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The West Virginia Productivity Miracle

Summary:
After so many articles on America’s troubled Appalachian region, how about a contrarian view? These days, when I hear talk of the economic problems in, say, West Virginia, I think instead of the West Virginia productivity miracle, and I wonder how such an impressive achievement could be possible. I know that sounds crazy, but bear with me. The per capita income of West Virginia is about ,000 a year, which makes it one of the poorest states in the union. Still, at about three-quarters of the national average, that’s higher than many people expect. And because it is cheaper to live in West Virginia than where most Americans live, the per capita income is higher when adjusted for purchasing power parity. In contrast, per capita income in France or Japan, by purchasing power parity measures, is in the range of ,000 to ,000. In other words, if we consider that living in West Virginia is especially cheap, its people may have real incomes roughly equal to the French or Japanese. I have found that even raising such a comparison provokes outrage. After all, we are told, France and Japan have higher-quality public goods, and West Virginia has an opioid epidemic, one of the lowest rates of labor-force participation in the U.S., and one of the highest rates of uptake on disability insurance. But that’s exactly what I mean by the West Virginia productivity miracle.

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After so many articles on America’s troubled Appalachian region, how about a contrarian view? These days, when I hear talk of the economic problems in, say, West Virginia, I think instead of the West Virginia productivity miracle, and I wonder how such an impressive achievement could be possible. I know that sounds crazy, but bear with me.

The per capita income of West Virginia is about $37,000 a year, which makes it one of the poorest states in the union. Still, at about three-quarters of the national average, that’s higher than many people expect. And because it is cheaper to live in West Virginia than where most Americans live, the per capita income is higher when adjusted for purchasing power parity.

In contrast, per capita income in France or Japan, by purchasing power parity measures, is in the range of $40,000 to $41,000. In other words, if we consider that living in West Virginia is especially cheap, its people may have real incomes roughly equal to the French or Japanese.

I have found that even raising such a comparison provokes outrage. After all, we are told, France and Japan have higher-quality public goods, and West Virginia has an opioid epidemic, one of the lowest rates of labor-force participation in the U.S., and one of the highest rates of uptake on disability insurance.

But that’s exactly what I mean by the West Virginia productivity miracle. The more burdened some of the state’s residents are, the higher productivity must be for those who are hard at work. The state has a brighter future than many observers are expecting. There are numerous metrics for success, not all of them positive for West Virginia, but over the past 10 years, the compounded rate of growth for net earnings has been estimated by the Bureau of Economic Analysis at 2.1 percent -- not exactly a train wreck. And, if you’re wondering, the top 1 percent in West Virginia captures a below-average share of the income in that state.

The West Virginia productivity miracle is fairly explicable. The state has a presence in chemicals, biotech, aerospace, metals, biometrics, forestry and tourism, among other areas -- including, of course, a declining coal-mining sector. Chemical and biotech companies DuPont Co. and Bayer AG have seen fit to locate production there, as have aerospace companies Pratt & Whitney and Lockheed Martin Corp., among others. Morgantown, with West Virginia University, has a branch of the National Energy Technology Laboratory, in addition to research centers in the neurosciences and in medicine.

Maybe you’re not overwhelmed, but is that so bad for a state with less than 2 million people, and whose largest city, Charleston, comes in just barely above 50,000 inhabitants?

Most of the major industries in West Virginia have added workers since 1990, and the state’s population is up by about 50,000 people. Again, that performance is hardly an incredible one, but the state isn’t exactly falling into the dustbin. The major job-losing sectors are manufacturing and mining and logging, but that has to be put in context. The state has lost about 13,000 mining jobs since 1990, but gained about 30,000 jobs in leisure and hospitality, and added 60,000 jobs in health care and social assistance. Unemployment is at 6.5 percent -- above average for the U.S., but that’s not the apocalyptic scenario you might have been expecting, and it would be the envy of many a European country. Most of all, West Virginia avoids doing a lot of things wrong, and thus manages to capture most of the core benefits of being part of the U.S. More and more of the West Virginia economy is in services, and productivity in many of those endeavors doesn’t vary that much regionally. To the extent Silicon Valley is wealthier than West Virginia, it is mainly because Silicon Valley has some very successful companies, such as Google and Facebook, and not because the Walmart in Mountain View, California, is so much better-run than the Walmart in Wheeling, West Virginia.

Again, I’m not trying to deny the urgency of the very real problems in West Virginia. But improving West Virginia won’t get very far without an understanding of its significant successes. It’s not that economic development for this region is mainly about turning meth-snorting squirrel hunters into steady workers; rather, it’s that West Virginia needs to build upon its existing strengths.

Unfortunately, West Virginia has some economic problems beyond the ones you usually read about. The state has an unusually high percentage of federal government employees, an area that is perhaps less likely to translate into subsequent entrepreneurship. And better air and road connections could help the tourist sector, but do not seem to be on the way.

Still, for every article about hillbillies and opioids, I’d like to see one about the West Virginia productivity miracle.

Tyler Cowen
Tyler Cowen is Holbert L. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center at George Mason University. With colleague Alex Tabarrok, Cowen is coauthor of the popular economics blog Marginal Revolution and cofounder of the online educational platform Marginal Revolution University.

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