Montana. People and the Economy

Transcription

1 Montana People and the Economy

2 Implementation and Funding Liz Claiborne and Art Ortenberg Foundation Liz Claiborne Art Ortenberg Robert Dewar Fran Morrow James Murtaugh Mary Pearl David Quammen Alison Richard David Western Research and Analysis Richard N. Barrett Douglas Dalenberg Charles Harris Paul E. Miller Thomas M. Power Christiane von Reichert Douglas J. Young Focus Groups and Surveys Lake, Snell, Perry & Associates Celinda Lake Alysia Snell David Mermin Victoria Sneed Editor/Writer James Murtaugh Technical Editors Richard N. Barrett Thomas M. Power Text Editor Sharon S. Barrett Photography Will Brewster Rick and Susie Graetz Audrey S. Hall Larry Mayer Montana Historical Society (MHS) John Reddy John Smart Donnie Sexton, Travel Montana Veronica C. Wald Cover Photographs John Smart Larry Mayer Donnie Sexton, Travel Montana Maps David Lindroth Inc. Christiane von Reichert Design Tracey Cameron, Pentagram Design The views and opinions expressed in this report are soley those of the Liz Claiborne and Art Ortenberg Foundation. January Copies of this report are available from the Liz Claiborne and Art Ortenberg Foundation Tranquillity Ranch 5893 Lindbergh Lake Road Seeley Lake, Montana 59868

3 Montana People and the Economy Abiding Values, Changing Circumstances The first edition of this study was published by the Liz Claiborne and Art Ortenberg Foundation in early That edition closed with this photograph of the Montana author Norman Maclean taken shortly before his death. The photograph was chosen because Maclean wrote about Montana with a clear eye and deep caring. His posture and countenance evoke deep concern, broadly shared among Montanans, that the landscape they love and the traditions they live by are being lost, that the bedrock upon which their best hopes for the future rest will not endure. The Foundation undertook this study in recognition of the profound change that is occurring in Montana, and out of concern for the potential of such change to diminish Montana s rich natural and cultural heritage. We have attempted to give voice to the opinions, perceptions and desires of Montanans, and to offer factual information that might shed light on the changes they are confronting and the concerns those changes have raised. Personal income growth in Montana has not kept pace with the rest of the country. Montana s population is growing, and at the same time is shifting unevenly among different regions of the state. Traditional natural-resource based industries are stagnant, exhibiting little potential for future growth, yet are still widely perceived as the best source of good jobs. Agriculture, once dominant, is declining in economic importance. Increasing foreign competition, falling prices, developing technologies and changing national policies are forcing profound structural change in agriculture that has reduced labor needs and altered traditional patterns of ownership and operation. Meanwhile, the services sector of the economy has grown dramatically, but is viewed as a source of predominantly marginal jobs. Growth itself is a concern. Landscapes and communities, particularly in the Western part of the state, have been transformed in less than a generation. Intense, sometime fractious debate still centers on the proper management of Montana s remaining forests, wilderness and wildlife, and on how best to accommodate growth. Montanans are concerned for their economic security and that of their children at a time when Americans in general seem quite content. They are apprehensive that change, though perhaps necessary and inevitable, may sacrifice a quality of life based on a deep sense of personal freedom as well as on shared family and community values a quality of life sheltered in the embrace of a profoundly beautiful landscape that reflects both the pioneer experiences of their ancestors and their own best hopes for the future. Most threatening is the prospect that change may represent forces beyond their influence or control. Our sense is that Montanans would prefer an economy compatible with their understanding of the past, with the values they hold, and with the landscape they cherish an economy based in their communities and comprehensible from a community perspective in the manner that farming, ranching, and logging are comprehensible. On the other hand, they recognize, but do not always acknowledge, that Montana s economy and its future prosperity are intimately linked to both the national and the global economy. Unfortunately, both God and the devil are to be found in the details of that linkage. Many recent efforts to respond to Montana s changing circumstances and foster economic development have looked to the past without accepting new realities. These realities suggest that the proper balance between the old and the new will be difficult to achieve, and more difficult to sustain. This study has convinced us that Montanans will strongly resist future economic development that does not accommodate Montana s historical, cultural and geographic uniqueness of place. In thinking about a proper balance, we are reminded of Norman Maclean s short meditation on his personal relationship to place. I suppose it was only natural that nature became my one close friend I had outside my family. I came to regard it as something like a member of my family. I loved it, and I thought it made sense I also thought if I only stayed still and looked hard and thought about what I had seen, I could see how it was connected with the beauty of what men and women could do with their hands and heart and head. Veronica C. Wald 1 Norman Maclean

4 Introduction 2 The Liz Claiborne and Art Ortenberg Foundation is a private organization dedicated to reconciling conservation of nature with human needs and aspirations. The Foundation is actively involved in Montana and other Western states historically dependent upon extraction of natural resources and production of basic commodities. It emphasizes conservation through cooperation, collaboration and consensus, favoring solutions that respect the proprietary interests of local communities. It encourages local initiatives addressing problems of diminishing resources, integrated land management, and economic and cultural transition. Montana is experiencing profound change, perhaps as much in the last two decades as in the preceding half century. The structure of the economy has shifted. In less than a generation, sources of income, the nature of work, and the quality of earnings have altered. In large measure, these changes echo the varying rhythms of the national economy. Other changes, such as new patterns of migration, the evolving relationship of people to the land, and their emerging impact on the landscape are more distinctly Western in character. All resonate somewhat differently in Montana, shaped and colored by the contrasting geography and culture of the Great Plains and the Rocky Mountains, and by the state s small population and relative isolation. Two decades of personal income growth slower than that of the nation overall has intensified debate among Montanans about how to ensure a healthy economy that provides good jobs and living wages for Montanans while sheltering the state s traditional cultural values and preserving its majestic landscape The results of the study suggest the following: Commitment to Montana Montanans demonstrate a strong attachment to the state despite concerns about changes in the state s economy, in the cost of living, in the kinds of jobs they hold, in the amount of money they earn and in the number and diversity of people who live in the state. Montanans cherish their state s magnificent landscape and the quality of life in the communities they live in. Few Montanans would leave the state even if offered a much better job somewhere else. Most intend to stay in Montana when they retire. Montanans: Self Impressions Montanans believe that Montana s greatest asset is its people. And that there is no better reflection of that asset than the quality of life in Montana communities. Montanans also believe that the character of Montana s people is the state s greatest economic asset. But many are unsure that these bedrock values will endure in the future, or that their children will be able to build lives in the state. Many Montanans believe that newcomers are the biggest threat to the traditional Montana way of life. But at the same time many believe newcomers make a valuable contribution to economic growth. Montanans: A Statistical Portrait Montana lost population during late 1980s but grew faster than the rest of the nation during the 1990s. Just ten counties accounted for 86% of Montana s population growth. On average, every year between 1988 and 1996, 14,000 households moved to Montana, a similar number of households left the state, and 10,000 Montana households changed their county of residence. Most of the newcomers settled in western Montana. Most of the Montanans moved from eastern Montana to south central and western Montana. Six of every ten households moving to Montana had family ties to the state. Newcomers are younger and better educated on average than Montana s general population. After moving, their average income is close to the state average, except for those under thirty who earn slightly less than their age group.

