Outlook for the Wisconsin Economy Noah Williams University of - - PowerPoint PPT Presentation

Outlook for the Wisconsin Economy Noah Williams

University of Wisconsin-Madison Center for Research On the Wisconsin Economy (CROWE) https://crowe.wisc.edu

Williams Outlook for the Wisconsin Economy

The State of the Wisconsin Economy

Tight labor market: low unemployment, high employment-population ratio Long and continued expansion: growth in incomes, recovery across state Labor force challenges: low population growth, aging workforce, net outmigration Comparisons with other states: Minnesota, Illinois Economic policy impacts: Manufacturing and Agriculture Credit, minimum wage Forecasts for 2019: slowing growth in US and state

Williams Outlook for the Wisconsin Economy

CROWE: Brief Introduction

Center for Research on the Wisconsin Economy (CROWE) established in Fall 2017 in Department of Economics, UW-Madison Primary mission: support and disseminate economic policy research, with particular focus on Wisconsin economy and state-level economic policy issues. Provide economic research opportunities for UW-Madison students, outreach from UW to business and policy Staff: Director, economists, fellows in Dept. of Economics, administrator Researchers: Undergraduate, masters, and Ph.D. students helping with research

Williams Outlook for the Wisconsin Economy

Selected CROWE Research

The Impact of the Manufacturing and Agriculture Credit in Wisconsin The Economic Impact of the Foxconn Proposal Economic Performance in Wisconsin Since the Great Recession: A County-Level Analysis The Effects of Minnesota’s Minimum Wage Increases The Impacts of State Tax Structure: A Panel Analysis UW-Madison and the State of Wisconsin More to come: capital and productivity, tax reform, business dynamics, migration

Williams Outlook for the Wisconsin Economy

The Wisconsin Labor Market Remains Tight

Unemployment: 3.0%, participation: 68% ⇒ Employment-population 66% (#8, US 60.6)

2008 2010 2012 2014 2016 2018 3 4 5 6 7 8 9 10 Unemployment Rate 2008 2010 2012 2014 2016 2018 58 59 60 61 62 63 64 65 66 67 68 Employment−Population Ratio US WI

Williams Outlook for the Wisconsin Economy

Employment and Labor Force

Job growth steady but lower, driven by slow workforce growth

2008 2010 2012 2014 2016 2018 98 100 102 104 106 108 110 112 114 116 118 Nonfarm Employment (2010=100) 2008 2010 2012 2014 2016 2018 98 99 100 101 102 103 104 105 106 107 108 Labor Force (2010=100) US WI

Williams Outlook for the Wisconsin Economy

Labor Market Peaking?

Some signs of labor market stagnation in late 2018: wages flat, household survey employment down

2008 2010 2012 2014 2016 2018 20 21 22 23 24 25 26 Average Hourly Earnings WI 2008 2010 2012 2014 2016 2018 2.8 2.85 2.9 2.95 3 3.05 3.1 x 10

6

HH Survey Employment WI

Williams Outlook for the Wisconsin Economy

Differences in Sector Shares and Growth

Real GDP by State by Industry Industry 2016 Share 2011-16 Growth 2016 Share 2011-16 Growth All industry total (billion) 16,259 $ 10.5 273 $ 7.4 Private industries 88.0 12.3 89.1 8.9 Construction 4.0 19.7 3.9 21.8 Manufacturing 11.7 5.3 18.6 4.3 Wholesale & Retail trade 12.1 13.2 12.0 12.1 Information 5.5 23.2 3.8 24.5 Finance and insurance 6.3 4.3 7.0 11.0 Real estate and rental and leasing 13.5 11.2 12.5 2.9 Professional, scientific services 7.4 17.6 4.3 13.6 Health care and social assistance 7.5 14.5 8.8 8.4 Government 12.0

• 0.7

10.9

• 3.2

United States Wisconsin

Williams Outlook for the Wisconsin Economy

Aging of the Population

Williams Outlook for the Wisconsin Economy

Net Domestic Outmigration

Persistent issue over past decade, but not as severe as IL Declined in recent Census data: -11,439 in 2016 to -1,011 in 2018

Williams Outlook for the Wisconsin Economy

Net Migration: Wisconsin and Illinois

2010 2012 2014 2016 2018 −2 −1.5 −1 −0.5 0.5 1 x 10

4

Net Migration: Wisconsin Domestic Total 2010 2012 2014 2016 2018 −12 −10 −8 −6 −4 −2 x 10

4

Net Migration: Illinois Domestic Total

Williams Outlook for the Wisconsin Economy

Income Distribution

As Wisconsin incomes have grown since 2010, any decline in the middle class has been due to movement up to higher incomes.

