Area Economy

Report finds ALICE can't afford to live here anymore

October 3, 2014
| By Lou Glazer |
Print
Text Size:
A A

Conventional wisdom among Michigan business, political and media elites seems to be that Michigan is back. It may be for them and their enterprises. But for the rest of us, not so much.

An important new study from the Michigan Association of United Ways (I am a member of its board of directors) provides compelling evidence that Michigan is anything but back. The report is entitled “Alice,” which stands for Asset Limited, Income Constrained, Employed. The research for the report was done by researchers at the Rutgers University-Newark’s School of Public Affairs and Administration.

The report's bottom line: 40 percent of Michigan households earn too little to provide for basic needs. This includes 605,210 (16 percent) households below the federal poverty level, and 930,503 (24 percent) ALICE households. The ALICE households are calculated based on the average minimum costs for households in Michigan for the five basic essentials of housing, child care, food, health care and transportation.

The report includes data by county, adjusted to the cost of the basics in each county. For the seven-county region including Kent, Ottawa and Muskegon counties, 38 percent — or about 190,000 households — earn too little to provide for basic needs. For the region 14 percent are below the federal poverty level and 24 percent are ALICE households.

The ALICE households, by and large, have a working adult. But they are in jobs that pay too little to meet the Household Survival Budget. The report's authors found that 63 percent of jobs in Michigan pay less than $20 per hour, with the majority paying between $10 and $15 per hour. A job that pays $20 per hour full-time totals $40,000 per year, which is about $10,000 less than the Household Survival Budget for a family of four in Michigan.

The authors also found that the safety net available to Michigan households isn't adequate for the average poor and ALICE household to meet the Household Survival Budget.

"The income of ALICE and poverty-level households is supplemented with $30.6 billion in government, nonprofit and health care resources,” the report stated. “Despite these public resources, ALICE and poverty-level households remain 13 percent short of the income needed to reach the ALICE threshold."

Another major finding is that there are lots of ALICE households in every Michigan county and in every demographic group. This is not just a problem for minority and/or urban households as it is all too often portrayed.

The authors conclude that the answer is the more and better jobs that Gov. Rick Snyder has established as the state's economic goal.

“Reducing the number of ALICE households requires a significant increase in the wages of current jobs or in the number of medium- and high-skilled jobs in both the public and private sectors in Michigan,” the report stated.

An analysis from Paul Traub, business economist at the Detroit branch of the Federal Reserve Bank of Chicago, entitled “The impact of the changing structure of employment on wages in Michigan,” explores why Michigan is now a low-wage state. 

Traub looks at employment and wage changes in Michigan from 2000-2013. He reports Michigan's annual weekly wage in 2000 was 5 percent above the national average; in 2013, it was 5 percent below.

Traub finds that the prime cause of Michigan becoming a low-wage state is the changing structure of the Michigan economy. Michigan's 20th century prosperity was built primarily on lots of high-paying factory jobs. But since 2000, manufacturing jobs in Michigan have declined by 37 percent and the sector's wage premium compared to the country declined from 16 percent to 4 percent. The story is the same in construction with job losses of 35 percent and a wage premium decline from 15 percent to 1 percent.

The big declines in manufacturing and construction jobs mean that Michigan's economy is now more concentrated in services. And except for education and health services (where Michigan still enjoys a 2 percent wage premium), Michigan is really a low-wage state: Information, wages 71 percent of the nation's average; Financial Activities, 75 percent; Professional and Business Services, 89 percent; Leisure and Hospitality, 84 percent; and other services, 86 percent.

In an economy that is increasingly services based, Michigan faces two challenges that must be addressed if we are to be a place — as was true here for most of the 20th century — where if you are willing to work hard you can earn enough to raise a family and pass on a better opportunity to your children. We need higher wages across all service industries. And we need far more growth in the higher paying knowledge-based services. Too much of Michigan's job growth for more than two decades has been in the lowest paying service industries.

Lou Glazer is president of Michigan Future Inc.

Recent Articles by Lou Glazer

Editor's Picks

Comments powered by Disqus