5 Will Brewster This study examines recent changes in Montana s population and its economy, and how Montanans perceive and respond to these changes. It is part of a larger study, which will be published later this winter, that considers broad social and cultural, as well as economic issues. In shaping this and the larger study, the Foundation was guided by the excellent information that has appeared in the state s newspapers during the past year. Editorials in the Missoulian, Great Falls Tribune and Billings Gazette have been particularly insightful. Our intention is to provide a concise summary of currently available information relevant to issues of major concern within the state, and to indicate where possible apparent correlation and connection among these issues exist. Through review of statistical data for the period 1976 to 1998, the study describes population growth, shifts in population within the state, and patterns of migration into and out of the state changes in the structure of Montana s economy, in employment, and in employment earnings and changes in the cost of living, particularly housing costs and taxes. The data used in the study were obtained from federal and state government agencies, including the Montana Department of Commerce, Department of Labor and Industry and Department of Revenue, and the University of Montana Bureau of Business and Economic Research. The data were compiled by Montanans with professional expertise in relevant fields of sociology and economics who provided written summaries of their findings. The study also draws upon fourteen focusgroup discussions and two telephone survey questionnaires conducted by Celinda Lake, a Montana native and partner in Lake, Snell, Perry and Associates of Washington, D.C. The focus groups took place in Billings, Bozeman, Great Falls, Havre, Kalispell, Miles City and Missoula between October and December of The participants represented a broad cross section of Montana s population men and women, native Montanans and non-natives, working Montanans and retirees, young people and senior citizens. The telephone surveys each involved 1,100 adult Montanans contacted at random throughout the state in late June of Both the focus groups and the surveys were designed to explore Montanans personal experiences, their attitudes towards Montana as a place to live, their opinions about the state s economy, and their perceptions of change. Questions were framed around issues such as jobs, income, taxes, cost of living, growth and population change. The focus groups and one of the surveys dealt broadly with these issues as they affect overall quality of life in Montana. The second survey dealt more narrowly with the economy. The surveys were structured to reflect the views of people living in different regions of the state, and those living in rural and in urban areas. Participants were also asked to volunteer a range of personal information, so that response patterns could be analyzed in terms of age, gender, income, education, occupation, and length of residence Economic Views Most Montanans believe the state s economy has improved since the late 1980s. But simultaneously, many Montanans feel that they have not benefited personally because they believe the number of well-paying jobs has declined and the cost of living has increased, particularly home prices and taxes. They also believe that most Montanans have to work two jobs to make ends meet and that many well educated young people are forced to leave the state to find good jobs. Most Montanans also believe that the character of the state s economy has changed and that Montana s traditional naturalresource based industries agriculture, timber and mining are continuing to decline in importance. Most Montanans now believe that tourism is the most important component of the state s economy and will remain so in the future. Economic Measures Over the last two decades, employment grew at nearly the same rate in Montana as in the rest of the nation per capita income and employment earnings grew more slowly than in the rest of the nation and average earnings per job declined in all sectors of Montana s economy. Employment grew fastest in the non-goods producing sector of Montana s economy, which includes service industries. Employment in the goods producing sector, which includes agriculture, manufacturing, mining and logging, grew more slowly. Compared to the past and to the rest of the nation, more Montanans hold part-time and/or seasonal jobs. More Montanans also hold more than one job and/or are self-employed. Few Montanans hold part-time jobs because they could not find fulltime employment. Average earnings per job have not declined because poorly paid service jobs have replaced wellpaid jobs in Montana s naturalresource based industries. Earnings per job declined most rapidly in the goods producing sector of Montana s economy which includes these industries Montana is the most nonmetropolitan state in the nation. Average per capita income in nonmetropolitan areas nationwide is much lower than in metropolitan areas. Per capita income in Montana is slightly higher than the average for all nonmetropolitan areas nationally. The difference between the richest and the poorest Montana families has grown, but much less rapidly than in the nation overall. The poorest Montana families are no worse off than they would be elsewhere in the nation. Housing is less affordable in Montana s fastest growing counties. Average residential property taxes are not high in relation to family income when compared to other states. But since the late 1980s, an increasing share of the overall property tax burden has shifted to residential property. In natural-resource dependent and rapidly growing counties property taxes have risen sharply. It May Be the Economy, But What Can Be Done About It? The constant movement of working people into and out of Montana links the state s economy to the national labor market. The least educated Montanans earn as much as they would elsewhere in the country. The best educated Montanans earn much less than they could in large metropolitan areas such as Denver or Seattle. Raising the average wages of Montanans is an important but difficult public policy objective. New business might offer higher paying jobs, but Montanans will compete for such jobs with thousands of people willing to move to Montana. And one of the strongest incentive a business might have to locate in Montana is the state s low wage rates. Montana wages would rise if the state s metropolitan areas grew to the size of Denver or Seattle. Even if such growth were possible, it would raise the cost of living as well as dramatically alter the quality of life in the state.

6 1 Commitment to Montana Montanans are Montanans, and they don t give it up. Bozeman EMS technician John Reddy John Smart These characteristics of community and place provide a quality of life that Montanans hold on to despite economic sacrifice, and relinquish only when economic circumstances become untenable. When survey participants were asked if they would leave Montana to accept a very good job offer somewhere else, only nine percent said they would readily move. (figure 1) Forty-nine percent of survey participants said they had actually taken a lower paying job at some point in order to continue living in Montana. When asked whether the quality of life that Montana offers is worth the trade-off of taking a lower paying job than they could fine elsewhere, only 19% said no, it was not worth the trade-off. 4 I couldn t leave the mountains or the family. I think Montana gets in your blood and nothing else is quite good enough. The focus group interviews and telephone surveys conducted as part of this study suggest that Montanans remain strongly attached to the place where they live and to the communities they live in. This attachment abides despite widespread perception that change is taking place all around them change in the structure of the economy, in the cost of living, in the kind of jobs Montanans hold, in the nature of work they do, in the amount of money they earn, in the number and diversity of people who live in the state and where they live, and in the influence the outside world seems to exert on the state and its way of life. Montanans enjoy life in a scenic and compelling landscape that that they find both noble and ennobling. And they cherish a way of life in communities that honor them as individuals, share common values, and nurture their families. When asked to describe the most important reasons they decided to live in Montana, participants in the telephone surveys cited the following: Scenic beauty and open space(76%). Safe place to raise a family (67%). Good place for children to learn values (64%). Close knit, neighborly communities (54%). Seventy-two percent of all survey participants said they planned to retire in Montana. But many Montanans also feel that change is beginning to threaten the trade-off they have made. Forty-one percent of survey participants said that Montana had changed a lot during the past ten years. And although 59% of survey participants felt that Montana is currently going in the right direction, 31% felt that it was not. Younger Montanans were the most optimistic about the direction Montana is heading. Sixty-five percent of survey participants under forty felt that Montana was going in the right direction. Kalispell women Opportunities for outdoor recreation (46%) 60% The wilderness. The land. The wildlife that we have The best in the world. Miles City man In Montana everybody I know would take the shirt off their back for you.i haven t found that in other states. Kalispell women Total Men Women College Men College Women The main reason I stayed? The income is not exactly great, but because of family. My son, I can let him run down the street and the neighbors watch out for him. Missoula father Readily Move Likely to Move Hesitate to Move Very Unlikely to Move Figure 1 Willingness to leave Montana for a very good job I would rather live here than anywhere else. If someone offered to move me free, I wouldn t go. Kalispell housewife

7 2 Montanans: Self Impressions We can have a conversation with anybody and it s ok. It s ok just to be friendly. I think its attractive It s as attractive as our land. Bozeman campground owner The people here are big-hearted. When we say people are the same everywhere, I don t think that s true. I think people in Montana have a very independent spirit, a very self-sufficient spirit, a lot of pride in themselves, a lot of pride in what they do. I think they re pretty sturdy people that have to work hard to be able to stay here. Kalispell school counselor People are more considerate That s the big difference here. Billings business manager They are willing to put out a helping hand. Billings senior citizen That s the sad part about it. It s a wonderful area to raise kids. But I do worry, what are they going to do I don t think there are very many opportunities for them to stay here. Bozeman research assistant We advertised ourselves too well. We ve brought attention to what a good state we are and what a wonderful community we are. Billings retiree We have all these people coming in, these out-of-staters coming in. And they have money and influence. Great Falls senior citizen They bring their problems with them. Kalispell housewife Audrey S. Hall Montanans believe that Montana s greatest asset is its people. And that there is no better reflection of that asset than the quality of life in Montana communities. Montanans can depend on their neighbors to be open, friendly, courteous and caring to wave, to stop and lend a hand, to watch out for their children, and to exemplify the values they would like their children to live by. Participants in the focus groups conducted for this study consistently described Montana s people as the state s greatest economic asset. Montanans believe they have a strong work ethic, a native resourcefulness, and an essential strength of character. They believe these virtues reflect the difficulties of living close to the land in a harsh climate, making a living in a tough economy, and depending on themselves and their neighbors to solve problems and do what needs to be done. Focus group and survey participants were less than certain that these bedrock virtues would endure in the future, or that their children would be able to build lives in the state. Many felt that their children would have to leave Montana in order to afford to come back. Sixty percent of survey participants with adult children said some or all of their children had moved to another state. Fiftyseven percent of these parents said the lack of well-paying jobs was the reason their children left Montana. Overwhelmingly, both focus group and survey participants felt that newcomers were the biggest threat to the traditional Montana way of life. 55% of survey respondents felt that newcomers were the biggest change that has affected Montana in the last two decades. 57% felt that people moving into the state brought more problems than benefits. When asked to describe the biggest problem newcomers cause, survey participants cited the following: Drive up the cost of living (24%) Bring in crime (17%) Reduce the quality of life through uncontrolled growth (15%) Bring a different set of values (14%) Increase competition for jobs (14%) Fifty-nine percent of survey participants felt that newcomers had too much to say about local issues without respecting local values. But at the same time, sixty-nine percent felt that newcomers make a valuable contribution to local economies. This ambivalence reflects great uncertainty about the relationship between Montana s changing economy, the newcomers who seem part and parcel of economic change, and the traditional values and way of life that Montanans cherish. In this respect, people moving into the state are seen as both indicators and agents of change. They are the lightening rod for Montanans unease about the future about how to adapt to changing social and economic circumstances while protecting abiding values. 5 Now we have people who come who are afraid of helping someone. Bozeman working mother We have the type of people now that are very demanding, very hard to please, very unappreciative. Bozeman father They want to make it like where they came from. I think that is so very wrong. You come here, you should contribute to what Montana is. Find out what it is and contribute. Billings business manager

