The Current Economy and Future Trends

Terry Ludeman

November 19, 2009

9,0% 8,0%

Wisconsin’s Unemployment Rates

Actual and Projected

8,3% 8,9% 7,5% 7,0% 6,2% 6,0% 5,0% 4,3% 5,3% 5,2% 4,5% 4,3% 4,0% 3,7% 3,6% 3,5% 3,3% 3,1% 3,4% 4,4% 5,3% 5,6% 5,0% 4,8% 4,7% 4,9% 5,0% 3,0% 5,1% 4,7% 4,2% 2,0% 1,0% 0,0%

Some Things You May Not Wish To Know About Wisconsin

•

Wisconsin is a low wage state.

•

Wisconsin has low productivity per worker.

•

Wisconsin has low post secondary educational attainment.

•

Wisconsin is growing slowly compared to U.S.

•

Wisconsin is one of fastest aging states.

Wisconsin is a Low Wage State

•

Our average wage is about $38,100 per job, per year.

•

We rank 32nd in wages per job.

•

The national average is about $44,600.

•

Minnesota ranks 14th, at $44,400, Illinois ranks 8 th at $47,700.

– In the late 1970s we had higher wages than Minnesota.

Wisconsin has Low Productivity Per Worker

•

Wisconsin’s Gross State Product (GSP) per job was $81,954 in 2007.

•

National average Gross State Product was $99,051.

•

Delaware was the highest with $137,333.

•

Wisconsin ranked 39th in productivity per job.

Wisconsin has Low Productivity Per Worker

• • • •

Wisconsin’s Gross State Product (GSP) per job was $81,954 in 2007.

National average Gross State Product was $99,051.

Delaware with the highest was $137,333.

Wisconsin ranked 39 th in productivity per job.

•

If Wisconsin was at the national average, we would increase our Gross State Product by $50 billion. That’s $9,300 per person in the state!

Wisconsin’s has Low Post-Secondary Educational Attainment

• • • • •

We rank 31 st attainment.

in post secondary educational We rank 30 th in baccalaureate level degrees.

We rank 36 th in masters or higher attainment.

We rank 9 th in associate’s degrees.

We rank 11 th in students majoring in science and engineering per population. 44 th in science and engineering majors in work force.

Wisconsin is growing slowly compared to the US.

•

We rank 30 th in growth.

•

Natural growth is particularly slow, in migration growth is not fast.

•

Our growth is about 60 percent as fast as the United States, at large.

•

Our present growth is likely to slow.

Wisconsin is one of the fastest aging states

•

The state’s baby-boom cohort is unusually large.

•

Almost 31 percent of Wisconsin’s population are baby-boomers, decreasing, but slowly.

•

Nationally, about 27 percent of population are baby-boomers, but decreasing rapidly.

The Demand Side Of the Labor Equation

•

Three factors affecting the demand for workers: 1. The number of jobs has continued to grow, until now; 2. The demand for replacement workers is expanding; 3. The aging population needs more and more services.

3 500 000

The number of jobs has continued to grow, until now

Nonfarm Jobs

3 000 000 2 500 000 2 000 000 1 500 000 1 000 000 500 000 -

Wisconsin Nonfarm Wage & Salary Jobs

• • • •

Although we have been adding an average of 36,000 jobs per year, that growth will stop for the next few years. There will likely be a loss in total jobs in 2009 and again in 2010.

There will be a few industries that will not be hit as hard as others, particularly health care.

“Smart companies” will find ways to hold on to “smart workers”.

Watch the economic recovery plans!

90000 80000 70000 60000 50000 40000 30000 20000 10000 0

Wisconsin Residents Turning 65 Years Old

Wisconsin Residents Turning 65 Years Old

•

We don’t know how the wealth effect will play out in retirement plans.

•

Workers have been retiring earlier than 65, but plans will change somewhat.

•

Older workers who lose their jobs may not return to the job market, but older workers who don’t lose their jobs will likely stay on longer.

Demand Is Strongest Where Supply Is Weakest

1. Much of the older population lives in more remote areas.

2. Much of the tourist industry is in remote areas.

3. Manufacturing in Wisconsin tends to be in rural areas.

The Supply Side Of the Labor Equation

Five Factors Affecting Supply of Workers: 1.

