Md. income growth lags rest of U.S. Hangover from '80s, defense cuts blamed

October 08, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Marylanders' income growth was among the smallest of any state in the nation last year, a victim of defense cuts and a hangover left by the 1980s construction boom.

Although Maryland still ranked fifth in per capita income, it sat in 45th place in income growth in 1992, recording just a 3.6 percent increase, less than the national inflation rate.

The figures, released yesterday by the U.S. Department of Commerce, underscored the difficulties faced by the state as it grapples with shrinking manufacturing and construction industries.

"It's really bad compared to what we enjoyed a few years ago," said Michael A. Conte, director of the regional economic studies program at the University of Baltimore's Merrick School of Business. "It isn't that the standard of living is lower than the year before, but there isn't any growth anymore."

Last year's slight increase brought Maryland's per capita personal income to $23,249. By contrast, the national average per capita income grew by 4.9 percent, raising the national average to $20,114.

But whether the growth rate represented a steady gain that can be sustained was open to question.

At least one economist said that many of the income figures from last year might have been artificially inflated by a surge in increased compensation at the end of the year. Many people, anticipating higher taxes this year, squeezed in bonuses and other income, said Charles McMillion, president of MBG Information Services, based in Washington. Mr. McMillion estimated, for example, that income in the final three months of 1992 grew at an annual rate of 14 percent.

Still, the figures do suggest that the national economy improved last year over 1991. Americans' income grew faster, and income growth in most states exceeded the 3.7 percent national inflation rate.

Residents in only seven states, including Maryland, had income that grew more slowly than the rate of inflation. In 1991, income in 40 states failed to keep up with inflation.

North Dakota highest

North Dakota enjoyed the largest increase, at 8.9 percent, last year, while Florida recorded the slowest growth, at 2.6 percent. Regionally, income in the Plains states grew the fastest, while the Far West grew the slowest. The Mid-Atlantic region, which includes Maryland, grew by 5.4 percent.

Marylanders probably did not see their standard of living decrease, however, because inflation in the state was lower than the 3.7 percent national average, Mr. McMillion said.

The government does not estimate inflation for each state, but his model and a model by Mr. Conte show local inflation significantly lower than the national rate.

Mr. McMillion cautioned, however, that the figures do not reflect the pain suffered by people who are low on the economic ladder.

Many areas overbuilt

"The top 10 percent have done well, but as you go down further you see that real incomes are declining. So for most people, the situation is probably worse than the numbers," Mr. McMillion said.

Part of Maryland's problem stems from its 1980s boom years, when real estate speculation caused many areas to overbuild, said Mahlon Straszheim, chairman of the economics department at the University of Maryland's College Park campus.

Working off this glut could take another year or two and cost further jobs in construction, he said.

A more immediate cause of Marylanders' slow income growth are the cuts in high-paying defense jobs. Such jobs increased rapidly during the Reagan administration's defense buildup.

But now, these jobs continue to be cut. Martin Marietta recently announced that it will cut 500 jobs locally -- indicating that Maryland's suffering is not over.

"These are part of structural shifts that take time to play out," Mr. Straszheim said.

Overemphasis on technology

Another problem, Mr. McMillion said, is a reliance on biotechnology and other new technologies as cure-alls for the state's economic problems.

While new industries can create jobs and raise income, the state government and business support groups have not put enough effort in helping existing industries compete, Mr. McMillion said.

This was partly reflected in the shift earlier this year at the Greater Baltimore Committee. The committee is focusing on members' everyday problems rather than just on visionary plans for economic development.

"Sure, biotech may provide a lot of jobs in 2020, but what are you going to do until then? Business here has not been prepared to meet current challenges, so this state has been badly hit by the recession," Mr. McMillion said.

"It's still a high-income state, but it's paid the price for complacency in the 1980s."

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