8 3 Montanans: A Statistical Portrait 6 20,000 10, ,000 Will Brewster Will Brewster Will Brewster Growing by Fits and Starts Over the last two decades, Montana s population has grown erratically. When the state s economy faltered during the 1980s, thousands of people left the state. Between 1985 and 1990, Montana s population actually declined by 23,000. Over the entire decade of the 1980s, while the nation s population grew almost ten percent, Montana s grew less than two percent. The state s economy regained steam in the early 1990s. Between 1990 and 1996, Montana s population grew by 65,000. Most of this growth was concentrated in western Montana, while virtually all of the losses occurred in eastern Montana. Throughout the 1980s and 1990s, just ten counties accounted for 86% of Montana s population growth. These overall changes in the size of Montana s population pale in comparison to the numbers of people continuously moving into, out of, and within the state. Every year, between 1988 and 1996, as many as 10,000 Montana households moved from one county to another. During the same period, according to information derived from federal tax returns, 116,000 households moved to Montana, and another 104,000 left the state. (figure 2) New Faces, Changing Values? Although they may be largely unaware of how many households are moving into and out of the state, many Montanans admit to feeling overwhelmed by growth and change. And their impressions of newcomers are not particularly positive. -20, Households Moving to Montana Households Leaving Montana Population Change Who are the people that are moving to Montana? Where do they come from? What are they like? Why do they move to Montana? According to surveys done between 1993 and 1997 by the University of Montana s Bureau of Business and Economic Research, most are not really newcomers. At least one member of six out of every ten households moving to Montana is a former Montanan. The vast majority of people moving to Montana come from other Western states, primarily Washington and California. Most move to western Montana. They are younger and somewhat better educated than the average Montanan. After finding employment in Montana, their average income is close to the state average, except for adults under 30. These younger newcomers make less than the state average for their age group. Why do people move to Montana? Thirty-three percent cite family considerations and family ties as the primary reason. Another 19% cite quality of life values Montana s pristine environment, rural character and abundant recreational opportunities as the primary reason. Ten percent cite the quality of life in Montana s communities. Fifteen percent are college students and reassigned military personnel. Only 23% of the people who move to Montana cite employment as the primary reason. Many Montanans have negative impressions of newcomers that do not seem to fit most of the people moving into the state. That is because a small minority of newcomers stand out. They appear to flaunt their wealth or to have little regard for the culture and values of the communities in which they live or own homes. And it is possible that many of these very visible newcomers move to the same areas of the state, and that magnifies their impact. Otherwise, most newcomers look and act very much like other residents of the state. Many Montanans also believe that young people cannot afford to live in Montana and are forced to leave. But many newcomers are young and well-educated. There is some evidence that during the late 1980s young Montanans left the state in greater number than other age groups. But there are no data describing the Montanans who have left the state since then or why they did so. Montanans who move within the state differ only slightly from the state s general population and from people moving into the state. They are younger and better educated than the average Montanan but less educated than the average newcomer. Their average income after moving is slightly lower than the state average, but very close to that of newcomers. Most move from counties in eastern Montana to counties in south central and western Montana. No information is available about why they choose to move. But better economic opportunity is presumably an important factor. Montana s population is growing older. The median age of Montanans increased from 29 in 1980 to 36.5 in 1996, while the median age nationally increased from 29 to The aging of the baby boom generation accounted for most of this change. Montana s population is not growing older because large numbers of retirees are moving into the state. Retirees are no more numerous among newcomers than among the state s general population. Retired newcomers may choose certain communities and certain areas in the state over others thereby giving the impression that they are more numerous. There are so many people I went to college with...that moved to Seattle to get their start...i think eventually the majority will move back. Bozeman service manager Figure 2 Household migration and population change,

9 4 Economic Views The Montana lifestyle and the life that we ve had logging, ranching, mining they re all in decline...basically, there s a big change to service jobs, to government jobs. Blue collar Missoula father 79% felt that most Montanans have to work more than one job to make ends meet. 40 % felt that the cost of living is higher in Montana than nationally, and 38% felt it is higher than in neighboring states. Timber was expected to continue to decline in importance in the future, while mining was expected to stabilize at its current level of importance. Manufacturing and high technology industries were expected to increase in importance in the future. The focus group interviews and telephone surveys conducted as part of this study suggest that most Montanans believe the state s economy has improved since the low point of the late 1980s when jobs were scarce. And many Montanans believe that the state s economy will continue to improve in the future. But simultaneously, many Montanans also believe that they have not benefited personally from the state s economic turnaround. This apparent contradiction stems from a perception that while employment may have grown dramatically during the 1990s, the cost of living went up and at the same time the number of well-paying jobs declined. In the 1992 survey conducted for the first edition of this report, 68% of participants said Montana s economy was in bad shape. Conversely, in the 1998 survey conducted for this edition, 66% of participants said the state s economy was in good shape. But in 1998, 44% also said their personal economic circumstances had gotten harder over the past five years. Women were more likely to say this than men. Fifty percent of women without college degrees and 52% of women with dependent children, said their personal economic circumstances had gotten harder. In 1998, survey participants cited several possible reasons for the economic difficulties that many Montanans face. 81% felt that opportunities for well-paying jobs in Montana are worse or at best no different than in the past, while 54% of participants felt that opportunities for well-paying jobs had gotten better in the rest of the country. 75% felt that Montanans are underemployed relative to their skills and education. And 83% felt that Montana is losing its best educated young people because they cannot find good jobs. 82% felt that they would have better job opportunities if they lived outside Montana. Most participants also felt that the cost of living in Montana is rising and adding to the economic difficulties Montanans face. 54% felt that the balance between wages and the cost of living has gotten worse. MHS Photograph Archives 37% felt that increasing housing costs are the biggest factor in the rising cost of living, while 30 % felt that increasing taxes are the biggest factor. Both the 1992 and 1998 survey results indicate that Montanans believe that the character of the state s economy has changed since the 1980s. Most Montanans believe that the state s traditional natural-resource based industries, such as agriculture, timber and mining, are declining and will continue to decline in importance. (figure 3) In 1992, survey participants felt that agriculture was the most important component of Montana s economy, and that tourism was the second most important component but would be the most important in the future. In 1998, survey participants felt that tourism is the most important component of Montana s economy and would remain so in the future. Agriculture was judged second in importance. Participants also thought agriculture would remain second in the future, but it would continue to decline as other areas of the economy increased in importance. The mining and timber industries were judged much less important in 1998 than they were in Montanans do not expect that the continuing changes in the structure of the state s economy will mitigate the economic difficulties many of them face. Many believe change has made things worse. Although 49% of 1998 survey participants felt that changes in Montana s economy have not affected job opportunities, 32% of participants felt that changes in the economy are worsening job opportunities. Only 16% of 1998 survey participants felt that changes in Montana s economy had improved job opportunities. But Montanans also accept economic sacrifice as a condition of living in the state. 83% of 1998 survey participants believe that Montanans make a trade-off between their overall quality of life and the economic opportunity they might find if they lived elsewhere. When asked what was the most important thing the state government could do to improve the economy and employment opportunities in Montana, 33% of survey participants suggested recruiting new business, particularly clean, high-tech industries, 17% suggested reducing taxes and revising the tax structure. Participants in the focus groups also suggested that opportunities to discuss these issues with elected officials in an informal and intimate setting would be very constructive. Tourism Agriculture Timber Mining Government Manufacturing Service Industries 1992 Survey 1998 Survey 1998 Survey View of the Future Figure 3 Most important component of the economy in 1992, in 1998, and in the future Small Business High Technology 7

