Making a better future for the next generation in Michigan.

Out of School and Back to Living With Parents? Our Kids in the 2040 Economy

Jan 11, 2023 | Economy, Income, People | 0 comments

Today’s young adults are better educated than any previous generation, but are living at their parents’ home longer than past generations, are slower to buy a house of their own, and slower to start families. Many – especially those without college degrees – earn less than their parents did at their age if you adjust for inflation.

What can you say about economic opportunities for our kids in 2040s? A 2022 survey by the Pew Research Center found 72% of Americans polled were pessimistic about their children’s future financial well-being.

I believe this pessimism about the future is unjustified. In the 10 years up to 2021, real per capita personal income – the economic measure most relevant to people’s lives — increased 29% in Michigan. If we keep incomes growing as they have — and the world doesn’t go crazy – there should be plenty of income to go around in the 2040s. If some of our children and grandchildren are being left behind, maybe we just need to distribute that income a little better.

Looking ahead, how can Michigan and North Carolina policy makers make sure we get this right? Do we just need to make sure our kids get lots of education and our state keeps up the things that have made us successful in the last 10 years?

What creates economic opportunity for the next generation?

There are dozens of ideas about how to create economic opportunity in our states. Michigan was recently rated the 16th best state for business in the country by CNBC. Their “88 metrics in 10 broad categories of competitiveness” seem pretty common sense to create a good economy: cost of business, workforce, quality of life, economy, infrastructure & transportation, technology & innovation, education, business friendliness, access to capital, and cost of living.

I wondered if those measures actually had an impact on the future prospects for our kids, so I went back in time to CNBC’s 2011 ratings and did a correlation study (using Pierson’s r for you statistics buffs) between their ratings in 2011 and the subsequent growth of per capita personal income in the states for the next 10 years.

The results? Surprisingly, there was only a slight relationship between CNBC’s total state rankings and personal income growth in the next 10 years (r = 0.11, data available on request). To give some examples, Utah was ranked as the 8th best state for business an d was first in personal income growth at 47% over 10 years, but Nevada was second with 41% even though it was ranked 45th for business by CNBC. California came in at third with 38%, despite being ranked 32nd for business.

Digging deeper

CNBC provided state rankings for the individual items that went into its overall index. Those were a little more helpful in figuring out what actually provides increasing the incomes for people of a state. Some conclusions from the individual item correlations:

  • First, there were a couple large negative correlation between a state’s potential for income growth in the next ten years and its current economy and education quality. So, the better your economy and education system, the worse your state will do on future income growth? Someone smarter than I am will have to figure that out. We know that incomes rise with education.
  • Second, there were some factors that did not seem to matter one way or the other including: quality of life, business friendliness, or the cost of living. There was hardly any relationship between those factors and future per capita income growth.
  • The things that did seem to matter a lot – with correlations above 0.3 — were workforce readiness, infrastructure and transportation, technology and innovation, and access to capital.

Where does that leave our hopes for a prosperous next generation in our states?

Policy makers might want to think about a couple insights from this analysis:

  • It suggests to me that states don’t have to push too far in the direction of “business friendliness” (low tax, low regulation) to create a prosperous future for the next generation. The correlation just isn’t there. Being average on business friendliness is probably good enough.
  • On the other hand, doubling down on workforce readiness, infrastructure and transportation, technology and innovation, and access to capital all correlate with growth that puts money in the pockets of a state’s citizens. Those are areas on which all states can encourage progress through their programs and budgets.

That’s what I see when running the correlations. This is a quick and dirty study, so I wouldn’t bet millions of dollars on it. There are many people who are more expert on economic growth than this old blogger, and many studies that are better researched than CNBC’s business rankings.

What are your thoughts?



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