Last updated on 2016.08.30
The Build Dakota Scholarship program created by Governor Dennis Daugaard and billionaire T. Denny Sanford promises 300 vo-tech students a year a free two-year education in return for three years of work in South Dakota.
KELO says vo-tech programs in South Dakota run between $12,000 and $15,000. The top end of that range puts the up-front dollar value of the Build Dakota scholarship on par with the Critical Teaching Needs Scholarship, created in 2013, which pays the last two years of tuition and fees for willing teacher candidates. However, the vo-tech students are getting a better deal: the teachers must promise to work in South Dakota for five years.
As we know, students accepting the Critical Needs Teaching Scholarship are trading $15K in tuition costs for $65K in sacrificed purchasing power available for working outside of South Dakota. Will Build Dakota Scholarship takers come out any better financially?
That math is uncertain: Governor Dennis Daugaard has not announced yet which job fields he will target with the new scholarship, so we don't know which wage data to compare. But let's take some guesses.
We'll focus on wages in South Dakota and the six adjoining states. Let's look first at median wages, the halfway point for wages in various fields. Here are the median wages for all occupations:
| All Occupations | ||||||
| State | Annual Median Salary | Per-capita state taxation | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $32,380 | $3,740 | $28,640 | 92.8 | $30,862 | $4,884 |
| MN | $37,390 | $4,858 | $32,532 | 101.2 | $32,146 | $6,168 |
| MT | $30,770 | $3,137 | $27,633 | 102.1 | $27,065 | $1,086 |
| ND | $35,640 | $4,057 | $31,583 | 101.7 | $31,055 | $5,077 |
| NE | $31,840 | $3,991 | $27,849 | 97.7 | $28,505 | $2,526 |
| SD | $29,420 | $3,052 | $26,368 | 101.5 | $25,978 | $0 |
| WY | $36,990 | $3,500 | $33,490 | 94.4 | $35,477 | $9,498 |
South Dakota has the lowest median wage in the region. We have the lowest state and local tax burden, but our cost of living (by the most recent available data, 2014 Q3) is higher than the national average and even three ticks higher than Minnesota's. Our median adjusted post-tax purchasing power is four digits less than our neighbors'—4% less than Montana's, 24% less than Minnesota's, and 37% less than Wyoming's.
But hold on: that's all jobs, from bailiff and dishwasher up to nurse anaesthetist and CEO. Our vo-tech grads are aiming for a specific subset of jobs.
Let's look at the general category BLS calls "Production Occupations," where we should find a higher proportion of vo-tech grads:
| Production Occupations | ||||||
| State | Annual Median Salary | Per-capita state taxation | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $31,550 | $3,740 | $27,810 | 92.8 | $29,968 | $4,186 |
| MN | $33,730 | $4,858 | $28,872 | 101.2 | $28,530 | $2,748 |
| MT | $30,970 | $3,137 | $27,833 | 102.1 | $27,261 | $1,479 |
| ND | $33,830 | $4,057 | $29,773 | 101.7 | $29,275 | $3,494 |
| NE | $30,230 | $3,991 | $26,239 | 97.7 | $26,857 | $1,075 |
| SD | $29,220 | $3,052 | $26,168 | 101.5 | $25,781 | $0 |
| WY | $44,270 | $3,500 | $40,770 | 94.4 | $43,189 | $17,407 |
Oops! Median pay is actually a little worse in this field, except in Wyoming, where median pay and post-tax adjusted purchasing power jumps to a $17K advantage over South Dakota'
Let's get specific. Within "Production Occupations," our governor talks a lot about welders:
| Welders, Cutters, Solderers, and Brazers | ||||||
| State | Annual Median Salary | Per-capita state taxation | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $34,570 | $3,740 | $30,830 | 92.8 | $33,222 | $4,820 |
| MN | $38,760 | $4,858 | $33,902 | 101.2 | $33,500 | $5,098 |
| MT | $33,750 | $3,137 | $30,613 | 102.1 | $29,983 | $1,581 |
| ND | $43,010 | $4,057 | $38,953 | 101.7 | $38,302 | $9,900 |
| NE | $34,340 | $3,991 | $30,349 | 97.7 | $31,063 | $2,661 |
| SD | $31,880 | $3,052 | $28,828 | 101.5 | $28,402 | $0 |
| WY | $46,120 | $3,500 | $42,620 | 94.4 | $45,148 | $16,746 |
| Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders | ||||||
| State | Annual Median Salary | Per-capita state taxation | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $36,890 | $3,740 | $33,150 | 92.8 | $35,722 | $4,729 |
| MN | $36,000 | $4,858 | $31,142 | 101.2 | $30,773 | -$220 |
| MT | $36,140 | $3,137 | $33,003 | 102.1 | $32,324 | $1,331 |
| ND | $37,760 | $4,057 | $33,703 | 101.7 | $33,140 | $2,147 |
| NE | $37,960 | $3,991 | $33,969 | 97.7 | $34,769 | $3,776 |
| SD | $34,510 | $3,052 | $31,458 | 101.5 | $30,993 | $0 |
| WY | $50,360 | $3,500 | $46,860 | 94.4 | $49,640 | $18,647 |
In these two job areas, the only place South Dakota beats on post-tax purchasing power is Minnesota, for welding, soldering, and brazing machine setters, operators, and tenders, and there our advantage is just $220, about 0.7%, or the cost of gas and a motel room to go see the Vikings play. Welders, cutters, solderers, and brazers come out over $5K better a year in Minnesota than in South Dakota.
