Demographically, New Jersey is a state in a long, steady slowdown.
- In the 1990s New Jersey's population increased by 9%, or 684,162 people, or 68,000 a year.
- From 2000-2010 New Jersey's population increased by only 4.5%, or 377,544, or 37,000 a year.
- From 2010-2015, New Jersey only increased by 62,000 to 8,854,363, or barely 12,000 a year.
- From 2015 to 2016, New Jersey only gained 9,000 people.
So how, despite tens of thousands of immigrants arriving in New Jersey and births exceeding deaths, did the population grow by barely 9,000?
Simple. Because tens of thousands more people moved out of New Jersey than moved in.
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New Jersey's Net Outmigration Rate is Among the Country's Worst
According to the Census's State-to-State Migration Flows, for the last five years, for every five New Jerseyans who left New Jersey, barely three people came from somewhere else in the United States to replace them.
In 2015-2016, the most recent year for which we have that authoritative Census data, 226,830 people left New Jersey and only 144,359 moved here from elsewhere in the United States. The resulting -82,471 person deficit between in-migration and out-migration is almost 1% of our population. The gap alone is equal to the population of Trenton.
(I am putting the Census data in the format I used it here.)
(the Census numbers include anyone over age 1 and are based on statistical sampling.)
The United Van Lines Survey has ranked NJ's net outmigration as the worst in the country for five years in a row, but the Census's more authoritative State-to-State Migration Flows for the last five years only has us at the third worst, with in-migrants equaling 63% of out-migrants, with only Alaska and New York worse off.
When net domestic outmigration is calculated as percentage of population, we are in second to last place, behind only Alaska, which never had a diversified economy and is reeling from the decline in oil prices.
And no, immigration doesn't save us.
If you factor in international immigration New Jersey's demographic decline is the third worst in the country, after Illinois and Alaska.
The Causes and Implications are Hotly Contested
So what is causing our net outmigration and what are the implications?
From the NJ Treasury's Statistics of Income breaks down NJ's income as follows.
According to the Census's State-to-State Migration Flows, for the last five years, for every five New Jerseyans who left New Jersey, barely three people came from somewhere else in the United States to replace them.
New Jersey's net outmigration rate is higher than states with industrial contraction, like Kentucky, West Virginia, and Michigan. It is higher than the highest poverty states, like Mississippi, New Mexico, and Alabama. It is higher than the bitterly cold states of northern New England, the upper Midwest, and Great Plains. It is higher than the states with the highest costs of living, like Hawaii, California, and Massachusetts.
In 2015-2016, the most recent year for which we have that authoritative Census data, 226,830 people left New Jersey and only 144,359 moved here from elsewhere in the United States. The resulting -82,471 person deficit between in-migration and out-migration is almost 1% of our population. The gap alone is equal to the population of Trenton.
(I am putting the Census data in the format I used it here.)
(the Census numbers include anyone over age 1 and are based on statistical sampling.)
The United Van Lines Survey has ranked NJ's net outmigration as the worst in the country for five years in a row, but the Census's more authoritative State-to-State Migration Flows for the last five years only has us at the third worst, with in-migrants equaling 63% of out-migrants, with only Alaska and New York worse off.
When net domestic outmigration is calculated as percentage of population, we are in second to last place, behind only Alaska, which never had a diversified economy and is reeling from the decline in oil prices.
And no, immigration doesn't save us.
If you factor in international immigration New Jersey's demographic decline is the third worst in the country, after Illinois and Alaska.
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The Causes and Implications are Hotly Contested
So what is causing our net outmigration and what are the implications?
On one side are groups like the New Jersey Business & Industry Association who say that our high tax burden is a major cause. The NJBIA warns that net outmigration damages New Jersey through the loss of workers plus pulling billions in income out of our state.
Starting with a statement that 2 million people left New Jersey from 2005 to 2014, the NJBIA's 2016 report "Outmigration by the Numbers: How Do We Stop the Exodus?" argues:
Although it was undeniable that NJ's population growth was already slowing down, writing in June 2016 Reynertsen attached great importance to the fact that NJ's growth was positive due to immigration and births exceeding deaths.
