Conservatively Speaking

Wisconsin's Economic Recovery Will Require Patience

Posted by Mary Lazich on March 5, 2010

Economy, Business

Wisconsin was hurt less than other states during the recession. However, Wisconsin does not possess a magic formula to rebound quickly. Job growth is coming. Unfortunately, a return to prosperity will take a long time.

Two noted experts shared their economic forecasts at a symposium presented at the state Capitol sponsored by the Wisconsin Legislative Council. Mike Knetter, the Dean of the Wisconsin School of Business at the University of Wisconsin-Madison and Rick Mattoon, Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago addressed the U.S. economy and its implications for Wisconsin.

The absence of certain factors prevented Wisconsin from suffering a more severe recession. Wisconsin did not experience the level of overbuilding and excessive lending that swept other parts of the country. News that only Iowa outperformed Wisconsin in the Midwest region during the recession and that Wisconsin’s economy is stabilized provides little, if any consolation to struggling families.

Wisconsin’s unemployment rate has not risen as quickly as the nation’s. American job losses have piled up and returning to previous employment levels will be a daunting task. During August 2009, there were 1.3 million fewer jobs in the United States than had existed during 1999. Richard Mattoon of the Federal Reserve Bank in Chicago does not foresee job growth for a protracted time in part because businesses are hesitant to bring on new employees until they are confident that the downturn is over.

Mattoon offered the audience what could definitely be classified as a worst-case scenario, a study by Rutgers University. Authors calculated America’s job deficit, i.e., job losses plus lack of new job creation, would total 9.39 million by December 2009. “America’s New Post-Recession Employment Arithmetic” reports, “Erasing this deficit will require substantial and sustained employment growth. Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the jobs deficit!”

So what about Wisconsin? We have our strengths. Remember, we excel in manufacturing, a sector the state has outperformed the rest of the country. Agriculture, higher education, patent counts, research and development, licensing and royalties, and a devoted workforce levels are also huge plusses.

Our weaknesses prevent a faster climb out of our economic abyss. Manufacturing, a longtime Wisconsin trump card, has taken a back seat to a national shift toward knowledge and service economies. Wisconsin has a world class university meaning the state is a high producer of human capital. However, we train these intelligent young people and we export them and their innovations.  Additionally, ideas, products and services created in Wisconsin get commercialized elsewhere due to a culture that is big on modesty and low on willingness to take risks.

UW Business School Dean Michael Knetter contends that because Wisconsin is heavy on manufacturing and light on knowledge and service economies, the state seriously lags the rest of the nation in income and wealth. Richard Mattoon sees Wisconsin’s continuing budget deficits as an issue in need of attention.

Michael Knetter’s outlook and advice for Wisconsin: Unemployment will be nine percent at the end of 2010 meaning there will still be a number of discouraged workers. Wisconsin must defend its strengths and at the same time venture into areas like knowledge and service economies that will garner higher profits and wages. He concludes, “We just need to ride out the recession like everyone else.”

Richard Mattoon’s outlook and advice for Wisconsin: The state Department of Revenue predicts pre-recession job levels will not return here until 2012. Wisconsin needs to boost its production and retention of coveted human capital and stabilize its fiscal condition by creating an environment that makes the state a great place to do business.