Williams Outlook for the Wisconsin Economy

Family Incomes

Since 2010, families of four in Wisconsin had real income growth of 13.1% (2.4 pp faster than US) and property and income tax burden fall. The 14.3% growth in after-(state)-tax income is a gain of roughly $11,200.

Williams Outlook for the Wisconsin Economy

Comparisons with Other States

Common in the press to compare Wisconsin economy with Minnesota (especially) and Illinois. Minnesota: similar size and rough demographics, differences in policy but also structure Illinois: whole state very different (Chicago, downstate IL), North IL and South WI more comparable Popular discussions too quick to infer policy impact. More below.

Williams Outlook for the Wisconsin Economy

Real Output Growth: Level and Per Capita

2010 2012 2014 2016 2018 94 96 98 100 102 104 106 108 110 112 Real GDP, 2010:4=100 2010 2012 2014 2016 2018 94 96 98 100 102 104 106 108 110 112 Per Capita Real GDP, 2010:4=100 IL MN WI

Williams Outlook for the Wisconsin Economy

Urban Concentration: Wisconsin vs Minnesota

2000 2005 2010 2015 0.29 0.295 0.3 0.305 0.31 Share of WI Emp in MKE 2000 2005 2010 2015 0.66 0.665 0.67 0.675 0.68 Share of MN Emp in MSP 2006 2008 2010 2012 2014 2016 100 105 110 115 Employment, 2010=100 Milwaukee Minneapolis−St. Paul

Williams Outlook for the Wisconsin Economy

Economic Performance by County

The discussion so far has been based on state-level data, but not all parts of the state have done equally well economically. While there has been talk about areas left behind, I find strong evidence of convergence in living standards. Counties that had the highest unemployment rates, poverty rates, lowest incomes before the recession have seen the largest improvements in the following decade. Counties which suffered the most during the recession have had the largest improvements during recovery But divergence in overall size: counties that had larger employment, labor force, or population before the recession experienced faster average growth in those measures

Williams Outlook for the Wisconsin Economy

Unemployment by County

December 2018

Wisconsin County Unemployment Rates

Not-Seasonally Adjusted Unemployment Rates for Wisconsin Counties WI Dept. of Workforce Development, Labor Market Information 1/23/2019 DETI-17241-P (R. 1/2019)

US WI

Not-Seasonally Adjusted Seasonally Adjusted

Dane 1.9% Lafayette 2.0 Calumet 2.1 Green 2.1 Ozaukee 2.1 Sheboygan 2.1 Fond du Lac 2.2 Marathon 2.2 Washington 2.2 Brown 2.3 Columbia 2.3 Dodge 2.3 Iowa 2.3 La Crosse 2.3 Waukesha 2.3 Winnebago 2.3 Eau Claire 2.4 Grant 2.4 Jefferson 2.4% Sauk 2.4 Outagamie 2.5 Richland 2.5 Walworth 2.5 Kewaunee 2.6 Portage 2.6 Lincoln 2.7 Monroe 2.7 Shawano 2.7 Vernon 2.7 Waupaca 2.7 Clark 2.8 Rock 2.8

• St. Croix

2.8 Dunn 2.9 Juneau 2.9 Manitowoc 2.9 Pierce 2.9% Kenosha 3.0 Milwaukee 3.0 Trempealeau 3.0 Green Lake 3.1 Oconto 3.1 Racine 3.1 Wood 3.1 Jackson 3.3 Barron 3.4 Buffalo 3.4 Crawford 3.4 Marinette 3.4 Price 3.4 Taylor 3.4 Waushara 3.4 Chippewa 3.5 Douglas 3.5 Langlade 3.5% Washburn 3.5 Pepin 3.6 Marquette 3.7 Ashland 3.8 Florence 3.8 Door 3.9 Oneida 3.9 Polk 3.9 Rusk 4.0 Menominee 4.3 Sawyer 4.3 Vilas 4.3 Forest 4.5 Burnett 4.8 Adams 5.2 Iron 5.2 Bayfield 5.4 3.7% 3.9% 2.6 3.0 < 2.9% 3.0% - 3.4 3.5% - 3.9 4.0% - 4.4 4.5% - 4.9 5.0% - 5.4 5.5% - 5.9 6.0% - 6.4 6.5% - 6.9 7.0% >