2.

3.

4.

5.

The number of entry level workers is diminishing; There will be little increase from increased female participation; There is a sizeable commuting net loss; The brain drain is real; Wisconsin is low in net gain from migration.

Wisconsin Births

1940 to Present 55 000 82 300 97 200 77 200 72 500 72 300 69 289 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

United States Births

1940 to Present 2 559 000 3 632 000 4 257 850 3 731 386 3 612 258 4 179 000 4 058 814

Female Labor Force Participation

•

Wisconsin is at the top or very nearly at the top of states per female labor force participation rates.

•

Approximately 72% of females 16 years old and older participate in the labor force in Wisconsin.

•

Approximately 65% of females 16 years old and older participate in the labor force in U.S.

Wisconsin has a strongly negative state-to-state commuting ratio

•

Approximately 120,000 workers along Wisconsin borders cross state lines to work.

•

100,000 or those workers live in Wisconsin and leave the state to work. About 20,000 live in neighboring states and come into Wisconsin for work.

•

Wisconsin borders Illinois, Iowa, Michigan and Minnesota. The ratio is positive only for Iowa.

The Legendary Brain Drain is Real

Indiana Fiscal Policy Institute Net Migration 122,4% 112,0% 103,1% 99,4% 98,2% 85,9% 75,9% 67,3%

Indiana Illinois Michigan Ohio Wisconsin Kentucky North Carolina U. S. Average

The Legendary Brain Drain is Real

Indiana Fiscal Policy Institute Retention 81,6% 79,6% 80,2% 74,8% 71,3% 69,1% 61,6% 57,8%

Indiana Illinois Michigan Ohio Wisconsin Kentucky North Carolina U. S. Average

States

Minnesota

The Legendary Brain Drain is Real

Minneapolis Federal Reserve 1989 College Graduates 1999 College Graduates Ad’l College Graduates 1989 to 1999 Additional Graduates From State Gain/Loss

577,920 953,920 376,000 234,945 141,055 Montana North Dakota South Dakota Wisconsin Minn Fed Res District 106,977 89,244 79,672 571,725 1,425,538 134,160 89,200 110,848 790,600 2,078,728 27,183 (44) 31,176 218,875 653,190 42,976 (15,793) 45,072 (45,116) 40,669 (9,493) 269,647 (50,772) 633,309 19,881

MSAs That Attract College Graduates

City 1. Atlanta 2. Denver 3. San Francisco 4. Seattle 5. Dallas 6. Phoenix 7. Minneapolis 8. Washington, D.C.

City 9. San Diego 10. Houston 11. Chicago 12. Los Angeles 13. Tampa 14. Miami 15. New York 16. Boston

Migration Into Wisconsin Has Lagged

•

Approximately 12 percent of United States resident population is foreign-born. Highest level since 1920s.

•

Approximately 4.2 percent of Wisconsin resident population is foreign-born.

•

Some in migration from neighboring states, i.e. Illinois and Minnesota. (Kenosha and Walworth, and St. Croix and Pierce counties)

A Word of Caution

•

The economy is transitioning from traditional to new.

•

Recessions speed transitions

•

Economies will continue to be transformed!

•

It is a major mistake when economic development officials ignore or dismiss the structural changes that are being generated by the New Economy.

What is the New Economy?

• • • • • •

The New Economy is

knowledge driven

.

The New Economy is

global

.

The New Economy is

entrepreneurial

.

The New Economy is

technology

.

rooted

in

information

The New Economy is defined by

innovation

.

The New Economy is

volatile

.

What is Knowledge Activity?

•

The intangible ability to use existing facts and understandings to generate new ideas.

•

Knowledge is embedded in the education, experience, and ingenuity of the wielder of knowledge.

•

Knowledge is the ability to use what you have learned.

•

Knowledge is the value-added component of the market.

