Economic Development and Higher Education

Local wages way below average

Michigan Future report emphasizes a transition toward a knowledge-based economy.

November 20, 2015
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In the report Michigan’s Transition to a Knowledge-Based Economy 2007-2014, Michigan Future Inc. explores why the state has become a low-prosperity state and the economic challenges the state — and Grand Rapids and Detroit — must overcome to move toward high prosperity and generating a broad middle class.

Lou Glazer, president of Michigan Future, said the report is about the state and its two major metropolitan regions in a time of economic expansion rather than the period when the state’s economy was in decline.

While Michigan and both Grand Rapids and Detroit were considered high-prosperity areas for most of the 20th century, Glazer indicated in the last 15 years they have lost the status of having a high per-capita income and a broad middle class.

“What makes this report and data particularly interesting is you have a national and state economy expanding, and in Michigan’s case, particularly the auto industry. Yet you still have the same pattern, which is both the state and both regions are low-prosperity,” said Glazer.

“It is evidence the world has changed. What made us prosperous in the past, which was largely high-paid factory jobs, is not the path to prosperity in the 21st century.”

While the Grand Rapids metro region, which comprises Kent, Barry, Montcalm and Ottawa counties, experienced a nearly 6 percent employment growth from 2007 to 2014, the report indicated real wages declined a little more than 1 percent during the same period. In 2007, the average wage in 2013 dollars was nearly $44,280, while the average wage in 2014 was about $43,800, according to the report.

“If I tell the Metro Grand Rapids story, the good news is, from 2007 to 2014 in terms of job growth, it has been much stronger than the state — and particularly Metro Detroit,” said Glazer. “West Michigan is sort of around the national average and in the middle of the pack for metropolitan areas over a million. The rest of the state is toward the bottom of the pack.”

Glazer said the bad news in terms of fundamental economic challenges for the region is not having enough people working in knowledge-based services, and employment wages have to increase across the board.

“(There) is this way over-concentration in the number of people who work in the goods-producing sector and in low-wage services, and a small proportion of workers in knowledge-based services,” said Glazer.

“The structure of the regional economy is not consistent with the high-wage part of the economy, and for all the sectors of the economy, West Michigan wages are way below the state and national averages.”

The report indicated that, although wages for high-education attainment services increased by nearly 2 percent from 2007 to 2014, compensation is “substantially lower in Metro Grand Rapids than in Michigan or the nation: $54,000 to $61,000 to $67,000.”

While employment in low-education goods-producing jobs declined from more than 119,800 in 2007 to 118,000 in 2014, low-education attainment services experienced a nearly 9 percent growth from 2007 to 2014, from 191,100 to more than 209,000.

High-education goods also experienced growth during that time period, with employment increasing from nearly 10,800 to 12,000. High-education attainment services now accounts for nearly 40 percent of all wages paid by West Michigan employers and has risen to employment levels of about 163,000, according to the report.

Looking at the state overall, Glazer said the “key ingredient” in a successful knowledge-based economy is the proportion of adults with a four-year degree and having a large presence of talent and human capital who can fill the professional and managerial positions in industries such as health care, education, finance, insurance, information, professional and technical services, and corporate headquarters.

“Those industries are concentrating in places that have high college-educated populations,” said Glazer. “We have been arguing for years the key economic development priority for Michigan, if you want to be a place with a broad middle class and high-wage jobs, is to do a better job of preparing talent … but also attracting and retaining talent.”

While the report is intended to present data revealing “by most measures of economic wellbeing” that both the state and its two biggest regions are not national leaders, Glazer said it also makes other cases.

“We are trying to show people the reason we are lagging is, both at the state and regional level, we are still too concentrated in goods-producing industries, particularly in manufacturing rather than knowledge-based services,” said Glazer. “The good news story of the report is the vital role central cities are playing in being college-educated because the millennials are increasingly deciding to live in central cities.”

While the report is not advocating the state abandon goods-producing industries, the executive summary indicated “human capital is the asset that matters most to knowledge-based enterprises” and, as a state, Michigan ranks 33rd out of 52 in the country for the proportion of adults with a four-year degree.

“Massachusetts is probably the best example of a place that has turned out to be terrific at better education outcomes and retaining and attracting talent,” said Glazer.

“The way they have done it has been a real focus on high standards and high expectations for all kids, combined with adequate funding at the K-12 level. The city of Boston — having a big metropolitan area anchored by a vibrant central city that has the kind of high density, mixed-use, walkable, transit-friendly neighborhoods — is attracting that talent.”

In comparison, Michigan had five jobs per population of 1,000 for employment in high-education goods and 162 jobs per population of 1,000 in high-education services, while Massachusetts had roughly 13 jobs per 1,000 in high-education goods and 236 jobs per 1,000 in high education services in 2014. Michigan’s total average wage in 2014 was also about $15,680 lower than Massachusetts, according to the report.

“I think we know how to prepare, retain and attract talent. The struggle we have been having in Michigan is people have not understood it is the core economic development priority rather than some of the other stuff we have placed higher on the agenda,” said Glazer.

“All the evidence is, if you do that, if you become a place of concentrated talent, the presence of human capital either attracts knowledge-based enterprises, or the human capital itself starts knowledge-based enterprises.”

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