Concentrated talent is what matters most
University of Michigan economist Don Grimes and I are working on our next report on the Michigan economy. The bottom line is that Michigan is now, structurally, a low-prosperity state. There is little evidence this is likely to change anytime soon.
From 2007 — the year before the onset of the Great Recession — through 2013 (latest available data), each year Michigan ranked in per capita income between 35th and 38th. The low was 38th in 2009 — the depths of the Great Recession. In 2013, we were 37th, even with a strong domestic auto industry recovery and better than the national average job growth.
In the new report, for the first time, we look at net employment earnings per capita without adjusting for those who live in one jurisdiction and work in another. Per capita income is calculated based on where you live.
Looking at employment earnings based on where you work allows us to measure how well a state or region is doing in creating more and better jobs, which Gov. Rick Snyder has set as the state’s economic development goal. Net employment earnings is the combination of how many jobs employers provide and what they pay in both wages and benefits.
Michigan in 2013 ranked 38th, which was nearly $4,500 (15.6 percent) below the national average.
Of 52 metropolitan areas with populations of 1 million or more, Metro Grand Rapids ranked 48th, which is nearly $3,500 (11.8 percent) below the national average. Metro Grand Rapids includes Barry, Kent, Montcalm and Ottawa counties.
Metro Detroit, ranked 40th, also is near the bottom and nearly $1,000 (3.4 percent) below the national average.
The top 10 regions in net employment earnings are: San Jose (Silicon Valley); San Francisco; Washington, D.C.; Boston; Houston; New York; Seattle; Baltimore; Denver; and Hartford.
The two leaders in the Great Lakes region are Minneapolis, ranked No. 11, and Chicago, ranked No. 14.
What do they all have in common, except for Metro Houston? They all are near the top in the proportion of adults with a four-year degree or more. In an increasingly talent-driven, knowledge-based economy, concentrated talent is what matters most to employers providing good-paying jobs.
Each of the top 10 regions — except Houston in net employment earnings — rank no lower than 12th in the proportion of adults with a four-year degree or more. Minneapolis ranks ninth in college attainment and Chicago ranks 14th.
Houston, which is the exception to the pattern, ranks 31st in college attainment. Houston’s economy benefits greatly from the energy sector, which is the one component of the American economy that has been doing well despite not being knowledge-based.
The four-county Grand Rapids region ranks 34th in the proportion of adults with a four-year degree or more. Metro Detroit (not including Washtenaw County) ranks even lower, at 42nd.
In Metro Grand Rapids, 30.6 percent of adults have a four-year degree or more. This compares to 48.7 percent for top-ranked Metro Washington, D.C., and 37.4 percent for 10th-ranked Metro New York.
The good news in the data is that Metro Grand Rapids ranks higher in the proportion of 25- to 34-year-olds with a four-year degree: 35.6 percent in that age range have four-year degrees or more, which ranks the region at No. 27. Boston is ranked first at 55 percent, and Austin comes in at No. 10 with 42.9 percent.
We have explored Metro Pittsburgh in a previous post as a model of a region that has transitioned from high-prosperity, manufacturing-based (mostly steel) to a relatively high-prosperity knowledge-based metro area.
Metro Pittsburgh ranks 18th in net employment earnings, 26th in the proportion of adults with a four-year degree or more and, surprisingly, seventh in the proportion of 25- to 34-year-olds with a four-year degree or more.
The lesson from all this data continues to be that the path to prosperity — states and regions with a broad middle class — is connected to an overconcentration of both college-educated adults and knowledge-based enterprises. The only exception is those places that benefit from high-commodity prices. At the moment, Michigan and its two biggest metropolitan areas are laggards in both. Until that changes, the state and those regions are going to be low-prosperity places.
Lou Glazer is president of Michigan Future Inc.