I think the New Jersey Business & Industry Association may too closely juxtapose net outmigration and high taxes and does not admit that wage income stays in a state when people leave, but the New Jersey Policy Perspective is significantly off-base because it denies that outmigration is legitimate concern at all.
Net outmigration may be a symptom of our economic problems, and not the underlying disease, but it is a phenomenon NJ cannot afford to ignore because Population Growth � Economic Growth and without Economic Growth, New Jersey's debt burdens will become unsustainable.
Although economies also grow due to productivity growth, the lack of population growth is echoed in New Jersey's stagnant economy, since the workforce barely grows. According to the Pew Fiscal 50 from 2007 to 2017, total personal income only grew by 1% a year, the 10th worst rate in the United States.
NJ's jobs problem isn't only one of quantity too, it's of quality as well. Since the end of the Recession, New Jersey now has approximately 100,000 fewer jobs paying above-average wages and 135,000 more jobs paying below-average wages.
However, anxiety about our net outmigration is based on comparing the number of out-migrants we lose to the low number of in-migrants. If you compare the number of out-migrants we have lose to our population and then to what the average state loses, New Jersey is average.
As the title of this blog post says, the problem isn't people leaving New Jersey. The problem is people not coming here in the first place.
New Jersey: A Product Finding Few Takers
What gets the most attention is people leaving New Jersey. This gets a lot of attention because a move from New Jersey is a discernible action.
We all know people who have quit the Garden State and some of us wish we could do that too, but New Jersey's net outmigration rate is so extreme due of too few people moving here, not too many people moving out.
In terms of move-out rate (as in move-outs compared to our population), New Jersey was at -2% per year for 2011-12 to 2015-16, which is actually only the 17th highest in the United States, so actually better than the median.
However, in terms of domestic move-in rate, New Jersey is an abysmal +1.15% a year. That's just ahead of California, New York, and Michigan for worst in the nation.
If you factor in the 314,495 immigrants who came to New Jersey in the last five years, New Jersey's ranking is only the 9th worst in the United States. (not graphed.)
So, the New Jersey Policy Perspective is right that the departure of people from New Jersey should not be called an "exodus," BUT since the people leaving New Jersey are not replaced by many people coming into NJ - from either the US or abroad - New Jersey faces a demographic headwind that cannot be ignored.
The New Jersey Business and Industry Association also says that out-migration cost $18 billion but this should not be taken literally, although I think the claim has much truth to it.
First, the following is the data from the IRS (with additional years included by me) that the NJBIA used to calculate the $18 billion cumulative net loss from 2004-05 to 2013-14. (The years in italics were not used by the NJBIA, but I want to include them to provide historical context for our income outflow has increased.)
Sheila Reynertsen of the New Jersey Policy Persepective disagrees that there is any significant income loss:
Starting with a statement that 2 million people left New Jersey from 2005 to 2014, the NJBIA's 2016 report "Outmigration by the Numbers: How Do We Stop the Exodus?" argues:
The outmigration of New Jersey residents has had a substantial and continuing negative impact on the state�s economy. As New Jersey�s leave the state they not only take their income with them, but they take income taxes, sales taxes, property taxes and purchasing power with them as well. The $18 billion in net adjusted gross income that left the state between 2004 and 2013 resulted in lost household spending of $8.4 billion; total lost economic output of $11.4 billion; total labor income of $4 billion; and 75,000 lost jobs. ...
It is commonly believed that most people leaving New Jersey are headed for the warmer climates of Florida and North Carolina. While these two states are in the top five, the No. 1 outmigration state is Pennsylvania and the No. 2 state is New York; certainly an indicator that weather is not driving location decision-making alone. Rather, this pattern reflects that while people leaving the state would like to lower their tax burden, they want to do so while staying relatively close to family and friends.On the other side is the New Jersey Policy Perspective, which through writer Sheila Reynertsen, say the causes are everything other than high taxes and that there are no economic implications. Reynertsen, in fact, will not use the word 'outmigration' without putting it is quotes, as if it were not a real thing. (eg, "Setting the Record Straight on New Jersey �Outmigration�")
Although it was undeniable that NJ's population growth was already slowing down, writing in June 2016 Reynertsen attached great importance to the fact that NJ's growth was positive due to immigration and births exceeding deaths.
