Source: Bureau of Labor Statistics, Department of Labor via Argus Leader

Bottom 10

In Average Hourly Earnings in Private Industry, 2008

New Mexico: $18.73

Montana: $18.43

Iowa: $18.35

Kentucky: $18.07

West Virginia: $17.70

Idaho: $17.43

Oklahoma: $17.43

Arkansas: $17.21

Mississippi: $16.89

South Dakota: $16.53

ANNA BAHNEY

The Argus Leader

SIOUX FALLS, S.D. (AP) - South Dakota has the lowest average hourly wage in the nation, according to a recent study by the Department of Labor.

Workers here make $16.53 per hour in private industry, well below the national average of $21.62.

The wage, from 2008 data, was a little more than half that made by the highest earners - the residents of Washington, D.C., who earn an average of $32.37 an hour. The study places wages in the state behind Minnesota ($23.23 per hour), Nebraska ($19.79) and Iowa ($18.35) and in the company of states such as West Virginia, Arkansas and Mississippi.

For many who study labor and employment in South Dakota, the low numbers are the latest in a trend of low wages.

South Dakota has been at the bottom of wage lists for decades and, despite state initiatives, studies and investment, it remains unmoved.

Why are wages consistently so low? Experts said a web of forces that includes the state's low levels of urbanization, educational attainment, a lower-than-average tax burden and lower levels of unionization are at play.

"Our economy has modernized and we're a service economy," said Ralph Brown, professor emeritus of economics at the University of South Dakota. "But what we're missing is the high knowledge-based and high human-capital type services."

To change the job make-up here, said Reynold Nesiba, associate professor of economics at Augustana College, the state needs to move toward a development model he calls "economic gardening" as opposed to "smokestack chasing."

"We attract out-of-state firms with our low corporate and low personal income tax," Nesiba said. "But it is a development strategy that will leave us in last place."

The question he said, is, "Can we grow our own? Can we assist our own entrepreneurs in South Dakota with the education, training, marketing and investment that will make them want to start their working life here?"

South Dakota did not rank last in all occupational categories - only one, manufacturing. But it was in the bottom 10 for most industries for which data was reported, including construction, trade, transportation and utilities, professional and business services, education and health care.

It was out of the bottom 10 in only one category, leisure and hospitality, for which it came in 38th.

Perhaps most disconcerting to those who study the working life of South Dakota is that the circumstance has remained unchanged for so long. Ten years ago, Brown prepared a state wage study as part of a governor's task force. At the time, he found that there was a 29 percent wage gap between the average annual pay in South Dakota and the U.S. average.

If his 2000 wage study was updated - which Brown said he would like to see done by an incoming gubernatorial administration - he doubts that the results would be substantially different.

"The same forces are at work in explaining wage differences," he said, and the differences specific to South Dakota "remain substantially the same as they were then."

The single most important cause for the wage gap, according to Brown, is the lack of urban density in the state.

"If you picked up Omaha and stuck it in South Dakota, or if everyone in South Dakota in lived in Sioux Falls, it would be a different economy," he said.

This is because greater density leads to greater worker productivity and higher wages attributed to what economists call "agglomeration." In cities, there is a knowledge spillover as a result of greater specialization.

The second most important factor, Brown said, is the level of educational attainment.

"What can we do to make this change? Ultimately, the data shows clearly that human capital is important, it is a 'build it and they will come' kind of thing. Educate them and they will come. But there is still a lot of outmigration."

Analysis of the labor data shows that states with a more educated population tend to earn higher wages.

Richard Florida, the author and urban studies theorist, did his own analysis of this wage data and found that states such as Connecticut, Massachusetts, New York, Washington and New Jersey have high wages and high education levels, while states such as Mississippi, Montana and the Dakotas are on the other end.

Nesiba agrees.

"Sometimes economists talk about 'match effects,' that the technically educated are more productive when they are around technically educated people," he said. "That group is more likely to be found in cities, and they are more likely people with college degrees and professional jobs. Those all fit together. You have to grow that."

The third most important factor for Brown is the low tax burden in South Dakota.

"The results indicate that state differences in tax burden are capitalized into wages," Brown said. "This indicates that workers living in high-tax states receive a compensating wage to account for the higher tax burden."

He also agrees with others who study the economy that low unionization rates are affiliated with lower wages.

Last year, only 5.5 percent of employed wage and salary workers in South Dakota were affiliated with a union, according to the Labor Department. But even when its unionization rate is compared with regional states such as Minnesota (15.1 percent), Nebraska (9.2 percent) or Iowa (11.1 percent), the state is far behind.

"Power matters in economics, and workers have very little power here," Nesiba said. "We have teachers' unions but they aren't that powerful, they have some of the lowest wage rates in the country. Service unions haven't been effective at maintaining their own wage rates in this downturn. Workers able to come together and bargain collectively for higher wages and benefits is an important factor."

Of course, there are some challenges because of the makeup of the state's work force.

"We don't have a large manufacturing basis," Nesiba said. "Farmers, financial firms and retail jobs are not heavily unionized, and we have a lot of those jobs."

Those who work in organized labor have come to expect little from South Dakota but remain hopeful.

"South Dakota thinks if you have people with jobs, it is good enough," said Mark Anderson, president of the South Dakota State Federation of Labor, AFL-CIO. "It isn't. It doesn't trickle down to everyone. You've got to have money at the bottom. If they are making good wages, they can make a living, pay their taxes, they don't have trouble and the money bubbles up."

Nesiba said that public policy to support higher paying jobs is needed at the state and city levels.

"When we're using our local or state development funds, we need to say to businesses coming in, 'We're not going to give you a subsidy unless you will pay employees $20 an hour. We have too many low-wage jobs, we need those that are created to pay a living wage.'"

___

Information from: Argus Leader

Steve Beach, a network operations tech at Midcontinent, works at his computer console Monday at the company's downtown office. Workers in the Midcontinent network operations center make more than the average South Dakota wage of $16.53 an hour, according to Midcontinent Communications spokesman Tom Simmons. (Elisha Page / Argus Leader)