But hold on again: these figures are median figures, the 50th-percential salary. Half the welders make more, half make less. We're trying to calculate the outlook for fresh-faced vo-tech grads. Welders probably need to work a while before they can prove they deserve more pay than half of their colleagues. We should thus look at salaries in the lower end of each field.
The Bureau of Labor Statistics has data on the certain percentile salaries in each occupation and each state (and you think your daily math is hard?). So let's try this: assume a new vo-tech grad jumps into a new job and, for a starting wage, gets the 10th-percentile salary (10% of workers make less, 90% make more). This kid's from South Dakota, and she would have qualified for a Build Dakota free-ride, so she's smart and good at her job. Second year, the boss raises her pay to the 25th-percentile. Third year, she gets another raise, to the median salary. On that pay trajectory, how do things look for our prospective welders?
| Welders, Cutters, Solderers, and Brazers | ||||
| State | Annual 10th-percentile salary | Annual 25th-percentile salary | Annual 50th-percentile (median) salary | Sum |
| IA | $25,670 | $29,460 | $34,570 | $89,700 |
| MN | $26,970 | $32,410 | $38,760 | $98,140 |
| MT | $23,350 | $27,510 | $33,750 | $84,610 |
| ND | $30,820 | $35,240 | $43,010 | $109,070 |
| NE | $25,110 | $28,870 | $34,340 | $88,320 |
| SD | $25,290 | $27,750 | $31,880 | $84,920 |
| WY | $30,720 | $37,530 | $46,120 | $114,370 |
| Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders | ||||
| State | Annual 10th-percentile salary | Annual 25th-percentile salary | Annual 50th-percentile (median) salary | Sum |
| IA | $27,400 | $32,370 | $36,890 | $96,660 |
| MN | $25,290 | $29,260 | $36,000 | $90,550 |
| MT | $24,790 | $31,460 | $36,140 | $92,390 |
| ND | $26,830 | $31,910 | $37,760 | $96,500 |
| NE | $24,050 | $31,280 | $37,960 | $93,290 |
| SD | $27,220 | $31,240 | $34,510 | $92,970 |
| WY | $33,990 | $41,400 | $50,360 | $125,750 |
With that fourth column, adding a year at the 10th percentile, a year at the 25th, and a year at the 50th (the median), we're getting closer to the real picture our vo-tech prospects face as they try to figure out whether taking the Build Dakota Scholarship is worth committing to work in South Dakota for three years. Let's plug those three-year income sums into our spreadsheet, subtract three years' tax burden, factor in cost of living, and see what happens:
| Welders, Cutters, Solderers, and Brazers | ||||||
| State | 3-yr income 10th-25th-50th | 3-yr state/local tax burden | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $89,700 | $11,220 | $78,480 | 92.8 | $84,569 | $9,925 |
| MN | $98,140 | $14,574 | $83,566 | 101.2 | $82,575 | $7,931 |
| MT | $84,610 | $9,411 | $75,199 | 102.1 | $73,652 | -$992 |
| ND | $109,070 | $12,171 | $96,899 | 101.7 | $95,279 | $20,635 |
| NE | $88,320 | $11,973 | $76,347 | 97.7 | $78,144 | $3,500 |
| SD | $84,920 | $9,156 | $75,764 | 101.5 | $74,644 | $0 |
| WY | $114,370 | $10,500 | $103,870 | 94.4 | $110,032 | $35,387 |
| Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders | ||||||
| State | 3-yr income 10th-25th-50th | 3-yr state/local tax burden | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $96,660 | $11,220 | $85,440 | 92.8 | $92,069 | $9,494 |
| MN | $90,550 | $14,574 | $75,976 | 101.2 | $75,075 | -$7,500 |
| MT | $92,390 | $9,411 | $82,979 | 102.1 | $81,272 | -$1,303 |
| ND | $96,500 | $12,171 | $84,329 | 101.7 | $82,919 | $344 |
| NE | $93,290 | $11,973 | $81,317 | 97.7 | $83,231 | $656 |
| SD | $92,970 | $9,156 | $83,814 | 101.5 | $82,575 | $0 |