10 5 Economic Measures 8 If the Economy is Up, Why are Income and Earning Down Statistics: A Qualified Measure The following section of the report is based on a variety of statistical information collected by various federal and state government agencies that is generally available to the public. No set of statistics from any single source fully portrays Montana s economy or depicts the diverse economic circumstances of Montanans. All have more limited purposes, and these are sometimes as different as apples and oranges. What follows is an attempt to reconcile various and sometimes contradictory statistical information in order to present a coherent picture of Montana s economy. Many of the individual statistics presented here are familiar. They are commonly used to describe what s happening to Montana s economy or how the well-being of Montanans is changing. Used out of context, individual statistics are more often misleading than enlightening. As Mark Twain remarked in his autobiography, "There are three kinds of lies: lies, damned lies, and statistics." But taken in aggregate and properly qualified, statistical information is both the best measure and the best forecaster of economic circumstances available. Numbers Good and Bad The most encouraging measure of Montana s economic circumstances has been the steady gain in employment over the past two decades, which closely matches that of the nation. Between 1976 and 1996, Montana gained 165,000 jobs. The most discouraging measure of the state s performance has been the growing gap in per capita income between Montana and the rest of the nation. In 1976, Montana ranked thirtyfirst among the states in per capita income. By 1997, it ranked forty-sixth. This statistic appears stark and bleak, but it does not tell the whole story. It does not precisely measure the well-being of Montanans or accurately summarize their experiences, which are surprisingly diverse. Per capita income includes earnings from employment as well as income from non-employment sources such as dividends, rent and Social Security. Over the past two decades, income from these non-employment sources grew at almost the same rate in Montana as nationally. But employment earnings grew much more slowly in Montana. And real earnings per job, meaning adjusted for inflation, declined dramatically from $26,300 to $20,700, while the national average remained constant at about $30,000. (figure 4) Again the statistic is stark, but the underlying circumstances are not uniformly bleak. During the 1990s, even though real earnings 120% Employment Montana US Per Capita Income Earnings fell, rapid employment growth attracted thousands of working people to Montana. The decline in earnings reflects: the evolving structure of Montana's economy, changing hourly wages, shifting patterns of employment, and new patterns of migration into, out of, and within the state. It also reflects a significant amount of freedom on the part of working Montanans to choose where they want to work and what kind of work they want to pursue. Earnings Per Job Figure 4 Comparison of percent changes in the Montana and US economies, Non Employment Income Terms of Employment: A Statistical Key Employment refers to jobs not to workers. One worker can hold more than one job, and be counted more than once in employment statistics. Earnings are income from wage and salary employment or from self-employment. They can be calculated for a single job or for a single worker, and for all the jobs or all the workers in a larger grouping such as an industry, a state, or the nation. Earnings per job are the average earnings within a given grouping of jobs. Per capita income includes earnings from employment as well as income from investments such as dividends, interest, and rent. It also includes income from government transfer payments such as Social Security, civil service and armed service pensions, and Medicare. All the income and earnings amounts presented in this report are real. That means, they are adjusted for inflation so that valid comparisons can be made over time. Services, as used in economic statistics, refer to a somewhat arbitrary grouping of industries such as medicine, law, and auto repair that do not produce storable goods. This definition may conflict with the public perception that services should also include industries such as retail trade, banking, insurance, and transportation. In this report, we use the term services in the narrower statistical sense. In describing the broader public concept of services, we use the term non-goods producing sector. N.A. Forsyth, photographer, MHS Photograph Archives

11 Robert I. Nesmith, photographer, MHS Photograph Archives Trading Shares The structure of Montana s economy has changed during the past two decades. Contrary to what is commonly believed, the cause in not an overall loss of jobs in Montana's traditional industries, such as agriculture, logging and mining. The causes are different rates of employment growth and shifts in the share of employment among the various sectors of the economy. In agriculture, employment remained constant. In the nonfarm goods producing sector, which includes logging and mining, as well as construction and manufacturing, and which characteristically offers wellpaying jobs, employment increased 28%. In contrast, employment in service industries, which include medicine, law, and automobile repair, increased 113%. In the non-goods producing sector of the economy, which includes service industries, as well as utilities, government, and retail trade, employment grew 56%. Overall, these changes in employment are similar to those that have occurred in the national economy. (figure 5) The declining share of employment in goods production is not a new phenomenon. Throughout the past century, increasing global competition and the consequent need to improve efficiency and reduce production costs have spurred technological innovation that has continually uncoupled labor from manufacturing. These forces have also reshaped agriculture, depressing average prices, compelling consolidation of ownership and operation, and reducing the need for labor. Over the past 50 years, even though the average crop yield of Montana farms increased substantially, real farm receipts declined and farm employment did not increase. Earning Less No Matter Where Over the past two decades, average inflation-adjusted earnings per job in Montana, that is, real earnings, still declined by $5,700. This decline is often blamed on the rapid growth of lower paid service jobs, but in fact, earnings per job declined in all sectors of Montana s economy. The greatest declines occurred in agriculture (-51%), and goods production (-28%), while the smallest declines occurred in service industries (-7%) and in the non-goods producing sector (-17%). (figure 6) The statistics still seem bleak, but perhaps not quite so bleak when examined closely. Between 1976 and 1996, average hourly earnings in Montana declined from just over $13.10 to $10.60, or from 98% to 90% of the national average for hourly earnings. (figure 7) Again, the greatest declines occurred in goods production. Hourly earnings in some service industries actually increased. Overall, the decline in hourly earnings was not nearly as severe as the decline in average earnings per job. This is because jobs in Montana on average involve fewer hours of work than jobs nationally. More Montana jobs are part-time, or seasonal, or both. Manufacturing: A Boom with No Echo 140% Figure 5 Comparison of the Montana and US economies Percent employment growth by sector 20% Total Agriculture Goods Production Montana Figure 6 Comparison of the Montana and US economies, Percent change in earnings per job by sector $ Figure 7 Comparison of the Montana and US economies, Average hourly earnings All Non Goods Production Fifty years ago Montana ranked among the top ten states in per capita income. It now ranks among the bottom five. Montana's traditional resource-based industries are commonly perceived as the best source of well-paying jobs and higher incomes. Given this perception, it is important to note that during the 1950s, when these industries dominated the state s economy, they were much less diverse than manufacturing industries elsewhere in the country. Following World War II, the rising demand for American products overseas and for consumer goods at home produced unprecedented opportunities for many American workers, but not for Montanans. Sparsely populated, lacking infrastructure, and isolated from markets and sources of raw materials, Montana could not diversify its manufacturing industries, and manufacturing employment remained relatively unchanged. Montana's basic manufacturing industries metal smelting and lumber production were, and still are, based on its mineral and timber resources. That dependence has not changed. Neither has the fact that those diverse post-war manufacturing opportunities are unlikely to repeat themselves in the future, either nationally or in Montana. US Total Agriculture Goods Production Montana US Service Industries Montana US All Non Goods Production Service Industries 9

12 10 Mapping Montana: Changing Faces, Changing Places During the 1980s, all but six of the 38 counties in eastern Montana lost population, while 11 of 18 western counties gained population. Between 1990 and 1997, half of all eastern counties continued to lose population, while all but one western county, Deer Lodge, gained population. Throughout both the 1980s and 1990s, just 10 counties: Flathead, Glacier, Lake, Missoula, Lewis and Clark, Ravalli, Jefferson, Gallatin and Park in western Montana and Yellowstone in eastern Montana accounted for 86% of Montana s population growth. (table and maps 2 thru 7) The growth or decline of population is determined by the difference between the birth rate and the death rate, and by the level of net migration. Net migration is the difference between the number of people moving into a place and the number of people moving out. During the late 1980s, more people moved out of Montana than moved into the state so that net migration was negative. Throughout the 1990s, net migration has been positive. (table) During the late 1980s and the 1990s the total number of households moving into or out of Montana averaged over 27,000 per year. Most of these households moved to and from other Western states, primarily Washington and California. (map 1) During the same period, as many as 10,000 Montana households may have changed their county of residence each year. (maps 4 and 5) LINCOLN SANDERS MINERAL FLATHEAD LAKE RAVALLI MISSOULA GRANITE GLACIER DEER LODGE POWELL SILVER BOW BEAVERHEAD PONDERA TETON LEWIS AND CLARK JEFFERSON MADISON TOOLE CASCADE BROAD- WATER LIBERTY GALLATIN MEAGHER HILL CHOUTEAU PARK JUDITH BASIN WHEATLAND SWEET GRASS BLAINE FERGUS GOLDEN VALLEY STILLWATER CARBON P MU YE Map 1 Number, origin, and destination of households moving to and from Montana in 1994 Map 2 Destination households moving to Montana from other states in 1994 Number of Households 25 Montana 4000 Map 3 Origin of households leaving Montana in 1994

13 Population Net migration Population Net migration Population County Montana 786,690-53, ,065 51, ,810 VALLEY PHILLIPS GARFIELD ETROLEUM SSELSHELL ROSEBUD TREASURE LLOWSTONE BIG HORN DANIELS SHERIDAN ROOSEVELT RICHLAND MC CONE DAWSON PRAIRIE WIBAUX FALLON CUSTER CARTER POWDER RIVER Beaverhead 8, , ,012 Big Horn 11,096-1,784 11, ,617 Blaine 6,999-1,054 6, ,081 Broadwater 3, , ,083 Carbon 8, ,080 1,341 9,425 Carter 1, , ,503 Cascade 80,696-10,958 77,691-2,725 79,134 Chouteau 6, , ,236 Custer 13,109-1,907 11, ,115 Daniels 2, , ,057 Dawson 11,805-3,389 9, ,048 Deer Lodge 12,518-2,090 10, ,995 Fallon 3,763-1,015 3, ,035 Fergus 13,076-1,285 12, ,498 Flathead 51,966 2,808 59,218 10,306 71,707 Gallatin 42,865 2,884 50,463 7,644 61,111 Garfield 1, , ,444 Glacier 10, , ,687 Golden Valley 1, ,051 Granite 2, , ,632 Hill 17,985-2,377 17,654-1,063 17,538 Jefferson 7, ,939 1,679 9,878 Judith Basin 2, , ,316 Lake 19, ,041 3,760 25,341 Lewis&Clark 43, ,495 3,753 53,251 Liberty 2, , ,391 Lincoln 17,752-1,853 17, ,772 McCone 2, , ,035 Madison 5, , ,899 Meagher 2, , ,805 Mineral 3, , ,725 Missoula 76,016-4,670 78,687 6,251 88,818 Musselshell 4, , ,605 Park 12,869 1,149 14,484 1,150 15,910 Petroleum Philips 5, , ,904 Ponderosa 6, , ,431 Powder River 2, , ,909 Powell 6, , ,072 Prairie 1, , ,335 Ravalli 22,493 1,530 25,010 9,109 34,554 Richland 12,243-3,142 10, ,191 Roosevelt 10,467-1,146 10, ,121 Rosebud 9,899-1,278 10,505-1,071 10,209 Sanders 8, ,669 1,502 10,253 Sheridan 5, , ,341 Silver Bow 38,092-4,520 33, ,441 Stillwater 5, ,536 1,235 7,835 Sweet Grass 3, , ,400 Teton 6, , ,340 Toole 5, , ,818 Treasure Valley 10,250-2,574 8, ,295 Wheatland 2, , ,333 Wibaux 1, , ,106 Yellowstone 108,035-5, ,419 7, , Map 4 Destination of Montana households moving within the state in 1994 Map 6 Net migration by county as a percentage of county population to to to to to 36.5 Map 5 Origin of Montana households moving within the state in 1994 Map 7 Net migration by county as a percentage of county population