"The 'Exodus' is More Like a Trickle"
New Jersey�s Population, Number of Wealthy Residents and Income Are All Growing � Not Shrinking
Proponents of cutting taxes for the wealthy have framed the so-called �exodus� of New Jersey residents and income as a serious crisis that policymakers ignore at the state�s economic peril. They do so, in part, by ignoring the fact that New Jersey�s population and income are actually growing, not shrinking � leaving policymakers and the public to ponder solutions to problems that don�t actually exist.
The claim of business lobbying groups that New Jersey 'lost more than 2 million residents' between 2005 and 2014 is simply untrue.
In fact, the 2,090,786 people who left the state over that time were replaced by 1,408,718 who moved here from other states and 596,279 who did so from abroad. So if you only look at people who moved, New Jersey � the nation�s most densely populated state � 'lost' 85,789 people over the decade. That comes to less than 9,000 a year, less than a tenth of a percent in a state with nearly 9 million residents.
And, that count doesn�t include New Jerseyans who were born here and stayed here; if you also factor in growing families, the state�s population has consistently grown over the same decade, to 8.9 million in 2014 from 8.7 million in 2005.
I think the New Jersey Business & Industry Association may too closely juxtapose net outmigration and high taxes and does not admit that wage income stays in a state when people leave, but the New Jersey Policy Perspective is significantly off-base because it denies that outmigration is legitimate concern at all.
Net outmigration may be a symptom of our economic problems, and not the underlying disease, but it is a phenomenon NJ cannot afford to ignore because Population Growth � Economic Growth and without Economic Growth, New Jersey's debt burdens will become unsustainable.
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| NJ Needs Faster Economic Growth to Pay its Debts, to Grow its Economy, NJ Needs Population Growth. |
Although economies also grow due to productivity growth, the lack of population growth is echoed in New Jersey's stagnant economy, since the workforce barely grows. According to the Pew Fiscal 50 from 2007 to 2017, total personal income only grew by 1% a year, the 10th worst rate in the United States.
NJ's jobs problem isn't only one of quantity too, it's of quality as well. Since the end of the Recession, New Jersey now has approximately 100,000 fewer jobs paying above-average wages and 135,000 more jobs paying below-average wages.
However, anxiety about our net outmigration is based on comparing the number of out-migrants we lose to the low number of in-migrants. If you compare the number of out-migrants we have lose to our population and then to what the average state loses, New Jersey is average.
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New Jersey: A Product Finding Few Takers
What gets the most attention is people leaving New Jersey. This gets a lot of attention because a move from New Jersey is a discernible action.
We all know people who have quit the Garden State and some of us wish we could do that too, but New Jersey's net outmigration rate is so extreme due of too few people moving here, not too many people moving out.
In terms of move-out rate (as in move-outs compared to our population), New Jersey was at -2% per year for 2011-12 to 2015-16, which is actually only the 17th highest in the United States, so actually better than the median.
However, in terms of domestic move-in rate, New Jersey is an abysmal +1.15% a year. That's just ahead of California, New York, and Michigan for worst in the nation.
If you factor in the 314,495 immigrants who came to New Jersey in the last five years, New Jersey's ranking is only the 9th worst in the United States. (not graphed.)
The New Jersey Business and Industry Association also says that out-migration cost $18 billion but this should not be taken literally, although I think the claim has much truth to it.
First, the following is the data from the IRS (with additional years included by me) that the NJBIA used to calculate the $18 billion cumulative net loss from 2004-05 to 2013-14. (The years in italics were not used by the NJBIA, but I want to include them to provide historical context for our income outflow has increased.)