| WY | $125,750 | $10,500 | $115,250 | 94.4 | $122,087 | $39,511 |
Clearly, Wyoming beats us all for welding wages. A welder who stays in South Dakota instead of moving to Wyoming gives up over $35,000 in purchasing power over three years. A welding machine operator making the same choice gives up over $39,000. Choose South Dakota over Minnesota, and the welder loses over $7,900, but the welding machine operator gains $7,500.
But where the rubber hits the road—or where the vo-tech student doesn't!—is the scholarship question. Denny D. and Denny S. are offering you sharp welders (come on, after all this talk, you're going to include welders in the scholarship, right, guys?) $15,000 in tuition savings. If those welders don't take the scholarship because they want to work out of state, they have to earn back the $15,000 they spent on school.
Only the Wyoming and North Dakota welders and the Wyoming welding machine operators make more than $15,000 above the typical wages in South Dakota. The Build Dakota Scholarship will be worth it for a lot of welding candidates.
Let's try another job field. Our benefactor Mr. Sanford is all about health care, so let's assume we'll promote some health tech jobs. How will radiologic technologists do?
| Radiologic Technologists | ||||||
| State | 3-yr income 10th-25th-50th | 3-yr state/local tax burden | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $116,610 | $11,220 | $105,390 | 92.8 | $113,567 | $14,184 |
| MN | $143,620 | $14,574 | $129,046 | 101.2 | $127,516 | $28,133 |
| MT | $121,360 | $9,411 | $111,949 | 102.1 | $109,646 | $10,263 |
| ND | $112,720 | $12,171 | $100,549 | 101.7 | $98,868 | -$515 |
| NE | $118,630 | $11,973 | $106,657 | 97.7 | $109,168 | $9,785 |
| SD | $110,030 | $9,156 | $100,874 | 101.5 | $99,383 | $0 |
| WY | $132,090 | $10,500 | $121,590 | 94.4 | $128,803 | $29,420 |
Again, assuming a $15,000 scholarship value, the potential Build Dakota Scholarship recipient thinking about leaving South Dakota to work in radiology for Montana, North Dakota, or Nebraska will want to think again. Future radiologists eying Minnesota or Wyoming will tell Dennis, "No deal!" Radiological aspirants looking at Iowa will have a tougher choice: for them, Build South Dakota and three years locked into South Dakota offers them less than a thousand-dollar net advantage.
How about bus and truck mechanics and diesel engine specialists?
| Bus and Truck Mechanics and Diesel Engine Specialists | ||||||
| State | 3-yr income 10th-25th-50th | 3-yr state/local tax burden | Salary in pocket after state tax | Cost of living (2014 Q3) | Adjusted post-tax salary power | Additional purchasing power from working here instead of SD |
| IA | $87,200 | $11,220 | $75,980 | 92.8 | $81,875 | -$5,311 |
| MN | $106,830 | $14,574 | $92,256 | 101.2 | $91,162 | $3,976 |
| MT | $90,440 | $9,411 | $81,029 | 102.1 | $79,362 | -$7,824 |
| ND | $110,530 | $12,171 | $98,359 | 101.7 | $96,715 | $9,529 |
| NE | $83,210 | $11,973 | $71,237 | 97.7 | $72,914 | -$14,272 |
| SD | $97,650 | $9,156 | $88,494 | 101.5 | $87,186 | $0 |
| WY | $120,030 | $10,500 | $109,530 | 94.4 | $116,028 | $28,841 |
Even without Build Dakota, if you're into diesel engines, you lose money leaving South Dakota for Iowa, Montana, or Nebraska. The four-figure puchasing-power gains promised by Minnesota and North Dakota don't beat the $15,000 value of our new vo-tech scholarship. But once again, Wyoming is the land of opportunity. Skip the scholarship, head for Sheridan, and in three years, you'll have earned back your tuition and cleared another nearly $14,000 over what you would have made back in Aberdeen.