14 John Smart 12 Working Choices Two decades ago, Montanans worked an average of 36 hours per week, the same as the national average. By 1996, Montanans were working 32 hours per week, almost two and a half hours less than the national average. (figure 8) Compared to the past and to the rest of America, more Montanans are working part-time. More Montanans than working people nationally also hold seasonal jobs, and the number is probably growing. Seasonal employment is not measured every year, but the Census Bureau reports that in % of working Montanans worked less than 40 weeks a year. The national figure was 25%. The Census Bureau also reports that between 1991 and 1997, the average Montanan worked 43 weeks per year, two weeks less than the national average. Part of the reason is rapidly growing employment in seasonal industries such as tourism and construction. Part of the reason for the increase in part-time and seasonal employment may be a deliberate strategy on the part of businesses to avoid paying employee benefits, as many Montanans believe. But support for this belief is difficult to document. What do these changes mean? Montanans sacrifice income to live in the state. One reason for their lower incomes is that Montanans work fewer hours per week and fewer weeks per year than the national average. But whether accepting part-time and/or seasonal work is part of the sacrifice depends on their reasons for taking such jobs. If Montanans want full-time or year-round employment but are unable to find it, they are forced to sacrifice income. On the other hand, if taking part-time or seasonal employment is a matter of choice, if it is voluntary, Montanans are balancing income against other needs or desires. These needs or desires could be: more time at home to care for young children or another family member, summer employment for a student, supplemental income for a farm family or a retiree, or simply more time to pursue other interests. In these cases, part-time or seasonal employment is more of an advantage than a sacrifice. Do most Montanans take parttime employment voluntarily? The Census Bureau s Current Population Survey indicates that from 1994 to 1996 roughly 84% of part-time employment in Montana was voluntary, about the same as in the nation overall. Multiple employment is much more common in Montana than in the nation. Slightly more than 10% of working Montanans hold more than one job. The national average is 6%. It may be tempting to conclude that multiple employment is very often a matter of necessity, of meeting basic living expenses. But data from the Current Population Survey indicate that multiple employment nationally is relatively constant regardless of earnings level. In other words, it is as common among workers with the highest earnings as among those with the lowest. This suggests that many Montanans may hold more than one job voluntarily, in order to realize larger financial or career goals. Self-employment provides 22% of all non-farm jobs in Montana compared to 15% nationally. Reported earnings from selfemployment are low, averaging only $14,600 a year. They may be low because self-employment is part-time or seasonal, because hourly earnings are lower in selfemployment, or both, or because not all self-employment earnings are reported. Data from the Current Population Survey suggest that in Montana at least half of self-employment is both part-time and secondary to another job. It is not the primary source of income. Despite lower earnings in selfemployment, it is important to realize that self-employment, like multiple employment, is very often a matter of choice. It can offer some advantages over wage employment, such as independence, additional income, flexible hours, work at home, or more basically, opportunity where otherwise none existed. All this is not to say that better opportunities would not be desirable, or to ignore that some self-employed Montanans or some Montanans working part-time or seasonally face real economic hardship, but only to recognize that Montanans clearly exercise considerable freedom of choice in determining their economic circumstances. And choice is an important aspect of economic well-being. Good Jobs for Bad? During the past two decades, Montana s economy changed dramatically. Working Montanans earned less and less relative to the national average. Are these trends related? Has structural change driven the relative decline in earnings? Have low paying service jobs replaced better jobs in goods production? These are tempting and widely held conclusions. But the reality is different, and more complex. Montana s non-goods producing industries grew dramatically during the past two decades, creating far more jobs than the state s goods-producing industries and gaining a larger share of total employment. How did this shift in employment contribute to the decline in earnings that working Montanans experienced? Between 1976 and 1996, average earnings per job fell by $5,700. Since earnings per job were significantly higher on average in goods producing industries, the shift of employment to non-goods producing industries would seem to be the driving force behind the decline in average earnings. But in fact, earnings per job would have fallen by at least $5,400 even if the shift in employment had not occurred. All across Montana s economy, in almost every industry, earnings per job were falling. The shift of employment from goods to nongoods production accounted for only $300 of the $5,700 decline in earnings. The changing structure of Montana s economy and the loss of higher-paying good jobs had little to do with it Montana US Figure 8 Comparison of the Montana to US economies, Annual average hours of work per week

15 We have a very unique state...on one side we have mountains and rivers and the parks. And on the other side...the part of the state that s helping to feed the world. Miles City truck driver John Reddy A Non- Metropolitan State for Better and for Worse Smaller Can Be Better The preceding discussion dealt with Montana in comparison to the nation as a whole. Per capita income, earnings per job, hourly wages, and employment patterns were treated in aggregate, and statistical averages were used to compare Montana with the nation. Such a broad statistical comparison is instructive, but it is not the only way to judge the performance of Montana s economy, or guide the expectations of working Montanans. Montana is different from most other states. It is large, sparsely populated and has just three cities that qualify as metropolitan areas. Only Billings, Great Falls and Missoula have populations over 50,000, the minimum for Census Bureau classification as a metropolitan area. Will Brewster Montana is the most nonmetropolitan state in the nation. The economic characteristics of non-metropolitan areas differ significantly from those of metropolitan areas. So do the qualities of place that contribute to quality of life. In these respects, metropolitan and nonmetropolitan areas are as different as big horn sheep and pronghorn antelope. Both are highly valued, but they cannot share the same habitat. Montana is scarcely different from other non-metropolitan areas in the country. Over the past two decades, per capita income, earnings per job and hourly wages in Montana closely matched the averages for all non-metropolitan areas. Per capita income and hourly earnings in Montana were slightly higher than the average for all non-metropolitan areas. (figure 9) Earnings per job, on the other hand, shifted from slightly higher to slightly lower, because relatively more Montanans took part-time and seasonal jobs. Metropolitan areas increasingly dominate the nation s economic activity. In 1976, average earnings per job in metropolitan areas were $6,700 higher than in non-metropolitan areas. By 1996 they were $9,000 higher. Per capita income and earnings per job in the Billings, Great Falls and Missoula metropolitan areas are somewhat higher than the state averages. But they are substantially lower than the averages for metropolitan areas nationally. That is not surprising. Billings, Great Falls and Missoula are small cities that cannot compare in economic activity with large metropolitan areas such as Denver, Salt Lake City, and Seattle. But Billings, Great Falls and Missoula do compare favorably to similar and even somewhat larger metropolitan areas elsewhere. (figure 10) Billings, Great Falls and Missoula are among the fastest growing areas of the state. Since people are choosing them rather than the West s largest metropolitan areas, it would appear that income opportunity is not necessarily their most important concern. The overall quality of life that Billings, Great Falls and Missoula offer must seem better in their judgment than that in Denver, Salt Lake City, or Seattle. And that is what really matters. The Montana Sacrifice Working Montanans sacrifice potential earnings to live in the state. But does everyone sacrifice equally, or do some sacrifice more than others? During the 1990s, the average hourly earnings of Montanans included in the Current Population Survey were $8.40, 12% less than the national average of $9.50. In other words, these workers sacrificed on average 12% of their potential hourly earnings to live in Montana. 13 $26,000 24,000 $25,000 22,000 20,000 20,000 15,000 18,000 10,000 16,000 5,000 14, Montana Montana Metro US Metro US Non Metro Figure 9 Comparison of Montana to US non-metropolitan areas and comparison of Montana metropolitan areas to US metropolitan areas Per capita income Montana Metro Areas US Metro Areas/Population Less Than 200,000 US Metro Areas/Population Less Than 400,000 Figure 10 Comparison of Montana metropolitan areas to larger US metropolitan areas nationally Per capita income

