Montana 49th in Wages? Not Exactly

Blog: Big Sky Political Analysis

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This Sunday, you'll get to watch Republican gubernatorial candidate Greg Gianforte face off with me and Mike Dennison in the MTN
studios on Face the State. I'll post a link once it has been uploaded. This is the first time I've interacted with Mr. Gianforte extensively,
and I thoroughly enjoyed our conversation. It should be an exciting race.


Greg Gianforte: Founder of RightNow Technologies and Republican candidate for Governor




During the show, you'll hear me express skepticism
about Mr. Gianforte's claim that Montana is 49th in wages. I wanted
to provide some context for that discussion, and explain why I don't think this
number is a particularly good measure of Montana's overall economic health--and how I think it undercuts the argument being made by Mr. Gianforte.



As a political scientist, I like quantitative data. At
the same time, when we use quantitative data, it is important to know how the
data are calculated and the potential ways in which that calculation can
introduce bias into our measures. It is true that Montana is not as
economically well-off as other states. But are we really only better than
Mississippi? I found that hard to believe. Here are three other measures of the
economy and how Montana ranks:



U.S. Census

Per Capita Household Income (2014): 38th

Per Capita Income (2014): 34th



Bureau
of Labor Statistics

Unemployment (November 2015): Tied for 12th
(with Kansas)



Not first or even in the top half for per capita or
household income, but not nearly rock bottom as the 49th in wages number
suggests. And the unemployment picture is stellar. So what gives? Do we really
have such low pay?



Back in April, many Montana media outlets reported
that according to tax data compiled by Transactional Records Access
Clearinghouse (TRAC), Montana was 49th in wages. No one took any
time, however, to actually do a deep dig into that number. Once I heard
Gianforte using the number repeatedly during his statewide announcement tour, I
decided to do exactly that. 



I clicked on the methodology portion of the website,
reading carefully about how the wage number is calculated. TRAC took the aggregate
total of wage and salary-based income as reported on individual tax returns and
divided that number by the number of tax returns received from the state. That
led to the determination that at $33,180, Montana is 49th in average
wages—just above Mississippi.



But there are two problems with this method. First,
consider that some people derive no income from wages in a tax year. Some of
these people are retired, some are students, and others live off of capital
gains or other sources of passive income. Yet, these folks need to file a tax
return—but are included in the data to compute the wage average despite having
zero wages. This will serve to drag down the average wages. You might argue
that this is the case in every state—and that's true. But, if a state skews
older (which Montana does) or has a high number of retirees receiving income
from passive investments (see Big Sky, for example), then this biases the wage
average downward. 



(In fact, Florida, New Mexico, West Virginia, South
Dakota, Arkansas, and Maine are all at the bottom 11 and they are some of the
oldest states in the US) 



Second, consider the nature of Montana's economy. In
2015, we ranked number 1 (and, indeed, have been number 1 for quite some time)
in the Kauffman
Index of Startups. Put simply, we are a state full of small businesses and
sole proprietorships—with people eager and willing to take risks. Many farmers,
ranchers, telecommuters, tax accountants, consultants, plumbers, tradespeople and
the like do not report W2 wage income either. I know this because for many
years my wife was a consultant and she had no W2 income. Instead, all of her
income was reported as business income—a separate line of a 1040 form. That
means that many Montanans, who had good jobs, also report zero on the W2 line
of their 1040s. And, that means they drag down the state's wage average, too. Again,
this is a double hit. Their income is included as zero AND they their tax
return is included in the denominator for the overall wage average.



I argue this number very poorly reflects on the state
of Montana's job picture and I am skeptical of its use. There is no doubt
in my mind that Montana can have a stronger economy and there's a path for an
even better future for our state. That's a debate we need to have in this
Governor's race. But it is important, while having a conversation about that
future, that we use the best numbers to decide what policies we need to pursue
to keep Montana the Last (but not 49th), Best Place.