Williams Outlook for the Wisconsin Economy

Unemployment by County

Williams Outlook for the Wisconsin Economy

Unemployment by County

1 2 3 4 5 6 7 −11 −10 −9 −8 −7 −6 −5 −4 −3 Change in Unemployment Rate: 2007−2010 Change in Unemployment Rate: 2010−2017 Unemployment Changes in Wisconsin by County 4 6 8 10 −5.5 −5 −4.5 −4 −3.5 −3 −2.5 −2 −1.5 −1 −0.5 Unemployment Rate in December 2007 Change in Unemployment Rate 2007−2017 Unemployment Changes in Wisconsin by County Williams Outlook for the Wisconsin Economy

Labor Force by County

−15 −10 −5 5 10 −10 −5 5 10 Growth Rate of Labor Force 2007−2010 Growth Rate of Labor Force 2010−2017 Labor Force Changes in Wisconsin by County 8 10 12 −20 −15 −10 −5 5 10 15 Log Labor Force in 2007 Growth Rate of Labor Force 2007−2017 Labor Force Changes in Wisconsin by County Williams Outlook for the Wisconsin Economy

Impact of the Manufacturing and Agriculture Credit

The MAC took effect in 2013, provides credits which largely offset the taxes faced by businesses in those sectors in the state. In 2017 I analyzed how much of manufacturing employment growth since 2013 was due to the policy by analyzing counties on either side of the Wisconsin border. Estimated that for 2013-2016 MAC accounted for total gain of over 20,000 manufacturing jobs (a 4.6% increase) and over 42,000 total jobs (a 1.8% increase) in

• Wisconsin. Even more since then!

Williams Outlook for the Wisconsin Economy

Impact of the Manufacturing and Agriculture Credit

Williams Outlook for the Wisconsin Economy

Effects of Minnesota’s Minimum Wage Increases

In 2014, Minnesota began increasing minimum wage, Wisconsin has kept minimum wage constant since 2010.

Williams Outlook for the Wisconsin Economy

Effects of Minnesota’s Minimum Wage Increases: Jobs

Over 60% of employees in restaurant industry in MN make minimum wage or less. Following min wage hikes fast food employment fell by 8% in MN relative to WI.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 95 100 105 110 115 Employment in Limited Service Eating Places (Jul. 2014=100) Minnesota Wisconsin

Williams Outlook for the Wisconsin Economy

Effects of Minnesota’s Minimum Wage Increases: Youth

Workers below age 24 account for 54% of min wage earners. Youth employment fell by 9% in MN after the minimum wage increases, increased by 10.6% in WI over the same period.

Williams Outlook for the Wisconsin Economy

Effects of Minnesota’s Minimum Wage Increases: Prices

Increased wage costs employers faced have been passed on to consumers through higher prices. Relative price of restaurant food in the Minneapolis fell by 2% in 4 years before the min wage hikes, rose by 6% in 4 years after

Williams Outlook for the Wisconsin Economy

Economic Forecasts

Recently at CROWE we have constructed an empirical model for the US and WI economies We adapt an approach that was used the Federal Reserve Bank of Minneapolis to forecast the U.S. economy. For 2019 we see a growth slowdown, but not a recession, for the US and WI. We forecast national growth to slow from over 3% to 1.5%, WI unemployment rate to increase from 3% to over 4%.

Williams Outlook for the Wisconsin Economy

National Forecast: GDP Growth

Williams Outlook for the Wisconsin Economy

National Forecast: Federal Funds Rate

Williams Outlook for the Wisconsin Economy

Wisconsin Forecast: Labor Force

Williams Outlook for the Wisconsin Economy

Wisconsin Forecast: Unemployment Rate

Williams Outlook for the Wisconsin Economy

Wisconsin Forecast: House Price Growth

Williams Outlook for the Wisconsin Economy

Conclusion

Wisconsin economy is strong, but faces challenges. We forecast slowing growth in near term. Economic policy has helped improve the state economy. Future policy uncertain. Future work at CROWE will tackle some of these issues. We welcome input and suggestions. Follow us at https://crowe.wisc.edu Twitter: @CROWE_UW, Me: @Bellmanequation

Williams Outlook for the Wisconsin Economy