New and Old Economies

Issue Markets Scope of competition Organizational form Production system Key factor of production Key technology driver Competitive advantage Relations between firms Skills Workforce Nature of employment State New Economy Old Stable National Hierarchical Mass production Capital/labor Mechanization Economies of scale Go it alone Job-specific Organization Man Secure Index New Dynamic Global Networked Flexible production Innovation/ideas Digitization Innovation/quality Collaborative Broad and changing “Intrapreneur” Risky Kauffman Foundation

Knowledge, Productivity, & Income

•

Although education is the great predictor of wages and income, the real cause is productivity.

•

Knowledge, by enabling innovation and creativity, provides the mystic value-added to the product or service. Knowledge supercharges goods and services.

•

Find states with high educational attainment and you’ll usually find high productivity and high wages.

Wages, Education, Knowledge Knowledge Rich Economies California Colorado Connecticut Delaware District of Columbia Illinois Wage Rich Economies Alaska California Colorado Connecticut Delaware District of Columbia Illinois Education Rich States California Colorado Connecticut District of Columbia Maryland Massachusetts Minnesota New Hampshire New Jersey New York Rhode Island Maryland Massachusetts Michigan Minnesota New Hampshire New Jersey New York Kansas Maryland Massachusetts Minnesota New Hampshire New Jersey New York Virginia Washington Virginia Washington Utah Vermont Virginia Washington

Productivity Comparisons

•

The top 12 states averaged $119,119 in GSP per job in 2007.

•

The bottom 20 states averaged $80,909. That’s a difference of $38,210 per job!

•

Had the bottom 20 states matched the national average, they would have generated an additional $17,777 per job.

•

That’s $29.4 billion per state!

MSAs That Attract College Graduates

City Atlanta Denver San Francisco Seattle Dallas Phoenix Minneapolis Washington, D.C.

City San Diego Houston Chicago Los Angeles Tampa Miami New York Boston

Metro Area Las Vegas, NV Raleigh, NC Phoenix, AZ Austin, TX Riverside, CA Atlanta, GA Charlotte, NC Orlando, FL Houston, TX Dallas, TX

Super Metros

2007 Population 1,836,333 1,047,629 4,179,427 1,598,161 4,081,371 5,278,904 1,651,568 2,032,496 5,628,101 6,145,037 Percent Growth 31.8% 30.2% 27.5% 26.3% 24.5% 23.3% 23.2% 22.7% 18.7% 18.2%

Mid-size Dynamic Metros

Greeley, CO Cape Coral, FL Provo, UT Metro Area Myrtle Beach, SC Boise City, ID Ocala, FL Port Lucie, FL Fayetteville, AK Naples, FL McAllen, TX Wilmington, NC Laredo, TX Bakersfield, CA 2007 Population 243,750 590,564 493,306 249,925 587,689 324,857 400,121 435,714 315,839 710,514 339,511 233,152 790,710 Percent Change 33.2% 33.0% 29.8% 22.1% 25.3% 24.8% 24.8% 24.6% 24.3% 23.9% 23.1% 19.8% 19.2%

Smaller Dynamic Metros

Palm Coast, FL Metro Area St. George, UT Bend, OR Gainesville, GA Prescott, AZ Lake Havasu City, AZ Coeur d’Alene, ID Sioux Falls, SD 2007 Population 88,397 133,791 154,028 180,715 212,635 194,944 134,442 227,171 Percent Change 74.8% 46.6% 32.1% 27.9% 25.9% 24.8% 22.7% 20.6%

An Awakening

•

A widening disparity between wealthier and poorer U.S. citizens has been noted.

•

The pool of poorer U.S. citizens is expanding, while the pool of wealthy U.S. citizens is contracting.

•

This widening disparity will fuel a growing discontent and despair within the poorer community.

• • •

A Transition, Economic to Demographic

A global economy, where markets transcend and ignore national borders, diminishes and erodes the power and influence of the nation state.

Nations and states have two choices; 1. A broad distribution of education and wealth, or 2. A broad distribution of ignorance and poverty.

Minority populations, which are not wholly participating in the New Economy, will cost states somewhere down the line.

The “New Economy”

• • • • •

Characterized by: Knowledge activity; 1. Innovative 2. Creative 3. Adaptive 4. Collaborative 5. Technology based Global markets; Instant communication; Volatility; Lessened government influence.