Sheila Reynertsen of the New Jersey Policy Persepective disagrees that there is any significant income loss:
....the vast majority of income counted by the IRS as �lost� due to out-migration does not depart the state, as the report notes. When most residents leave New Jersey, either for a job in another state or to retire, they don�t actually take their income with them. Instead, that income usually stays with its employer in New Jersey, and is earned by other residents already in the state or by those who move in. Of course, some income, like investment income for example, does move with an individual, but this represents only a small share of the total income �lost.� And by no means does it justify the exaggerated arguments about economic harm caused by out-migration.
Reynertsen is right only that wage income normally stays in New Jersey when people leave, but wage income is only 75% of NJ's total income.
The other 25% of NJ's income is investments, royalties, capital gains, annuities, pensions, and business profits that can usually leave when an individual moves. 25% of such huge income figures is itself a huge amount.
The other 25% of NJ's income is investments, royalties, capital gains, annuities, pensions, and business profits that can usually leave when an individual moves. 25% of such huge income figures is itself a huge amount.
Also, sometimes wage income can be taken out of New Jersey if the out-migrant became a commuter from another state, has a work-from-home arrangement, or the business itself moves.
But a quarter of $18 billion is $4.25 billion - and that's a substantial amount (~1.2% of NJ's total AGI). Factoring in commuters, work-from-homes, and transferred employees would add to that total of lost income, the amount of lost income should be considered higher.
What should be noted is that there is a trend of diminishing in-migrant income relative to out-migrants:
Some writers cited by Sheila Reynsertsen of the NJPP say there is neglible connection between taxes and interstate moves, but looking at comparative tax burdens there is a correlation between having high taxes and having high-outmigration.
In order to nullilfy the weather-advantage many low-tax states have, and exclude outlier Alaska, I am only including states in the Northeast and Midwest below.
(there is also a correlation between outmigration and the Tax Foundation's Business Tax Climate rankings, but it is not as clear)
Since high tax states often have colder weather and higher costs of living than low-tax states, there are certainly factors at play other than tax burdens, but still, a correlation exists.
Gallup also found a correlation between the percentage of people who want to leave a state and its tax burden.
What might be a bigger factor in low-tax states tending to have net in-migration is that their economies are growing more quickly and that economic growth pulls other Americans (and immigrants) in who aren't consciously looking for low taxes. As people move to low-tax states just for the jobs, they form households, spend money, and so create a feedback loop of population growth and economic growth feeding into each other.
There are certainly several factors that lead to a state having high-growth or slow-growth, but taxes seem to be one of them by the correlation between slower-growth in high-tax states and faster growth in low-tax states.
California is an important exception to the tendency of high-tax states to have slower growth, but even California has significant net-outmigration (the 7th highest in the US and the highest of any warm-weather state), so California's high taxes, combined with extremely high housing costs, may be preventing California from thriving even more.
"Low Taxes for Whom?"
This theory that economic growth itself is what is pulling people into low-tax states is bolstered by the fact that some high-growth, low-tax states have very regressive tax systems that impose significant taxes on low-income people.
Low-income residents of states with low, but regressive, tax systems would pay more in taxes there than they would in high-tax systems like New Jersey. For instance, a low-income person in Washington State would pay 16.8% of his income in taxes, in Florida 12.9%, and in Texas 12.5%. By contrast, someone in the bottom 20% of income in NJ would pay only 10.7% of income, in Connecticut 10.5%, and in New York 10.4%.
And yet low-income people are moving to Washington State, Florida, and Texas anyway despite those states having high taxes on low-income people, so it seems they are being pulled in not by low taxes for themselves, but job opportunities and/or lower cost of housing.
Net out-migration and population loss aren't entirely due to taxes, but NJEA-funded groups like the New Jersey Policy Perspective doesn't like to acknowledge that taxes have any role at all.
When confronted with the fact that New Jersey actually lost residents 2015-16, the NJPP's Vice President, Jon Whiten, cited the diminished appeal of auto-centric suburbia as the main reason:
Some public-transit cities like Boston, Washington DC, San Francisco, and New York City are doing great, but Chicago is doing very badly and Philadelphia is lagging national jobs growth.
Net outmigration, combined with declining number of young people even entering the labor force, will create a demographic headwind for New Jersey that will further stifle economic growth.
