Area Economy

Is manufacturing a liability to West Michigan’s economy?

September 27, 2013
| By Lou Glazer |
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Michigan’s political leaders, on a bipartisan basis, have made manufacturing the linchpin of their plans for restoring Michigan to prosperity. That is particularly true in West Michigan.

There is no question that manufacturing — and its high-paying factory jobs — was the key ingredient to Michigan being one of the most prosperous places on the planet for most of the 20th century. The question is, can it be the driver of Michigan’s prosperity in the 21st century? The evidence is compelling, and the answer is no.

To be clear, manufacturing in this context means work done in factories. Workers in management as well as pre- and post-production occupations in such important Michigan industries as motor vehicles, office furniture and chemicals are no longer considered part of the manufacturing industry. They are now accounted for in the knowledge-based industries, primarily in management of companies and professional and technical services.

University of Michigan economist Don Grimes and I are working on our latest report on the Michigan economy. This time, we are looking at the changes in the American economy over the past two decades, from 1990-2011.

In 1990, Michigan had the second-highest concentration of per capita income coming from manufacturing employment earnings (wages and benefits) at 20.6 percent, compared to 12.8 percent for the United States. The state’s per capita income was close to the national average: $31,552 compared to $33,309 (in 2011 dollars).

Now, fast forward to 2011: Michigan is third in the concentration of per capita income coming from manufacturing employment earnings. But now it accounts for only 11.7 percent of the state’s per capita income compared to 7.3 percent nationally. And the state’s per capita income has fallen from $1,757 below the national average to $5,296 below it.

So, being over-concentrated in manufacturing was not the path to prosperity for Michigan the past two decades. In fact, it was the opposite. Michigan was second to last in per capita income growth from 1990-2011, with only Nevada being worse.

The new reality is that manufacturing is no longer a source of lots of high-paying jobs. Nor is it a source of future job growth. Manufacturing accounted for just 9 percent of the American work force in 2011. It accounted for 32 percent of the nation’s jobs in 1953 and 14 percent in 1998. Manufacturing’s share of American jobs has been declining for a long time.

In Michigan, manufacturing employment fell from 852,000 in 1990 to 534,000 in 2011. Factory jobs are now 12 percent of the Michigan work force. At the same time, the collapse of the domestic auto industry brought an end to high-paid unionized assembly jobs that were the backbone of Michigan’s 20th century middle class.

Michigan’s slow growth in knowledge-based industries — the growing and high wage part of the economy — is the main reason the state has fallen to 36th and West Michigan is 52nd (out of the 54 regions in the country with populations of 1 million or more) in per capita income.

The path to 21st century prosperity is clearly knowledge-based (including pre- and post-production work in industries like automotive and office furniture.) The lesson we most need to learn is: What made us prosperous in the past won’t in the future.

Lou Glazer is president of Michigan Future Inc.

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