“Why would anyone consider moving to San Jose? Ballard said. “It’s the world capital of high-tech research and production.”

Young, college-educated “millennials”—the ones Michigan is trying to attract and retain—are flocking to cities such as Chicago, New York and San Francisco, even though it costs far more to live in those places than in Detroit, Grand Rapids and Lansing.

Weather, family, recreational opportunities and other quality of life issues also play a large role in where people decide to live, economists say.

“If it was just driven by wages, everybody would move to Connecticut and Massachusetts,” Grimes said.

Those two states rank third and fifth, respectively, in real personal income.

Southern states have touted their lower living costs and less regulation as offsets to generally lower incomes than other parts of the country in attracting businesses.

For instance, real per capita income in Alabama of $38,530 in 2012 slightly exceeded Michigan’s per person income of $38,317. But Alabama had the third-lowest cost of living in the country in 2012, 6.3 percentage points below Michigan’s living costs.

Alabama’s low cost of living added $2,604 to its real per capita income in 2012, according to the BEA data.

Economists say just knowing what incomes and living costs are across the country might not have much impact on upward mobility, an important economic growth factor that has lagged since the Great Recession.

“If you’re in a low-income place and your house doesn’t appreciate, you really can’t go up,” Grimes said. “If you have a house that’s worth $100,000, you’re never going to get to Manhattan.”

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Tue, 06/03/2014 - 8:27am
Millenials are not the only ones to move from Michigan. Seniors are also leaving. But the seniors are not picking the trendy cities to live in. They are looking for lower taxes and comfort as in weathere. Michigan for seniors is among the top five higherst cost places to live. The new tax on pensions for those under age 67 when the law took affect has promted many to choose an alternative residency even if they do not move full time. It is more than just income tax,. Fuel tax, property tax. etc etc and it all piles up. There are many warm climate states that have no income tax.
Wed, 06/04/2014 - 9:57am
We hear a lot about the brain drain of young college graduates but I would be interested in hearing more about how many seniors are leaving the state for economic or other reasons. This would be a good topic for Bridgemi to explore in depth.
Sun, 10/26/2014 - 1:15pm
Have been pondering taking up residency in Texas. Would just summer here and Winter with the grand Kids. Do not know the true cost or savings of doing this but would be interesting to know?
Tue, 06/03/2014 - 8:52am
You fail to mention our crime ridden cities. Michigan continues to rank among the worst States in the U.S. when it comes to Public Safety.
Tue, 06/03/2014 - 9:35am
Great article and thought provoking for those seeking to stimulate economic development!
Tue, 06/03/2014 - 9:48am
Taxes and fees continue to climb in East Lansing. Rental income is flat. Michigan is #8 in the top 10 most corrupt states in the USA. The stratification between the corporate elites and the poor is out of sync with the rest of the world. It is a shame the attitudes blame the poor with the Horatio Alger myth.
Jeff Salisbury
Tue, 06/03/2014 - 10:10am
Must be just about time for another round of business tax cuts.
Mary Ellen
Tue, 06/03/2014 - 10:20am
Actually, per census figures, Seniors are the fastest growing population in Michigan and an increasing % of the total population. In some counties, the Sixty Plus outnumber the K-12 population.
Mrs A
Tue, 06/03/2014 - 11:56am
Holy cow! Michigan is now down in Georgia-Arkansas-Kentucky territory! See what happens when "Right To Work" thinking demolishes the UAW?
Tue, 06/03/2014 - 9:23pm
Oh come on. It was just implemented last year? Takes a little time to get the ball rolling.
You're dumb
Sat, 06/07/2014 - 10:26am
Yep... I bet North Dakota has sone super strong unions..... that right to work thing is at fault. Yep. That's it. Answer to all our problems. Lol
Tue, 06/03/2014 - 12:38pm
We can be certain that this article just scratches the surface but it's a perfect example of the dangers in statistics, economics, and the assignment of causation, blame or credit.
David Zeman
Tue, 06/03/2014 - 3:45pm
How so, Matt? David Zeman Editor Bridge Magazine
Tue, 06/03/2014 - 6:08pm
There are many ways that these data are skewed, For example Virginia is thrown off because of its proximity to Washington DC, When you leave that very small area of Virginia you get a very different picture. Similar with Connecticut and New York, I lived in Connecticut and know it. Housing costs are very difficult to compare especially when you take in qualitative differences in homes from place to place. Not only do they cost less here but you get vastly more for your money. Costs of living are very hard to compare because you just simply can't live the same way in different places, so comparing a similar basket of goods and services doesn't give nearly a complete picture. I and most people here in my area have a 10 minute or so commute, what's that worth? I doubt these finer points are apparent to anyone without actually living in each place being compared, therefore impossible to really gauge from any study's perspective. The income stats shown are just a snapshot in time of state's economy that has gone through a monster transition in a nation going through slow growth and a transition of it's own, not that it is false but how much value is there really in it? Energy and agribusiness have been exceptionally strong in recent years which skews other state's standings, not that they are necessarily doing something right and we wrong. I think that much of these stats tend to underestimate the quality of life we have here in Michigan verses other locales and I suspect that most people across the country would tend to say the same thing regarding their place. Thanks.
Fri, 06/06/2014 - 9:04pm
This data is interesting but skews the reasons for other states boom or bust. North Dakota for example is experiencing an energy boom from natural gas and therefore is at the top of the list. But who wants to live in Bismark North Dakota? I would think this would represent a significant business opportunity in Michigan for business relocation. We have a beautiful state, the wages are competitive now, and the standard of affordability could not be more attractive.