Why is Pittsburgh better off than Grand Rapids?
In Michigan Future’s latest report, “Michigan’s Transition to a Knowledge-Based Economy,” we compare Metro Grand Rapids (Barry, Kent, Montcalm and Ottawa counties) to Metro Boston and Metro Pittsburgh.
We use Boston because it is the region that anchors two of the nation’s most prosperous states, and Pittsburgh because it is the leading region that has moved from factory-based to increasingly knowledge-based and is reaping the benefits of that transition.
In the report we emphasize net employment earnings. They are the predominant engine of long-term sustainable growth in the standard of living.
Net employment earnings are the combination of how many jobs people hold and what they are earning. This is what states and regions focus their economic development policy on — creating an environment for residents to have a job and earn a high wage.
Boston ranks fourth, Pittsburgh 18th and Grand Rapids 49th in net employment earnings out of 52 metros with populations of 1 million or more.
We know that Grand Rapids cannot be like Boston. But Boston does provide evidence of the key characteristics of prosperous regions — those with high per capita income. Pittsburgh, on the other hand, does provide a model for what a high-prosperity Grand Rapids can look like.
In the report we look at employment and wages for the three metro areas overall, broken out by four sectors:
- Low-education attainment goods-producing (nearly all manufacturing, construction and natural resources).
- High-education attainment goods-producing (primarily oil and gas extraction; and manufacturing in chemicals, pharmaceuticals, digital devices, aerospace and medical equipment).
- Low-education attainment services (primarily leisure services; trade, transportation and utilities; and temporary services).
- High-education attainment services (primarily education; health care and social services; finance and insurance; information; professional services; and management of companies).
Boston’s formula for top 10 employment earnings per capita is pretty simple: a very high percentage of residents working and very high wages in all sectors. Combine the two and you get a high-prosperity region. In Boston, 527 of every 1,000 residents of the region work, compared to 421 nationally and 489 in Grand Rapids. The average annual wage in Boston is $69,427 compared to $51,361 nationally and $43,801 in Grand Rapids.
Boston also demonstrates the importance to achieving high prosperity in being over-concentrated in knowledge-based services. The data we analyzed for the report are clear: The new path to prosperity is the broad knowledge-based service industries. High prosperity is occurring chiefly in those places where knowledge-based enterprises across many sectors are concentrating. They account for 42 percent of all of the jobs in America and 54 percent of the total wages nationally.
Knowledge-based services now are the center of mass middle-class American jobs.
Of every 1,000 residents in Boston, 261 work in knowledge-based services and earn an average wage of $90,987, compared to 178 and $67,028 nationally, and 159 and $53,933 in Grand Rapids.
Most of us in Michigan — particularly in West Michigan — continue to believe the economy is and needs to be goods-producing driven, especially manufacturing. Think again!
Of every 1,000 residents in Boston, 60 work in the good-producing sectors compared to 127 in Grand Rapids. Boston goods-producing employers do pay far higher wages than goods-producing employers in Grand Rapids. In low-education attainment goods-producing, the average wage is about $15,000 higher in Boston than Grand Rapids. In high-education goods-producing, the difference is an astonishing $57,000.
Pittsburgh is substantially more prosperous than Grand Rapids, chiefly because of higher wages across the board and a far high proportion of workers in the high-wage, knowledge-based services sector. Grand Rapids actually has more workers per 1,000 residents than Pittsburgh — 489 to 466 — but fewer in knowledge-based services: 159-205.
The average wage differential overall between the two regions is more than $7,000. In knowledge-based services, it’s more than $14,000.
It’s clear that the path to prosperity for West Michigan most of all requires far higher wages in all sectors, as well as a substantial increase in those working in the high-growth, high-wage knowledge-based services sector.
Lou Glazer is president of Michigan Future Inc.