Guest Column

Auto industry no longer can support state’s prosperity

May 1, 2015
| By Lou Glazer |
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They say a picture is worth a thousand words. That certainly is the case with the chart included here, which comes from the Senate Fiscal Agency’s state budget overview.

The bottom line: Michiganders no longer are prosperous when the Detroit Three are doing well.

This, of course, is a seismic change. For most of the 20th century, Michigan was one of the nation’s most prosperous states. That was largely due to the auto industry employing hundreds of thousands of people at high wages, anchored by blue collar factory workers.

Michigan’s prosperity was highly correlated with how well the domestic auto industry — now the Detroit Three — was faring. When the Detroit Three did well, so did Michigan. When they struggled, so did the state.

No more! As the chart makes clear from 1982 (and decades before) through the depths of the Great Recession, Michigan’s prosperity was highly correlated with Detroit Three motor vehicle production. But that ended with the Great Recession.

Detroit Three motor vehicle production has about doubled from the near collapse of the domestic auto industry, and yet per capita income compared to the rest of the country has stayed about the same. Michigan fell to 38th in per capita income, and maybe more importantly, to 42nd without government transfer payments in 2009. But it has only rebounded to 37th in per capita income and 41st in per capita without government transfer payments in 2013.

This is a lesson we should have learned during Michigan’s so-called lost decade from 2000-2010. But we didn’t.

In an analysis of data from 2000-2007 (the last year before the onset of the Great Recession), University of Michigan economist Don Grimes and I wrote in 2009 in our annual report on the Michigan economy: “There are some hard truths that Michiganians need to confront.” These include:

  • Michigan’s prosperity last century was built primarily on good-paying, low-skill jobs. Those jobs are gone forever.
  • The auto industry will never again be the major engine of prosperity in Michigan. If, and it’s a big if, the domestic auto industry survives the current downturn, it will be substantially smaller, employ far fewer and will pay its workers less with fewer benefits.
  • The decline in autos is part of an irreversible new reality that manufacturing is no longer a sustainable source of high-paid jobs. Nor is it a source of future job growth.

The big if was decided by the auto bailout. But the survival of the domestic auto industry didn’t change the reality of fewer manufacturing jobs or lower wages. Manufacturing lost 280,000 jobs from 2000-2007. Since then, another 41,000 have been lost. And since 2007 average hourly wages, not corrected for inflation, in manufacturing have declined from $22.08 to $20.47 in 2014.

It is even clearer today than in 2009 that manufacturing in general and the auto industry more specifically is no longer the pre-eminent employer it was during the 20th century, nor does it provide the highly paid work it once did. You can't build an economy with a rising standard of living for all in the 21st century in a factory-based economy.

So if a booming auto industry no longer equals Michigan prosperity, what would? College attainment. Except for a few places with lots of oil and natural gas when energy prices are high (think North Dakota), the states with the highest per capita income are those with the highest proportion of adults with a four-year degree or more. Of the top 20 states in college attainment, 16 are also in the top 20 in per capita income. Michigan is not one of those states.

Lou Glazer is president of Michigan Future Inc.

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