County Slow Rate of Tax Increases

Contact: Dale J. Knapp or Todd A. Berry
or October 22, 2010

Wisconsin Firm Creation, Wages Lag Nation
WISTAX Study Explores Roots of States Economic Problems

MADISONWisconsin is spawning new firms at a rate less than all but eight states. Since 1994, an average of only 4.5% of all private firms in the state were new in any quarter, a firm-creation rate well below the U.S.average (5.4%). The finding was part of a new Wisconsin Taxpayers Alliance (WISTAX) analysis, "Wisconsin Jobs and Wages: A Wake-Up Call?," that examined job and wage trends, as well as firm creation. WISTAX is a nonprofit, nonpartisan research organization devoted to citizen education.

"With national research showing that most, if not all, net new jobs come from firms that are five-years old or less, our lack of firm creation is troubling," observed Todd A. Berry, WISTAX President, "and it goes a long way toward explaining Wisconsins lack of job growth over the last 15 years."

Several factors could contribute to the dearth of new firms here, WISTAX found. Among them were the states particular mix of industries, its relative lack of investment capital, and several aspects of its "business climate." According to WISTAX, new firms were more likely to emerge in construction, professional services, and information technology, and less likely to be found in manufacturing or health/education. Wisconsins challenge is that its employment is concentrated less in the first three areas and much more in manufacturing. This "industry mix" leaves the state at a disadvantage compared to others.

Wisconsin also appears to lack the startup capital needed by new firms. From 1995 through 2008, venture capital here averaged $13 per capita, or 36th among the states. Nationally, venture capital averaged nearly $110 per capita. Among its neighbors, only Iowa was lower, while Minnesota averaged nearly $85 per person, more than six times Wisconsins amount.

The weak rate of firm creation is one reason why Wisconsins average job growth (0.8% per year since 1994) lagged the nations (1.3%), WISTAX said. However, what might be more troubling is loss of jobs in key industriesthat is, those employing a greater share of workers here than elsewhere. In each of the states 10 key industries, employment declined both here and nationally over the last 15 years. That said, declines were often smaller here. Wisconsins top three industriespaper, machinery, and electrical equipment manufacturingreduced employment by 35%, 22%, and 31%, respectively.

Also examined in the WISTAX research were Wisconsins lagging wages. Since 1981, inflation-adjusted wages here rose 18.5%, compared to 27.0% nationally. Thus, average wages here were 13.1% below the U.S. average in 2009. Lagging wages cut across industries. WISTAX found that Wisconsin trailed the nation in 70 of 81 industries studied. In 24 industries, average wages here were at least 20% below the national norm. Pay was higher in several key industries, including electrical equipment, food, and paper manufacturing, and in printing.

When employment was analyzed by occupation, Wisconsin was at a significant wage disadvantage in high-pay areas. Of eight occupational groups with average wages over $50,000, Wisconsin was 10% or more below the national average in seven. Only high-wage medical jobs paid more here than elsewhere. By contrast, Wisconsin employers often paid above-average wages in "blue-collar" fields, such as construction, production, and maintenance.

Lagging productivityor output per workerwas an important factor contributing to Wisconsins below-average wages. In 1969, state productivity was 5% under the U.S.; by 2008, it trailed the nation by almost 15%, a deficiency found across most industries.

WISTAX also found that about 160,000 new jobs are now required to restore Wisconsin employment to 2007 levels, and at least 10,000 more jobs are needed to return the state unemployment rate to under 5%. To do that, WISTAX suggested that there needs to be greater emphasis on improving the states rate of firm creation and on increasing the amount of capital available to new firms. Longer term, Wisconsin needs to stem its erosion in relative wages, either by raising the productivity of current workers or by creating new high-wage jobs.

A free copy of The Wisconsin Taxpayer titled "Wisconsin Jobs and Wages: A Wake-Up Call?" is available by visiting www.wistax.org; e-mailing ; calling ; or writing WISTAX at 401 N. Lawn Ave., Madison, WI .

The Wisconsin Taxpayers Alliance, founded in 1932, is the states oldest and most respected private
government-research organization. Through its publications, civic lectures, and school talks, WISTAX aims to improve Wisconsin government through citizen education. Nonprofit, nonpartisan, and independently funded, WISTAX is not affiliated with any groupnational, state, or localand receives no government support.