Guest Column

Knowledge-based services are center of American jobs

December 25, 2015
| By Lou Glazer |
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What stands out in Michigan Future’s new report, Michigan’s Transition to a Knowledge-Based Economy, is that in the fifth year of a national expansion –– and an even stronger domestic auto industry recovery –– Michigan, on nearly all key 2014 economic and education attainment metrics, is a national laggard.

Gone are the days when the auto industry, still the prime engine of the Michigan economy, could propel Michigan to be one of the most prosperous states.

Despite a good stretch of job growth since the end of the Great Recession, Michigan is now structurally one of the nation’s low-prosperity states. Whether the nation’s economy has expanded or contracted since 2007, Michigan has been, every year, in the bottom third of states in per capita income and in the bottom quarter if you don’t include transfer payments.

Michigan also ranks near the bottom in the proportion of adults who work, ranking 42nd in 25- to 64-year-olds with a job.

The report — co-authored by me and University of Michigan researcher Donald Grimes — finds that prosperous, non-energy-driven states are those with: (1) a high proportion of jobs and wages in knowledge-based services, and (2) a high proportion of adults with a four-year degree or more.

Knowledge-based services are finance and insurance, professional services, health care, education, information and management of companies. They account for 42 percent of all jobs in America and 54 percent of the total wages.

The data are clear: Knowledge-based services are now the center of mass middle-class American jobs.

Our research found two other common characteristics of prosperous states: (1) an even more prosperous big metropolitan area, and (2) those areas are anchored by a central city with a high proportion of residents with four-year degrees or more.

With a population of a little more than 1 million, Metro Grand Rapids (Kent, Barry, Montcalm and Ottawa counties) can be one of the country’s high prosperity regions.

From 2007-2014, Metro Grand Rapids has recovered far better than the  nation and state. The Grand Rapids region saw employment growth of nearly 6 percent compared to job losses for the state of 2 percent and an increase of slightly less than 1 percent for the country. Per capita income rose by 1.2 percent, beating the nation, which grew by 0.1 percent, and the state, which saw a decline of 0.3 percent.

But like the nation and state, the rise in government transfer payments per capita is notable. Transfer payments per capita, adjusted for inflation, in the Grand Rapids region grew by slightly less than $1,200 from 2007-2013, and its share of total per capita income increased from 14 to 17 percent.

Contrast that to net employment earnings per capita –– the predominant engine of long-term, sustainable growth in the standard of living –– which declined by almost $700.

Its share of total per capita income fell from 69 to 66 percent.

But even with this outperformance in job and income growth, today Metro Grand Rapids is a laggard on all the important economic metrics. Out of 52 regions with a population of 1 million or more, the Grand Rapids region ranks 49th in per capita income; 48th in employment earnings per capita; 52nd in the proportion of wages from knowledge-based services; and 49th in average wage.

Metro Minneapolis is the Great Lakes’ most prosperous region. The difference in per capita income between Metro Minneapolis and Metro Grand Rapids is $51,183 to $38,314. Why the prosperity gap between the two regions?

The major differences are: the proportion of the population working (514 vs. 489 out of 1,000 residents), particularly in knowledge-based services (232 vs. 159 out of 1,000 residents); a higher average wage ($56,337 vs. $43,801), once again particularly in knowledge-based services ($72,773 vs $53,955); four-year degree attainment (39.3 percent vs. 30.6 percent).

Minneapolis has a higher proportion of residents with a four-year degree than its suburbs, particularly among 25- to 34-year-olds, who concentrate in vibrant central cities; 49 percent of that age group have a four-year degree or more.

This is another bright spot for the region: 42 percent of Grand Rapids’ 25- to 34-year-olds have a four-year degree.

What makes Metro Minneapolis prosperous is similar to all the top 10 regions (except energy-driven Houston) and upcoming regions like Pittsburgh and Milwaukee: high proportion of workers and wages in knowledge-based services and a high proportion of adults with a four-year degree or more in both the suburbs and central city.

The data are clear: The only path to a prosperous Metro Grand Rapids is far more working in knowledge-based services at far higher wages. And that requires even higher concentrations of college-educated adults.

Lou Glazer is president of Michigan Future Inc.

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