State economic rankings suggest Michigan’s path to improvement

Originally published at Mackinac Center. 

​Michigan’s economic health and fiscal policies are critical for its future prosperity. Understanding where the state stands in various economic freedom measures can help identify areas for improvement and guide policy decisions.

Fraser Institute Rankings

The Fraser Institute publishes the Economic Freedom of North America index, which evaluates how states' policies support economic freedom. The index considers three main areas: government spending, taxes and labor market regulations. Higher scores indicate greater economic freedom.

In the latest report, Michigan ranks 31st in economic freedom among U.S. states. This ranking reflects areas where Michigan lags in supporting economic freedom and highlights opportunities for policy improvements.

Government Spending: This component measures the size of government relative to the economy. Lower government spending relative to GDP indicates more economic freedom. Michigan ranks 28th, suggesting a need to control spending better.

Taxes: This component assesses the impact of taxes on economic incentives. Higher tax burdens discourage investment and economic activity. Michigan ranks 19th, indicating room for tax reforms to enhance economic freedom.

Labor Market Regulations: This component examines labor market regulations, such as minimum wage laws and forced membership in a labor union. Stricter regulations can reduce economic freedom by limiting the flexibility of labor markets, thereby making it more difficult for employers and employees to find the best fit for each other. Michigan ranks 38th, so improving labor market regulations can help Michigan enhance its economic freedom ranking — improving opportunities for employers and employees alike.

Economic Factors

Labor Market: The latest BLS data shows Michigan’s unemployment rate is 3.9%, the same as the U.S. rate. But the number of employed persons increased by only 0.9% over the past year, half the national growth rate of 1.8%. The slower hirings highlight the need for more job opportunities from faster economic growth in Michigan.

Employment Trends: According to the Michigan Labor Market Information, the state has seen slow employment growth, with particular struggles in industries such as manufacturing and financial activities. This emphasizes the need for pro-growth policies to make it easier for businesses to grow, leading to more and better-paying jobs.

Labor Force Participation Rate: Michigan’s labor force participation rate — the share of people ages 16 and over working or seeking work — is 61.7%. That’s lower than the national average of 62.3%. If you, as a consumer, find fewer employees when you need to talk to someone at a business, that’s an example of why the participation rate matters.
Wage Growth: Wage growth in Michigan has been slower than the national average, affecting the economic well-being of its residents.

Path to Improvement

Tax Reform: Lowering tax rates can support economic growth and attract business investment. Reducing the state income tax and exploring other tax reforms can make Michigan more competitive with other states. A more favorable tax environment can increase business activity, job creation and wages.

Regulatory Efficiency: Streamlining regulations can reduce the burdens businesses face. By simplifying regulatoryprocesses and reducing bureaucratic hurdles, Michigan can make it easier for businesses to start and grow, leading to a more vibrant economy with more goods and services available.

Spending Discipline: Implementing strict budgetary controls can ensure that spending growth does not exceed the combined rate of inflation and population growth, maintaining the state government’s fiscal stability. Michigan can achieve long-term fiscal health by focusing government spending on areas with the largest impact and eliminating wasteful spending.

Labor Improvement: Reinstating a right-to-work law will lead to more jobs.

​By addressing its economic and fiscal policy weaknesses, Michigan can improve its rankings and create a more robust and dynamic economy. Sustainable budgeting, tax reform and regulatory efficiency are key to unlocking Michigan’s economic potential. By implementing these strategies, Michigan can enhance its economic freedom, attract investment and ensure long-term prosperity for its residents.