16 Rick and Susie Graetz 14 I think the great thing is to be able to take a weekend off and go a half hour and get up in the hills...to go out with my son and have it just be him and I. I think my family is more important to me and the values that I can give my son than money is ever going to be. Missoula bus driver The sacrifice was the same regardless of age, but when earnings are looked at according to the education, sex, occupation, industry, and earnings position relative to other workers, the differences are significant. All other characteristics such as age, sex, occupation, and industry being equal, a Montanan who did not finish high school sacrificed only $.04 an hour in potential earnings to live in the state. A college graduate sacrificed $1.65. (figure 11) Gender and marital status also made a difference. All other characteristics being equal, single women sacrificed the most to live in Montana, 13% of their potential earnings. Industries that paid the lowest wages in Montana generally imposed the greatest earnings sacrifice on workers. The exception was retail trade, which paid only 7% less an hour in Montana than nationally. Those industries that paid the highest wages nationally, generally paid the highest wages in Montana and imposed the smallest sacrifice of potential earnings. The striking exception was public administration, which paid 21% less an hour in Montana than nationally. It should be noted that only the hourly earnings of workers who shared otherwise similar characteristics, such as age, sex, education and occupation, were compared. This is very important because the findings indicate that some industries pay premium wages. That is, the same worker doing essentially the same job will earn more in some industries than in others. This is certainly not surprising to most Montanans, but statistics are often about proving the obvious. And sometimes about proving what may not be so obvious, as in the case of Montana s civil servants the people who work in public administration who apparently make a larger sacrifice than is commonly realized. Tourism: Neither Here Nor There Montanans who ranked lowest as well as those who ranked highest in hourly earnings sacrificed the least potential earnings to live in the state when compared to workers of similar rank nationally. Montanans whose wages ranked in the middle sacrificed the most. (figure 12) But these are relative sacrifices. Real sacrifice is best measured by actual family earnings and how they have changed over time. Although tourism is often cited as the most important sector of Montana s economy, it is also faulted as a major cause of declining earnings per job. But tourism is neither a new cornerstone of Montana s economy nor a threat to the economic well-being of Montanans. Tourism jobs are low paying, seasonal and often part-time. And the number of such jobs grew from 10,500 to 30,000 between 1983 and 1996, or from 2.6% to 6% of total employment. But even if all tourism jobs were minimum wage, they would account for only a fraction of the decline in real earnings per job in Montana over the past two decades. Tourism jobs are by and large entry level. Twenty percent of tourism workers are teenagers. Furthermore, few experienced workers from other industries take jobs in tourism, and experienced workers in tourism tend to leave for better paying jobs in other industries. Tourism offers a trade-off: flexible opportunities for part-time, seasonal and entry level employment, but relatively few jobs that can support a family. 14% 20% Less Than Hign School High School Some College College Graduate Post Graduate 0 Lowest 20% 2nd 20% Middle 20% 4th 20% Highest 20% Figure 11 Potential earning sacrifice by education level Figure 12 Potential earning sacrifice by relative earnings level

17 Will Brewster Montana: A Manageable Sacrifice? What I have is sufficient for my needs. And my wants are under control. Retired Great Falls native Those folks that are in that lower end are going to stumble there, and they re going to have a hard time digging their way out. Kalispell electrician lineman There Are Limits Many Montanans fear that they may soon be unable to afford to live in the state. Many believe that well-educated young people and young families are already being forced to leave, that homes are becoming unaffordable, and that taxes are eating up family incomes. As heartfelt as these concerns are, they are not peculiar to Montana and they do not result from a basic failure of the state s economy. They are related to changes in the national economy. Family incomes continue to grow more unequal throughout the entire nation. Data from the Current Population Survey indicate that the average income of families in the top fifth of all Americans rose 30% between 1978 to 1996, while the average income of families in the bottom fifth fell 27% from $12,700 to $9,300. In Montana, the average income of families in the top fifth rose only 9%, but at the same time the income of families in the bottom fifth fell only 14% from $10,500 to $9,050. (figure 13) The difference between the poorest Montana families and the poorest families in the rest of the country has declined sharply. And the gap between the richest and poorest families in Montana is smaller than the gap in the rest of the nation and has not grown as rapidly. The gap between the richest and the poorest is not too important if everyone can expect to do better in the future, even if their relative position does not change. But that has not been the case over the past two decades. The gap is also less important if families can improve their relative position over time. Young families starting out generally have lower incomes. As job skills, experience and seniority increase, their incomes are expected to grow. But examination of the wage histories of working Montanans indicates that from 1989 to 1995, such upward mobility has become more difficult for low income families. A large number of low income Montana families now find living in Montana more difficult to afford. But given the changes in the national economy, no more difficult to afford than living elsewhere in the country would be. Whether higher income families can afford to live in Montana, where their income is lower than it might be elsewhere in the country, would appear to be a matter of choice. Since 1990, thousands of working families, many of them young and welleducated, have decided that they can afford to live in Montana despite lower income. And they have moved here. Affordable Housing? Average residential property values increased dramatically in Montana during the 1990s. The greatest increases occurred in 16 rapidly growing western and southwestern counties that are now home to 60% of Montana s population. After remaining unchanged from 1982 to 1992, property values in these counties shot up an average 88% between 1990 and 1996, much faster than average housing prices in the rest of the country. In Montana s 40 other counties, residential property values declined during the 1980s, then increased an average 38% during the 1990s. This increase was well below both the inflation rate and the rise in average housing prices nationally. Rising residential property prices always accompany population growth. As long as new residents integrate into the local economy, rising housing costs are an accepted fact of life. Intense demand for second homes in areas with especially high scenic and recreational values can distort the cost of housing in some cases so much that many people who earn a living from employment in such areas cannot afford to live where they work. They are excluded from communities that may once have been their home. Poverty: Real Circumstances, Poor Label Poverty is not a word that most Montanans use easily. But the federal government officially labels family income below a level judged necessary to maintain a minimum acceptable living standard as poverty. By the government s definition, an average 15% of Montana families were living in poverty between 1980 and 1996, slightly more than the national average. Between 1992 and 1995, poverty rates were lowest for families headed by married couples (7%), twice as high for male-headed families (15%), and almost four times as high for female-headed families (27%). This pattern is similar to that for the nation overall. The actual circumstances and well-being of families meeting the official definition of poverty vary widely. Many families that meet the government s definition may be able to maintain an acceptable living standard. This possibility is reflected in the fact that the majority of eligible Montana families do not seek public assistance. A cultural unwillingness to label or be labeled also plays a role, as does Montanans belief that helping is a personal and neighborly duty, not a government obligation. However, understanding the real circumstances of Montana s lowest income families remains an important public concern. $120, ,000 80,000 60,000 40,000 20,000 0 Lowest Fifth Lowest Fifth Highest Fifth Highest Fifth Montana US Figure 13 Comparison of the Montana and US economies, Change in the income gap between the richest and poorest families