I'd compare wind turbine service technicians, but South Dakota apparently doesn't have enough jobs in that field for BLS to count. (Hmm.... Governor Daugaard, you and the PUC could do something about that, couldn't you?) Job opportunities in that field are numerous enough to count in Wyoming, Iowa, Minnesota, and North Dakota, where the median annual salary for fixing wind turbines is $55,550.
Whatever the exact numbers above, the Build Dakota Scholarship makes working in South Dakota for the first three years of one's technical career more appealing. Possible future earnings in welding or radiology or diesel mechanicry in another state don't matter to the young person who can't get those jobs because she doesn't have the cash right now to go to vo-tech. Plus, with their "stay in South Dakota" requirements, our scholarship plans "get our hooks" into young workers early: in those first three years, they'll accumulate connections and obligations that will incline some fraction of them to stay, despite the greater earning potential available in many fields in most other states.
And therein lies the sneaky and arguably irresponsible part of these scholarship plans. The state is not investing in a long-term plan to raise wages (which would raise economic activity, which would raise tax revenues, which would raise the amount and quality of public goods...). The state is using its resources and Denny Sanford's resources to rope young people into working for less competitive wages. The state and Sanford are going to great lengths (and putting up real money is the greatest length our state government can go to) to keep their business pals from solving their own workforce shortages with the obvious free-market solution of offering bigger paychecks.
Vo-tech students, do your own math for your own field, and tell us whether the Build Dakota Scholarship will sway your decision to stay and work in South Dakota. Fellow South Dakotans, let's ask ourselves whether we do more to address a workforce shortage by lowering workers' entry costs or raising workers' ongoing wages.
Main data sources:
- Cost of living: 2014 Q3 C2ER data from MERIC: http://www.missourieconomy.org/indicators/cost_of_living/index.stm
- State + local tax burden: SD GOED: http://sdreadytowork.com/Site-Selection-Data/50-State-Comparison.aspx
- Wages: Bureau of Labor Statistics State Occupational Employment and Wage Estimates, May 2013: http://www.bls.gov/oes/current/oessrcst.htm
Final Thought: The state has an obligation to educate citizens. Business has an obligation to train workers. Would Adam Smith agree?
Update 2014.12.23 16:07 CST: Rasmussen College, a for-profit business school based in Minnesota, mashes average salaries and cost of living together to produce this fun interactive bar chart comparing adjusted purchasing power for BLS job categories in all 50 states. Whatever you do, don't take up welding in New York or California!
You should send this to the media Cory. See what would happen
Could some enterprising young fellow like Mr. H organize one of those initiated measure drives and stand outside Walmart and such? With enough signatures it could go to the elections to make Mr. Sandford use his money to educate other people or educate the same people in other ways like at regular colleges. Go Greyhounds!
Cory, so crazy, I have been thinking about this all day, and I come to your website, and you crunched the numbers. I think it was when a friend said to me, "indentured servants" for 3 years. It just doesn't add up. Take that, and the collection services that FP/Sanford can set up for people who leave the state before their 'service' is up and are forced to pay the tuition. As I have said all along, this is about manufacturing in SD getting cheap, educated labor, not about helping anyone. My advice to technical students; pay your own tuition, and get the F'ck out of here as fast as you can.
Thanks for all the work you put into this Cory.
What Roger said - thanks Cory!
Owen, the media knows where to find me. But it would be a challenge to boil these numbers down to a two-minute KELO blip. This is more public radio stuff. I need to get my own show.... ;-)
Roger, BCB, SouthDacola, you're welcome! I love crunching numbers. These numbers provide a reasonable basis for further analysis. For instance, I've already heard from a friend in government that we might want to replace the cost of living numbers with the regional price parity numbers prepared by the Bureau of Economic Analysis. The cost of living numbers I use apparently average data from metro areas. The BEA RPP numbers, says my correspondent, incorporate broader data from rural areas, giving a more representative average of prices in places like South Dakota. More to study!
