Myth and misunderstanding in Arizona

How much do you know about the economy of your state or region? Does it matter if the general public understands their economy? Robert E. Mittelstaedt, dean of the W. P. Carey School of Business, recently administered a pop quiz at a lunch meeting, and the business leaders in attendance discovered that their knowledge of Arizona is laced with misperceptions. No matter where you live or do business, getting the facts about the economy is important. "Without more knowledge of economic interactions and realities, how can voters make sound judgments on economic issues that show up on the ballot, like bond and tax proposals?" Mittelstaedt asks.

How much do you know about the economy of your state or region? Does it matter if the general public understands their economy? For example, what state created the most jobs last year, ranks third among the 50 U.S. states in carpooling, 15th in high tech jobs, and last in per capita government spending? If you answered Arizona, you either made a very good guess or have spent a good bit of time sifting through a lot of data.

Researchers at the W. P. Carey School of Business have been doing the latter, and Dean Robert E. Mittelstaedt Jr. unveiled some of the findings at a recent Economic Club of Phoenix luncheon. In the process, he exploded some of the myths about the Arizona economy, while revealing how deeply held many of these beliefs are.

Mittelstaedt gave the attendees, most of whom thought they were fairly knowledgeable about the regional economy, a 10-question quiz plus a bonus query on where Arizona ranks on various economic and social criteria. After the luncheon, the tests were scored to see how well Arizona's business leaders know their own state.

Myth and reality

If the exercise had been graded like a college exam, most of the 115 test takers would have flunked. On over half of the questions, more than 90 percent of the answers were wrong, which was defined as being off by more than five points from the correct answer. Only one question was answered correctly by more than a quarter of the respondents, and that one just barely at 26 percent.

"As many of you know, I have been here only three years, and I continue to be interested in and look at the economic information about this community and its amazing growth," said Mittelstaedt, who came to the W. P. Carey School in 2004 after 31 years at the Wharton School at the University of Pennsylvania. "And yet I continue to see things that I think are myths about the economy that I hear from people who have been here a long time."

In per capita income — the most commonly accepted measure of economic well-being — the state is not doing as well as many people think. Asked to name Arizona's probable ranking among the 50 states, the median answer for quiz takers was 30. The state's actual rank is 39, only 11 spots from the bottom.

On the other hand, respondents underestimated the amount of wages Arizona workers make in relation to the rest of the country. The average employee wage in the state is 91 percent of the U.S. average. The median answer for quiz takers pegged it at 80 percent. Likewise, educational attainment in the state was underestimated. The median answer for the state's rank was 40th, when, in fact, it is 26th.

Misunderstanding the economy

There also appear to be some misconceptions about the importance of different components of the state's economy. The state is a leading exporter, ranking 10th among the 50 states, yet the median answer to the question put the state right in the middle at 25. "It is much higher than people realize. There's a lot of export work that goes on here," Mittelstaedt said. But Arizona's reputation for an economy built on construction jobs appears to be exaggerated, according Mittelstaedt.

To a query on the ratio of construction jobs to all jobs in Arizona, the median response was 25 percent. The correct answer is 8.7. "The national average is about 6.7 percent, so it's higher than the national average, but it's not as big as some people think it is," Mittelstaedt said. On the importance of high tech in the state economy, respondents were more on target. Although they gave a wide range of answers when asked to guess the state's rank nationally in percentage of jobs that are high tech, the median answer was 15.

This happens to be the state's exact ranking among U.S. states. There appear to be some misconceptions about the nature of the immigrant workforce. The state is near the top in percentage of workers with H1B visas, which are issued to skilled professionals from other countries. Arizona's rank is 11th. The median response among quiz takers was 16.5. "So how does that factor into the whole immigration debate?" Mittelstaedt asked.

Taxes, spending, and the cost of water

Government spending is a matter that appears to be greatly misunderstood. W. P. Carey researchers discovered that Arizona ranks dead last nationally in total state and local government spending per capita. The median answer was 30th

And respondents did not seem to appreciate the treatment Arizona is receiving from the federal government. Asked to speculate on the amount of federal spending in Arizona for every dollar paid in federal taxes in the state, the median response was 80 cents. The correct answer is $1.30.

The bonus question was crafted by Mittelstaedt while trying to make sense of the economics of water. What is the relative price per unit of water in Phoenix vs. Philadelphia? The median response was 60 percent. The correct answer is 93 percent, but could be as low as 50 percent depending on where one lives. "So the question I keep asking myself is, 'Why do I pay less for water when I live in the middle of a desert than when I lived between two major rivers in Pennsylvania?'" Mittelstaedt wondered.

Another thing that seemed to stump just about all of the luncheon attendees is carpooling. The median guess for the state's ranking was 40th. The actual rank is number three, which Mittelstaedt says is probably a result of programs outside of Phoenix. "That's a mystery that deserves more investigation” Mittelstaedt said. Finally, Mittelstaedt asks "Without more knowledge of economic interactions and realities, how can voters make sound judgments on economic issues that show up on the ballot, like bond and tax proposals?"

Bottom Line:

• The Arizona economy is often misunderstood by people who live in the state, as well as outsiders, and it is likely that few people really understand what drives their local economy.
• While construction is important to Arizona, its role in the state's economy is often exaggerated. It accounts for 8.7 percent of jobs in the state, slightly higher than the national average. Arizona also has a strong high technology sector and is one of the nation's leading exporting states.
• Arizona ranks 39th — not far from the bottom — in per capita income, lower than many people assume. Per capita wages in Arizona are 91 percent of the national average.
• While taxes and government spending in Arizona are often thought to be high, the state actually ranks last in state and local government spending per capita. And the state actually makes out well on federal money invested in the state vs. taxes paid. For every dollar in federal taxes paid in the state, the federal government returns $1.30 in spending.