The combination of a demographic headwind from net outmigration, fewer natives entering the workforce and the inexorable devouring of the budget by debt payments, will create a vicious spiral that the state cannot solve without a federal rescue and/or default.
Connecticut and Illinois, our peers in high indebtedness and brutal property taxes, are already at the tipping point, with accelerating outmigration.
Since 2010 Connecticut's net outmigration has tripled from -12,000 in to -37,000. Illinois' net outmigration was high to begin with, but it has doubled, from -73,000 to -141,000. Each state's revenue falls quarterly. CT's revenue peaked in Q3 of 2013. IL's revenue peaked in Q1 of 2014. Connecticut only passed a budget a few weeks ago, but new revenue estimates already put it in the red by over $300 million (for the biennium).
Although net out-migration may be more a symptom of New Jersey's profound problems rather than the disease itself, and outmigration is due to factors other than high taxes, I cannot believe that increasing taxes even more won't have a accumulating negative effect on our population and economic growth.
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So the NJBIA should not claim that all the income of out-migrants leaves NJ. 25% of their income would be a better guess.
What should be noted is that there is a trend of diminishing in-migrant income relative to out-migrants:
- From 1992-1993 to 2003-2004, in-migrants had 82.1% of the income of out-migrants.
- From 2004-2005 to 2014-2015, in-migrants only had 73.5% of the income of out-migrants, with the last two cycles being the worst yet, with in-migrants barely having 65% of out-migrants' incomes.
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Taxes and Net Outmigration
Some writers cited by Sheila Reynsertsen of the NJPP say there is neglible connection between taxes and interstate moves, but looking at comparative tax burdens there is a correlation between having high taxes and having high-outmigration.
In order to nullilfy the weather-advantage many low-tax states have, and exclude outlier Alaska, I am only including states in the Northeast and Midwest below.
(there is also a correlation between outmigration and the Tax Foundation's Business Tax Climate rankings, but it is not as clear)
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| Source for Tax Burden Rankings, https://files.taxfoundation.org/legacy/docs/State-Local_Tax_Burden_FY2012.pdf |
Since high tax states often have colder weather and higher costs of living than low-tax states, there are certainly factors at play other than tax burdens, but still, a correlation exists.
Gallup also found a correlation between the percentage of people who want to leave a state and its tax burden.
Approximately a quarter (26%) of residents who live in states with the lowest tax burden say they would like to leave their state. And this rate generally holds for residents in the second and third quintiles. However, there is a three-percentage-point increase to 31% among fourth-quintile states and an even greater jump to 36% among the fifth quintile. Even after controlling for various demographic characteristics including age, gender, race and ethnicity, and education, there is still a strong relationship between total state tax burden and desire to leave one's current state of residence.Gallup also found that New Jersey and Connecticut were the two states that had the most residents wanting to get out, at 46% each.
What might be a bigger factor in low-tax states tending to have net in-migration is that their economies are growing more quickly and that economic growth pulls other Americans (and immigrants) in who aren't consciously looking for low taxes. As people move to low-tax states just for the jobs, they form households, spend money, and so create a feedback loop of population growth and economic growth feeding into each other.
There are certainly several factors that lead to a state having high-growth or slow-growth, but taxes seem to be one of them by the correlation between slower-growth in high-tax states and faster growth in low-tax states.
California is an important exception to the tendency of high-tax states to have slower growth, but even California has significant net-outmigration (the 7th highest in the US and the highest of any warm-weather state), so California's high taxes, combined with extremely high housing costs, may be preventing California from thriving even more.
"Low Taxes for Whom?"
This theory that economic growth itself is what is pulling people into low-tax states is bolstered by the fact that some high-growth, low-tax states have very regressive tax systems that impose significant taxes on low-income people.
Low-income residents of states with low, but regressive, tax systems would pay more in taxes there than they would in high-tax systems like New Jersey. For instance, a low-income person in Washington State would pay 16.8% of his income in taxes, in Florida 12.9%, and in Texas 12.5%. By contrast, someone in the bottom 20% of income in NJ would pay only 10.7% of income, in Connecticut 10.5%, and in New York 10.4%.
