Valuing Montana: An Economist's Observations 

Thomas Power | Economics Professor Emeritus, University of Montana

We are regularly told that the Montana economy is failing.

That is a theme that one heard, especially during the Great Recession, but also before that, during poor times going back to the ’80s. Even during the 1990s and the first part of the 2000s, despite ongoing growth in population and income relative to the rest of the country, in addition to lower unemployment rates, even during the good times in Montana, we are regularly told that the Montana economy is in fact failing.

The basis for most of those concerns that there is something seriously wrong with the economy is tied to the fact that the most familiar metrics that we use to try and indicate how well off Montanans are compared to the rest of the country are averages: average pay per job, average income per capita. Judged by those measures the economy certainly appears to not be allowing Montana residents to live at as high a standard of living as the rest of the country. We’re seriously behind.

That emphasis on economic failure concerns me for several reasons.

First, it is disempowering. Beggars can’t be choosers is what we are being told. It’s that we are poor. That the failure of the economy has impoverished us as a people.

It also bothers me as an economist because other facts on the ground don’t seem to confirm, in fact they conflict, with the argument that Montanans are living at a substantially lower standard of living than what can be found elsewhere in the United States. Montana has had ongoing migration, people voting with their feet, moving into Montana throughout the last forty years with one exception being back to back recessions in the 1980s.

When you look at what decisions people are actually making about where they want to live and raise their families, or where they want to start new small businesses, there is no evidence that the Montana economy is failing.

Either something is wrong with those numbers, or there is something wrong with Montanans and the people moving here.

There is another thing which bothers me about interpreting those economic indicators as saying the Montana economy is failing: that interpretation is horribly insulting to all of us. It suggests that either we’re stupid, we don’t know how poor we are, or that we’re losers—we stay here because we’re stuck here the way people were stuck in Appalachia. It implies that we are a bunch of dregs, that if we went somewhere else, wouldn’t be able to find a good paying job. It implies that we are just the residual that is left here.

I think all of those interpretations of economic indicators are simply wrong.

Let me start with the facts. Nobody is making something up when they say pay per job in Montana is the lowest in America. Since the mid-80s that has in fact been true. And the gap between pay per job in Montana and pay per job in the United States is over $16,000 per year. The average person elsewhere is earning a third more than we are. Put the other way around, our average pay per job would have to increase by 50% to for us to be earning what the average worker elsewhere in the nation is earning.

For someone to be able to say that each and every worker, on average in Montana, is losing $16,500 a year to live in Montana is an astounding measure of sacrifice or depravation. It is not surprising that people point to that and say, what is going on here?

Montana is one of the lowest paid states in terms of pay per job. That is one unique black mark for the state. There is something else that is unique as well that isn’t just coincidental. We are also the least, outside of Alaska, densely settled state in the United States. That very dispersed, low density population, living in relatively small cities or rural areas, is not unrelated to low per capita income and low pay per job.

In fact pay varies directly with the density of settlement. Per capita income rises directly with the density of settlement. Citizens who live in our largest urban areas also receive the highest incomes. They also have the highest pay per job. That is not surprising. All of us know that. If you live in Polson you can gripe about the pay level. But all you have to do is move to Missoula and you have access to higher pay levels. And if you don’t like the levels in Missoula, you can go to Spokane, a larger city with higher pay levels. If that is not high enough for you, you have Portland or Seattle, still higher.

We all know there is a link between how large the cities that we live in are and their level of pay. Yet some of the largest areas, those with the highest pay per job and highest per capita income, are areas that are losing population, states such as Massachusetts, New York, New Jersey, etc., while some of the lowest paid states in the Union, including Idaho, Montana, Utah, Arizona, and New Mexico, have been gaining population. Again people voting with their feet have been leaving what are supposedly the rich and prosperous areas and moving to the poor, low income areas.

That tells us something about the rationality of interpreting those simple measures of pay per job or per capita income.

The reason that pay per job, per capita income, is as low as it is in Montana is very simple: we’re willing to work for lower wages. No one has to bid up pay beyond a certain point. Businesses don’t voluntarily, not just businesses but hospitals and universities, don’t have to bid up pay in order to get the quality of worker that they want or that they need. The fact is that people are willing to sacrifice substantial levels of income to live in Idaho, or Utah, or Montana.

It is because they are willing to sacrifice that average pay that per capita income is as low as it is.

Put it the other way around: businesses in New Jersey or Washington, D.C., or Los Angeles don’t out of the goodness of their heart pay higher wages. They don’t say, “Ah, we’re wealthy, let’s share the wealth. We’re just feeling good, making so much money here, we’re just going to share it with our workers.” The fact is to get the quality of work force that they want, they have to pay those workers more. It is partly because the cost of living in those densely settled areas is higher, so the purchasing power of a dollar in Los Angeles or Manhattan won’t buy anywhere near as much especially in terms of housing. But the disamenities of urban life are another part: the congestion, the levels of pollution, the distance and time spent commuting, the threat of crime, on and on. People don’t want to live in this sort of context.

So part of the higher pay that people in more densely settled areas are getting is like the battle pay that the military used to give.

Part of the problem with using per capita income and average pay is that we forget who we are comparing ourselves to. We think we’re comparing ourselves to the average U.S. citizen, but we don’t ask where that average citizen is living. Over 80 percent of the American population lives in large metropolitan areas. Until Missoula became a metropolitan area the statistics were the opposite, only 20 percent of Montanans lived in metropolitan areas, small ones at that. The average American lives in a city of over a million people. And they get paid with the wages and salaries that are typical of someone living in a city of one to three million people. The problem with Montana is that we don’t even have a million people in the entire state! But Montanans have not chosen to try to live in that sort of dense urban setting.

What I would emphatically state is that you can’t expect big city wages if you want to live in small town, rural America. Markets just don’t work that way.

One economist has described this decision in terms of us getting two paychecks: one is our income measured in per capita income or average pay per job, the other is measured in the value of the social and environmental amenities that have drawn us to Montana or Idaho or other Western states. It is the combination of those two, the value of the amenities and quality of life combined with the monetary pay levels, that we have to make a decision about. That is where we make our choice about where to live. We are looking at balancing social resources or public resources related to open space, spectacular landscapes, recreational opportunities, the friendliness of a smaller city, the ability to participate at a more intimate level in our schools or in our political system or in our neighborhood councils.

We have looked at the positive aspects about living in Montana. We’ve looked at what we have to sacrifice in terms of pay and income, and made a decision.

Just like people living in Manhattan look at what they have to pay for a tiny, dirty apartment, and put up with the risks associated with living in that very densely settled area, they look at the positive aspects associated with the cultural amenities—the high monetary pay—and they make a choice. I think that is what Montanans have to get back to being conscious of: nobody brought us here or forced us to come here. We aren’t trapped here. It’s not that we’re ignorant about the fact that pay is higher elsewhere, we have made a choice. And we need to be conscious about the fact that it is a good choice. And when politicians are talking about how poor we collectively are, we need to understand that they are insulting our choice. They are saying that we made a stupid choice, that none of us should be here unless pay can be 50 percent higher.

The fact that we are here, that we stay here, and we continue to see others making the same sort of choices we are, contradicts their claims. We are making a choice. The fact that this choice costs us something is not a sign that it is a bad choice.

The point that I’m trying to emphasize is that we need to be more conscious about why we are here. We are not here because we are dumb, because we are incompetent and did not know any better. We are not here because we are irrational or that there is something funny in the water. We made choices.

And from my point of view, having been here for well over 40 years and having seen a lot of the world before I moved here, I and my family made good choices.

It’s a wonderful place to raise a family, to live, to start a business.