18 ...We lived on our place 38 years on the river at Big Fork...and the taxes got so bad after my husband retired that we had to sell, or everything we had coming in was going out in taxes, so we had to sell our place on the river. Kalispell native Rick Graetz 16 Taxing Conditions In November 1998, Montana voters approved Constitutional Initiative 75, which requires voter approval of any new tax or tax increase proposed by state or local government. Clearly, few issues burden Montanans more than the taxes they pay. Do Montanans bear a uniquely heavy tax burden? The simplest way to determine tax burden is to measure total state and local taxes paid as a percentage of total personal income. In 1995, this figure was 11.6% for Montana, virtually equal to the national average and 22nd among all the states. But it is the taxes that Montana families pay that weighed most heavily in the passage of Constitutional Initiative 75. If income taxes, property taxes, sales taxes, and automobile taxes are all combined, a Montana family with an income of $25,000 in 1997 paid an average of $1,450 in state and local taxes, or 5.8% of their income. A family with an income of $100,000 paid 8.9% of that amount in taxes. These tax rates rank Montana 44th and 34th respectively among all the states. By this measure, Montana would appear to be a low tax state. While the overall taxes paid by families are low, Montana s business taxes are high, particularly the property tax on business equipment, which is much higher than other Montana property taxes. It is also higher than similar taxes in neighboring states. And this concerns many Montanans who fear that potential new businesses will choose to locate elsewhere, depriving Montanans of job opportunities. Homes Are Where the Taxes Are Montanans general hostility toward taxes stems in large part from fear that residential property taxes are not only putting home ownership out of reach, but threatening some Montanans, particularly the elderly, with loss of their homes. Since 1990, property taxes in some Montana counties have increased dramatically as a result of exploding property values. Property taxes are based on the rationale that the property values reflect the owners ability to pay taxes. But homes are not liquid assets. Increased value cannot be converted into cash to pay higher taxes, at least not without incurring debt. And for many homeowners, an already tight family budget, a fixed pension, or meager Social Security benefits cannot be stretched far enough to pay increasing taxes. Homes also hold much more than cash value. They are the basis of family and community. Many people, particularly the elderly, cannot contemplate moving when it happens that a home they purchased for a modest price years ago is suddenly much more valuable and burdened with higher taxes. Do Montanans bear a uniquely heavy residential property tax burden? In 1996, residential property taxes in Montana amounted on average to 1.5% of assessed property value. The national average was 1.75% in 1996, and Montana ranked 28th among the states. By this measure Montana s property taxes are not particularly burdensome. That is, unless property values in Montana are high relative to personal income. In 1990, this was not the case. Statewide, property values were no higher in relation to income in Montana than they were nationally. On average, homes were no more or no less affordable in Montana and property taxes were no higher in relation to income than they were elsewhere in the country. However, since 1990, home prices in some rapidly growing Montana counties have risen much faster than the national average. In five of these counties, after the last reappraisal, residential property taxes increased 50% more than the state average. Rising appraised values also mean that residents in these fast growing counties pay a disproportionate share of Montana s statewide residential property tax. At the same time, a larger share of the local tax burden may shift to residential property from other taxable property such as agricultural land, utilities, and natural resources. In addition, even if the overall property tax burden does not increase, a larger share of the local tax burden can shift from those other types of property to residential property, and thus from businesses to home owners. Since 1986, residential property in Montana has born an increasing share of the overall property tax burden. (figure 14) And this shift has increased the property tax burden that many Montana homeowners bear. Until 1990, the shift was due primarily to collapsing natural resource prices. Tax revenue from natural resources declined from $241 million, or 21% of all state and local taxes, in 1985 to $110 million, or 6.5% of all taxes, in In 1987, residential property taxes in the six Montana counties most dependent on natural resource taxes rose 97%, more than twice the state average, despite the fact that assessed residential property values were falling. $1, Natural Resources Residential Utilities & Commercial Property Millions of Dollars Business Equipment Figure 14 Changes in Montana s property tax base, 1986, 1991 and % Property Sales Income Other* Natural Resources Percent of Total US Montana Figure 15 Comparison of the Montana s tax base to the average of all states, 1998 After 1990, the statewide shift in tax burden to residential property was due primarily to increasing home construction. The increasing number of homes, not increasing home prices, was the major factor, except in some rapidly growing Montana counties. In 1997, the Montana Legislature attempted to phase in residential property tax reassessments over a 50-year period, but that measure was declared unconstitutional. The 1999 legislature will have to again consider how to reform the property tax system. Without a broader tax base, it will be difficult to shift the tax burden appreciably. (figure 15) Given the broadly diverse interests of the mining and wood products industries, independent loggers, small and large business owners, utilities, ranchers, farmers, and homeowners from Libby to Ekalaka, and given the constraints of Constitutional Initiative 75, broadening the tax base seems a daunting undertaking. Unfortunately, Montanans current antipathy toward taxes tends to obscure the value of the services that taxes support. The bottom line tax issue is not tax dollars themselves, but the value that tax dollars return to taxpayers. Agricultural Land Railroads Livestock Other Licenses Old Workers Video Comp Fund Gaming *Breakout of Montana Other Inheritance Tax

19 6 It May Be the Economy, But What Can Be Done About It? Audrey S. Hall Larry Mayer Moving Workers, Shifting Wages Every year, an average of 14,000 working people move to Montana and a similar number leave the state. And every year, an average of 10,000 working Montanans move from one county to another. Most Montanans are aware that there is movement going on around them. New homes and businesses, more traffic, crowded schools and a changing landscape mark rapid growth in many western counties, while vacant businesses, consolidated schools and emptying towns mark decline in eastern counties. Labor mobility affects how much working people earn in the following manner: Where labor mobility is high, workers who have similar qualifications tend to earn the same wages. There is no mystery in this. If equally qualified workers in different places or industries are paid differently, those who are paid less will tend to move to where pay is better. To avoid losing workers, businesses that pay poorly have to raise wages. On the other hand, if there is an oversupply of qualified workers, businesses that pay well will reduce wages. One widely held explanation for Montana s low wages is that there are not enough good, well-paying jobs in the state. So regardless of their ability, training and education, many Montanans are forced to work for low wages. They are trapped in a state economy that has faltered, the victims of a bad business environment that is caused by poor public policy, overregulation, burdensome taxes, or other government failings. But this explanation assumes that workers are stuck in the state, that labor mobility does not link Montana to the rest of the nation. Whose Tax Burden? Montanans may not like taxes, but at least they know what taxes they pay. Or do they? Tax burden is not necessarily born by whoever is legally required to pay a tax. Businesses pay taxes, but they shift their tax burden to others. It is paid for in the form of higher prices to customers or lower wages to the employees, rather than added on at the cash register after the total is rung up like a sales tax. In this sense, the distinction between business taxes and personal taxes is largely artificial. Ultimately, individuals and families pay almost every dollar in tax revenue raised by government. When a business decides to locate in Montana, the decision will be based in part on the owners ability to shift tax burden from themselves to others. If, for example, Montana s higher business taxes are offset by the state s lower wage rates, in other words, if the owners profit is the same as or higher than it would be elsewhere, owners have an incentive, not a disincentive to locate in Montana. By the same logic, businesses are not going to pay higher than prevailing wages simply because they pay lower taxes in Montana than they might elsewhere. Many Montanans also are aware of the state s changing economy and believe it causes much of this movement. They believe, for example, that the economy is forcing well-educated young people to leave the state and working Montanans to move from one industry to another and from good jobs to bad jobs. It is true that 14% of working Montanans never work in a single industry for as long as two years, and that 17% of those who do stay two years have left within five. But it is not true that they go from good jobs to bad jobs. Most improve their earnings by changing jobs. It is also true that many welleducated young people are moving to Montana despite the fact that their average income after coming here is lower than the state average for their age group. Economists describe such movement as labor mobility, which may seem a polite way to label what others would regard as disruptive changes in people s lives. But in fact, labor mobility, not only in Montana, but across the rest of the nation, determines to a large extent how much working Montanans earn, how their earnings differ from those of other Americans, how big the gap between the richest and poorest Montanans is, and what the prospects for improving living standards in the state are. The continuous movement of working people into and out of Montana links the state s labor market to the national labor market. All other things being equal, labor markets that are linked by high worker mobility tend to have similar wage rates. The linkage is not perfect because mobility is influenced by other considerations besides wages, and because Montana s labor market is in some ways unique. But more than anything else, the experiences of working Montanans over the past two decades reflect not so much changes that are rooted in Montana, but major transformations in the national labor market. Stuck with Low Wages? Despite wages that are low compared to other parts of the country, many working people choose to move to Montana. The decision to live in one place rather than another is seldom based wholly on wages. Other quality of life values the cost of living, taxes, schools, family, community, safety, open space, rural and scenic landscapes, recreational opportunities are balanced against wages, and are often given equal or even greater weight. If the balance is right, people will move to Montana even if wages are low. If wages or other quality of life values erode, the balance changes and some people will decide to leave the state. If this explanation were true, the least skilled, least educated workers those with the lowest potential to move to a better job would lose the most by living in Montana. But they do not. The wages they earn in Montana are equal to the national average for similar workers. It is the best educated workers, who could earn more elsewhere, that lose the most. Similarly, Montana families with the highest incomes sacrifice the most income to live in Montana. Families with the lowest incomes in Montana do as well as they could elsewhere in the nation. Given the tens of thousands of working people moving into, out of, and within Montana, Montanans do not appear to be trapped. Those who stay, do so by choice. That is not to say that higher wages would not be desirable, but to emphasize that Montana s economy is not at fault. It is no different from that of other non-metropolitan areas throughout the country that offer a comparable balance of quality of life values. In order to earn significantly higher wages, Montanans would have to move to large metropolitan areas in other states, and in doing so would have to accept a very different quality of life. 17

