Area Economy

Michigan needs to learn a lesson about prosperity

November 22, 2013
| By Lou Glazer |
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Michigan Future’s new report, “The New Path to Prosperity: Lessons for Michigan From Two Decades of Economic Change,” is about how the American economy has been transformed from 1990-2011 — largely, we believe, due to globalization and technology. And how Michigan and Minnesota (the Great Lakes region’s most prosperous state) have fared compared to the nation over those two decades.

The highlights are:

  • Manufacturing employment in the U.S. fell by nearly 5.8 million jobs over those two decades, a decline of 32 percent. The share of workers in manufacturing fell from 13 percent to 7 percent.
  • Employment in knowledge-based services grew by nearly 16.5 million, an increase of 55 percent. Knowledge-based services’ share of American employment grew from 21 percent to 26 percent.
  • The change in employment earnings (wages and employer-paid benefits) was even more pronounced. U.S. employment earnings per capita from manufacturing, adjusted for inflation, declined 29 percent over the two decades. The share of private sector employment earnings per capita from manufacturing fell from 21 percent to 12 percent.
  • U.S. employment earnings per capita in knowledge-based service grew by 52 percent. The share of private sector employment earnings per capita from knowledge-based services grew from 33 percent to 41 percent, almost completely offsetting the decline in manufacturing’s share.

The bottom line: The places that are doing the best today, and almost certainly will do the best in the future, are those states and regions that are concentrated in knowledge-based services (private health care and social services; finance and insurance; information; professional services; and management of companies) — not factories.

Minnesota has done substantially better than average since 1990 primarily because of its concentration in knowledge-based services. Michigan has done worse than average because of its under-concentration in those industries.

Employment grew in knowledge-based services by 60 percent in Minnesota compared to 30 percent in Michigan. Private sector employment earnings growth, corrected for inflation, in the sector in Minnesota was 74 percent compared to 33 percent in Michigan.

I got some pushback from readers in a previous post about using 2011, the belief being that the West Michigan economy is much better now than it was then. The reason we use 2011 data is it is the latest available data that allows historical comparisons on all the metrics we analyze.

But even though the data is more than a year old, the conclusions are almost certainly going to be the same as if we had 2012 data or 2013 data when the year is complete and the data available.

Manufacturing employment in metro GR was 140,000 in 2001, 123,500 in 2007 (just before the Great Recession), and 113,500 in August 2013 (latest available). This is the national trend. Manufacturing over cycles is declining both in employment and employment earnings.

Michigan and West Michigan were among the most concentrated areas in manufacturing in 1990, and that allowed the state and region to be about as prosperous as the country. Michigan and West Michigan are among the most concentrated in manufacturing today (whether today is 2011 or 2013), and are now laggards in per capita income — the best measure of economic well-being.

The lesson Michigan needs to learn is one about vision. Where do we want to go from here? If the goal is more and better jobs — a place with a broad middle class — our vision needs to become knowledge-based. The new reality is prosperous places are now concentrated in knowledge-based services. It’s where job growth is the fastest and the wages and benefits are the highest.

Lou Glazer is president of Michigan Future Inc.

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