It looks all the world like Sibby was right about this.
who knew? Good thread.
The Blindman
You forgot to factor in the interest costs of student loans needed to pay for the education without the scholarships. In essence a $15K scholarship is actually worth almost $21K when you factor in the interest costs of $5.8K on $15K in loans over 15 years at 4.66%; $10K in loans ring up $4K in interest. Of course those numbers are variable depending on amount of loans, interest rates and length of payoff.
That's a good point Don, starting life student loan debt free is worth a lot. This scholarship program is arguably a good deal for the kids who get the scholarships, especially if they intend to stay in SD after graduation anyway. I'd like to see more businesses step up and do this on their own rather than rely on government and charity to do it for them.
Is Premiere Bank getting the contract for the student loans and collection? There's got to be a payback.
Cory, is kind of like a Nate Silver. Good job, Cory!
Great data Cory. I agree, the scholarships should have no strings attached. When these students graduate, they'll need jobs, not some sort of ankle bracelet keeping them within the boundaries. I'd like to see the state's gazzilionaires put money into a pot that would fund small/medium sized business expansion and startups.
While SD often ranks high on many pro-biz measurements, SD always ranks low in availability of capital for new business financing. If we're not going to tax the gazziollionaires (John Tristian's word), we must find ways that they feel grateful enough to put some of their cash in this state's economy.
Actually, "Don", I didn't forget to factor in student loans; I chose not to, just as I chose not to try to guess the effects of inflation, increasing wages, shifts in job markets, and numerous other economic factors. But I welcome anyone who wants to amend the spreadsheet to to try going there.
But note: if we're going to factor in the cost of student loan interest over fifteen years, then we have to expand the wage estimates and purchasing power out over fifteen years as well and figure out the investment value of any increased wages. Early wages are the best investments for retirement; I can invest my immediate wage advantage in Minnesota into accounts that should yield better than the 4.66% student loan interest you cite. Arguably, in some fields, I'm better off going straight to Minnesota and working my way up their pay ladder with a good company rather than taking the scholarship, sticking around here in South Dakota, then once I've served my time (John Tsitrian is using the term "indentured servitude"), then moving to Minnesota or Wyoming and starting over.
I also did not factor in the fact that it will be cheaper to move from SD to MN or WY right after vo-tech, before those new graduates have accumulated more stuff. Subtract another thousand for moving expenses. ;-)
I've already acknowledged it in my blog, but must tell you, personally, Cory that your work on this is impressive and most appreciated.
part of the reason for welding type jobs being low paying in sd is that most places train their welders.. This is for stick welding and most mig welding. More specialized forms of welding like pipelining and bridge/highway work takes passing tests. Its really not that hard to do provided a person does it every day. Some companies have programs for training their welders, others just have them dive right in and start with the basics. Its really not necessary in sd to go to school to learn how to weld. The only way to increase welding wages would be to unionize. Most business owners that support Daugaard would not be too happy about that if I had to guess. I wonder if they get nervous... But having a few hundred college trained welders enter the market every year will not increase welding wages in SD. The graduates will have to move other places to make better money if they can find a way to get on the job experience. Kind of a head scratcher...
I think the job problem would be solved by paying a living wage. Example, Huron busses in hundred of Karens to work at the Turkey Plant for slave wages. When they had Armors, it was unionized and the town thrived. When they broke the union, they brought in hundreds of Mexican and exploited them with low wages. The rich get richer by keeping people suppressed.
Daleb, do most places train their welders outside South Dakota? Does that on-the-job training depress wages elsewhere, or do unions make sure the new guys get better pay, too?
Daleb does well to remind us that our anti-union laws could be another key factor in keeping wages low and thus driving workers away.
Tara's example on the union front is instructive, too. Is there any way for labor to organize in this state, reassert worker rights, and boost wages without some legislative action in support of unions?
Instead of joining with national unions, I think there should be a state or local movement that represents workers that don't have a voice and who are threatened of getting fired if they try and negotiate their wages. I just don't like seeing hard working people being taken advantage of. Crony capitalism run rampant in SD while the Governor choses who gets to line their pockets at the expense of the employees. There is no corporate or personal income tax.......so pay it forward and pay a fair wage. And Mr. Sanford, lower those interest rates!