And yet low-income people are moving to Washington State, Florida, and Texas anyway despite those states having high taxes on low-income people, so it seems they are being pulled in not by low taxes for themselves, but job opportunities and/or lower cost of housing.
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New Jersey is Losing its Young
One valuable contribution the NJBIA makes is pointing out that the biggest generational cohort to depart New Jersey is actually Millennials, not retirees.
The departure of Millennials starts with college, in which New Jersey leads the nation in terms of the percentage of students going out of state and the absolute net deficit of students going out of state.
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| Source, http://bit.ly/2ib9Zmb. NCES. |
Even after age 22 when traditional students are done with college, NJ young people in their mid-20s are disproportionately likely to leave.
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| Source: http://www.njspotlight.com/stories/16/02/15/new-report-warns-that-new-jersey-is-in-midst-of-millennial-outmigration/ |
The immediate economic effects of the net migration of Millennials is that NJ's employers have fewer people to potentially hire, the Treasury has fewer people to tax, and eventually fewer babies are born here.
Partly due to falling fertility rates, but also because so many Millennials have left New Jersey altogether, 20,000 fewer babies are born in NJ now than were born in 1990.
NJ's public school enrollment actually peaked in 2006.
NJ's public school enrollment actually peaked in 2006.
Since the smaller cohorts born in the 1990s will soon be in the prime of their child-bearing years, the trend of declining births should accelerate after 2020.
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Net out-migration and population loss aren't entirely due to taxes, but NJEA-funded groups like the New Jersey Policy Perspective doesn't like to acknowledge that taxes have any role at all.
When confronted with the fact that New Jersey actually lost residents 2015-16, the NJPP's Vice President, Jon Whiten, cited the diminished appeal of auto-centric suburbia as the main reason:
"My gut says that much of the stagnation we continue to see is driven by a combination of factors," said Jon Whiten, Vice President of New Jersey Policy Perspective. "Among them would certainly be the broad trend away from sprawl and unchecked suburban development, which was New Jersey's stock in trade for some time."
Whiten noted since the recession, counties on the outskirts of the New York metropolitan area have struggled mightily to retain tax ratables and residents while those with access to public transit have thrived.
There is some truth in Whiten's statement and Whiten suggests there are other factors, but completely auto-centric exurban parts of low-tax states, particularly Texas, are thriving.
For instance, the Census is non-partisan and says "Southern Cities are Growing Quickly," but what the fastest growing cities also have in common is low taxes.
For instance, the Census is non-partisan and says "Southern Cities are Growing Quickly," but what the fastest growing cities also have in common is low taxes.
Delaware is the fastest growing state in the Northeast and it's completely auto-centric and boring too. Could having low taxes be an advantage? Hmm.
Some public-transit cities like Boston, Washington DC, San Francisco, and New York City are doing great, but Chicago is doing very badly and Philadelphia is lagging national jobs growth.
"Suburbia" in general isn't in trouble. High-cost suburbia is.
Anyway, whatever the causes are, we are screwed.
The combination of a demographic headwind from net outmigration, fewer natives entering the workforce and the inexorable devouring of the budget by debt payments, will create a vicious spiral that the state cannot solve without a federal rescue and/or default.
Connecticut and Illinois, our peers in high indebtedness and brutal property taxes, are already at the tipping point, with accelerating outmigration.
Since 2010 Connecticut's net outmigration has tripled from -12,000 in to -37,000. Illinois' net outmigration was high to begin with, but it has doubled, from -73,000 to -141,000. Each state's revenue falls quarterly. CT's revenue peaked in Q3 of 2013. IL's revenue peaked in Q1 of 2014. Connecticut only passed a budget a few weeks ago, but new revenue estimates already put it in the red by over $300 million (for the biennium).
Although net out-migration may be more a symptom of New Jersey's profound problems rather than the disease itself, and outmigration is due to factors other than high taxes, I cannot believe that increasing taxes even more won't have a accumulating negative effect on our population and economic growth.
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