20 Larry Mayer 18 The Worker or the Job? What determines how much someone earns? One answer is education, training, experience, talent, attitude and other characteristics that contribute to a person's productive potential. This proposition is basic to the public s understanding of the labor market. It is also basic to the public s belief that getting ahead requires getting an education, and that equal opportunity requires universal access to education and training. In addition to this understanding, there is an equally sound, and quite different, theory of wage determination. In the late 1970s, the overall growth of real wages in America slowed dramatically, but all wages were not affected equally. The real wages of those at the very top continued to increase, while the real wages of most Americans declined sharply. The reason often given is that the structure of the economy began to change in the late 1970s. Good jobs in high paid industries such as manufacturing disappeared. Regardless of their qualifications, workers were forced to take jobs in low paid industries, such as retail trade and food service. There is truth in both explanations. Wages and earnings do increase steadily with education, training, and experience. In the last two decades, the additional earnings associated with a college education have grown substantially. But it is also true that some industries pay higher wages than others. As a result, Montanans leaving poorly paid jobs in tourism or retail trade generally enjoy large wage gains, while those leaving mining and timber jobs generally suffer smaller, but nevertheless substantial, wage losses. Is the best strategy to further educate and retrain workers who are in poorly paid jobs so they can compete for work in better-paying jobs? Or to recruit businesses that offer good jobs? Or both? All the training in the world will be useless if the available jobs are bad. But good jobs will be beyond the reach of poorly paid Montanans if they cannot compete for them. The tremendous movement within Montana s labor market clearly indicates that Montanans are constantly trying to match their qualifications to the best paying jobs available. But labor mobility throughout the national economy guarantees that Montanans will compete for those jobs, not only with each other, but also with people willing to move into the state. Good, well-paying jobs will always be taken by the best qualified applicants. Can Public Policies Raise Private Wages? Good, well-paying jobs that would be available only to Montanans currently in low-paying jobs will be just as hard to create as to recruit into the state. Many public policy proposals assume that this is not the case. Such proposals assume that somehow good jobs will not attract competing workers from the national labor market. That good jobs are a matter of providing a better business environment lower taxes, fewer regulations, less bureaucracy that protects traditional natural-resource based industries and attracts new high paying ones. Montana already offers generous incentives, such as loan programs and tax credits, to attract new businesses. Certainly, one of the strongest incentives a business would have to locate in Montana is the low prevailing wage rates. Despite apparently unflattering comparisons between Montanans earnings and the national averages, the available economic data strongly suggest that the public discourse should be broadened. Earnings are low because Montana is a nonmetropolitan state with a low population density. It offers a modest cost of living and a unique array of quality of life values. Can Montana do anything to raise wages and earnings? Understanding Montana s circumstances does not ease the distress that many families and communities feel. Even if they are doing as well as can be expected, many surely want to do better. What can be done? Policy initiatives intended to improve the business environment are one answer. Proposals to cut business taxes, offer tax credits, provide investment loans, and reduce regulations or bureaucratic red tape are frequently offered. Such policies are intended to stimulate business activity and increase the demand for labor. They were particularly popular during the 1980s when unemployment was very high. Although the role that public policy played is difficult to measure, it is a fact that between 1990 and 1996, total employment in Montana grew by more than twice the national rate. To a large extent, these new jobs were filled by people moving into the state, not by people already here. At the same time, wages in Montana declined relative to the national average. New jobs were accompanied by lower, not higher, wages. Wages would rise if Montana metropolitan areas experienced growth similar to that of Denver, Salt Lake City or Seattle. But higher living costs and dramatic quality of life changes would result. Would Montanans be better off? More selective economic development based on attracting businesses that pay high wages is a common recommendation. But Montanans would have to compete for such jobs with large numbers of people willing and even eager to move into the state. In order to have the desired effect, business recruitment efforts would have to target an identifiable group of poorly paid Montanans who are qualified for better jobs, and then ensure that those Montanans get the new, better paying jobs. This approach presents a difficult challenge, complicated by the fact already stated: Montana s lower wage rates are one of the strongest incentives a business might have to locate in the state. So what is the best way to help Montanans increase their wages? The most fundamental and broadly accepted public policy approach to helping Montanans is to improve their chances to compete for better paying jobs. The most fundamental way to improve their chances to compete is to provide the education and training necessary to meet the demands of a changing economic world. We need industry or something that s going to support us. Not big time, but something that will keep our young people here and support our state the way we want it...we don t want a lot of people. We want to keep our little town, but we want to survive. Cascade county grandmother

21 Summary Montanans face a dilemma that they have long been aware of. The kind of economy that could afford all of their children the good career opportunities that they have studied and trained for that could allow all their children to build lives in Montana as they have is probably not possible in a state as large, remote and sparsely populated as Montana. Such opportunities are to be found in large, densely populated metropolitan centers such as Denver and Seattle. Montanans choose to live in Montana because it is not like such places. It is vast and open and diverse One can lose oneself in its spaces. At the same time, one can feel welcome and at home anywhere in the state in any community and in any place, however remote, where one might run into another Montanan. Montanans have sacrificed and are willing to sacrifice economic opportunity in order to enjoy the particular quality of life that these values define. Such values are beyond simple economic measure, but they often seem threatened by economic realities. Growth creates jobs, provides more diverse career opportunities and raises incomes, but it also raises the cost of homes and changes the character of communities. Neighbors tend to become less familiar and neighborhoods less cohesive. Open spaces fill up. One can feel alone with 19 people all around, or crowded in places where privacy was once abundant. A sure sense of who one is and how one fits in, becomes less sure. Such changes can be very unwelcome. They weighed heavily on the minds of the Montanans who participated in this study. They will weigh heavily in public policy decisions about future economic development and growth. The enduring values embedded in Montana s landscape its expanse, diversity, and scenic beauty its forests, watersheds, wildlife, fertile soils, productive grazing land, mineral and energy deposits have immense cultural and economic worth. They are also intimately linked one to the other. Decisions about how these values should best be utilized to ensure the well being of present Will Brewster day Montanans and, at the same time, protect the inheritance of future Montanans will be difficult. The Montanans who participated in this study seem in agreement that caution and moderation are in order. They have struck a balance in their own lives, often at considerable sacrifice, between what they want for themselves and their families alone, and what they and their families can only have if it is shared by all Montanans. Montanans correctly perceive that outsiders, whether individuals or corporations, are a threat if they want to shift the balance only to favor themselves.

22 Montana Voices I don t adapt well to rapid change. And a lot of times it s been my experience that when there s rapid change, usually disaster follows. Bozeman business man I think how beautiful Montana is and the opportunity for privacy. Kalispell working mother We can be at a lake. We can be in the mountains. We have everything right here. Kalispell electrical lineman Just an awesome life It has everything I want. Havre sales manager 20 John Reddy Donnie Sexton, Travel Montana I think about a lot of other places where you might make a better living, but when you look at the overall values of living here, it seems like a better environment to raise a family. Havre mother Your neighbor is your friend. Missoula woman You have to have one hand on the wheel and one hand free because when you go by somebody you wave. Bozeman man In know where I live is an attractive place to live, and I certainly wouldn t feel ill towards somebody moving into the state looking for the same thing I m looking for. But more people bring more problems. Billings man A lot of outsiders are moving in and trying to change the way things are. Bozeman service manager A lot of the people that come have a lot of money. That is what creates hard feelings. Kalispell school counselor They re not landing here in a Volkswagen beetle They are coming in their Land Cruiser. Missoula man I took my kids for a walk over Thanksgiving at my mother s house. I realized there s a real difference in size between the biggest house and the smallest. When I grew up there wasn t much difference. Missoula father You have all this influx of people in the western part of the state. The older generation that have lived there all their lives can t afford the property tax. They re going to move somewhere else. Havre working mother We have to have growth. We have to have something where the state isn t stagnant. It is more and more stagnant I love Montana dearly, but we have to realize the fact the we ve got to have some people coming in." Great Falls retiree I just think about trying to make ends meet Fifteen years ago when I was single trying to raise two kids by myself it seems like I was doing better than I am now. Great Falls cosmetologist. Twenty-five years ago, my mother never worked Now, we re seeing both parents working You have to both work. Miles City policeman The younger people who are looking for jobs There is nothing here. We re not looking out for them. We have to have some industry. Retired Great Falls grandfather Kids in college are going to move out. They get their engineering degrees. They re not going to stay. There are no jobs here. Montana State University student It s a catch 22 situation because if we want to create jobs for those kids with those kind of aspirations then we are going to destroy the Montana that we used to know and like That s our choice. I think a lot of people are aware of that and a lot of people resist change Bozeman business owner I think we should be resigned to the fact that if our kids want high paying jobs they have to leave Montana. Bozeman business owner My son graduated master in civil engineering And he got on with Rockwell International with the space shuttle down in California. He loved it, he hated California.So he called me one day. He was gone seven years. He said, "Mom, we ll come home if we starve to death. Great Falls retiree Do you want to live here? I think it boils down to values as much as economics. Bozeman campground owner John Reddy We don t have an awful lot of anything. But if your lucky enough when you get older to have everything you ve got paid for you can generally live pretty decent. Retired Forest Service employee.

23 Commissioned Research Papers Industry Attachment and Change Among Montana Workers, Richard N. Barrett The Montana Discount: Who Earns Less in Montana, How Much, Why, and What Can Be Done About It Richard N. Barrett Montana Workers Labor Market Experiences During Industrial Transition: Richard N. Barrett and Thomas M. Power Public Capital In Montana Douglas Dalenberg Poverty in Montana Paul E. Miller and Charles Harris The Cost of Housing and the Cost of Living in Montana: Thomas M. Power Pay Per Job and Economic Well Being In Montana: National Comparisons and Trends Over time Thomas M. Power The Changing Structure of the Montana Economy: Thomas M. Power Montana s Changing Migration Patterns Christiane von Reichert Who Are The Migrants and Why Do They Come? Analysis of Survey Data Focusing on Return and New Migrants to Montana Christiane von Reichert Taxes and Spending in Montana: Selected Trends and Comparisons with Other States Douglas J. Young Figures, Maps, and Table Page 6, figure 2 Page 10, maps 1, 2, and 3 Page 11, table Page 11, maps 4, 5, 6, and 7 Christiane von Reichert Page 9, figures 5, 6, and 7 Page 12, figure 8 Page 13, figures 9 and 10 Thomas M. Power Page 14, figures 11 and 12 Richard N. Barrett Page 15, figure 13 The Center on Budget and Policy Priorities Page 16, figures 14 and 15 Douglas J. Young

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