Hit the books, Michigan, and get smart about economic growth

Our work at Michigan Future, Inc. is focused on understanding the changes occurring in the American economy and how to be successful in that economy. Our interest is in the long-term structural changes in the economy, rather than year-to -year, largely cyclical changes.

Our new report, Michigan’s Transition to a Knowledge-Based Economy, assesses how well our state is faring; identifies the states and metropolitan areas that are faring best; and identifies the common characteristics of the most prosperous states and regions.

Globalization and technology are mega forces transforming the economy. The places that will do best are those that align with – rather than resist – these new realities. For Michigan that, first and foremost, means learning that what made us prosperous in the past isn’t working now and won’t in the future.

Michigan Future started with the question “where do we want to go from here?” Our answer: a high-prosperity Michigan – a place with per-capita personal income consis10tly above the national average in both national economic expansions and contractions.

High prosperity is different from the most-used measure for economic success, low unemployment. We believe the goal should be to create an economy with lots of well-paying jobs, with a broad middle class where there is a realistic chance for families to realize the American dream. Places with low unemployment rates, but also lower personal income, aren’t successful to us.

Our latest report covers the period from 2007 through 2014 – the peak of the previous national economic expansion through the current peak. This allows us to assess the Michigan economy structurally.

First, the good news

In very good news, Michigan from 2010-2014 has been one of the nation’s leaders with its 8.6 percent job growth, ranking seventh, compared to 6.9 percent for the nation. This reverses a decade of job losses.

In terms of personal income per capita, since 2010 Michigan has grown at a similar rate as the nation.

The state reached a low in personal income per capita of 38th in 2008 and 2009 and moved to 35th in 2014. Each year from 2007-2014 Michigan’s per capita ranged from 35th to 38th. If you take out government transfer payments, Michigan ranked 38th in 2014 and between 38th and 42nd in each of those years.

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

So despite a good stretch of job growth, 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 in the bottom third of states in per capita income and bottom quarter of states if you don’t include transfer payments.

What stands out in the economic and education data we analyzed is that in the fifth year (2014) of a national expansion, and an even stronger domestic auto industry recovery, Michigan is a national laggard on nearly all the metrics. Gone are the days when the auto industry – still the prime engine of the Michigan economy – could propel Michigan to being one of the most prosperous states as was true for most of the 20th century.

For most of the 20th century Michigan enjoyed the benefits of being the center of the auto industry. And that industry’s near collapse the past decade is something no other state suffered through. It was a major part of what mired Michigan – and no other state – in a decade-long recession.

The state could not avoid the downturn of the domestic auto industry, but we could have been better prepared if we had learned the lessons from high prosperity states.

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

What are knowledge-based services? Finance and insurance; professional services; healthcare; education; information; and management of companies. They account for 42 percent of all of the jobs in America and 54 percent of total wages nationally. The data are clear: Knowledge-based services now are the center of mass middle class American jobs. Knowledge-based services contribute both strong job growth and high wages. The sector is now the high wage sector of the American economy.

Brains, not brawn

Human capital is the asset that matters most to knowledge-based enterprises. They have the highest proportion of employees with four year degrees or more in professional and managerial positions.

Our basic conclusion: What most distinguishes successful areas from Michigan are their concentrations of well-educated adults. Quite simply, in a world where work can increasingly be done anyplace by anybody, the places with the greatest concentrations of talent win.

No, the report does not claim that everyone needs a four-year degree. No more than any one claimed that everyone needed to be a manufacturing worker when manufacturing was the center of Michigan’s middle class.

And no, the report does not claim that those with four-year degrees are guaranteed stable, high-wage employment, any more than in the heyday of manufacturing, plant floor workers were guaranteed stable, high-wage employment.

What our research did find is that a core characteristic of prosperous states and metropolitan areas is a high proportion of adults with a four-year degree or more. It goes hand in hand with a concentration in knowledge-based services.

Of the top 10 states in 2013 per capita employment earnings (which includes both wages and employer paid benefits) eight are in the top 10 in four-year degree attainment. The other two are energy-driven North Dakota and Alaska. Of the bottom 10, eight rank 38th or lower in four-year degree attainment. The other two rank 21st and 30th.

In 2000, at the end of the boom years, Michigan still ranked 18th in per capita income. We were 34th in bachelor’s degree attainment. In many ways, 2000 marked the end of an era when you could have high prosperity with low education attainment. No more. In 2014, Michigan ranks 35th in per capita income and 34th in the proportion of adults with a four-year degree or more.

Cities matter

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

Michigan’s two big metropolitan areas also are lower-tier in per-capita income when compared to the nation’s 52 regions with a populations of one million or more. The Detroit region ranks 38th in per capita income; metro Grand Rapids ranks 49th.

Metro Detroit ranks 42nd in four-year degree attainment and 33rd in the proportion of wages from knowledge-based services. Metro Grand Rapids ranks 34th in four-year degree attainment and 52nd in the proportion of wages from knowledge-based services.

Minnesota – the Great Lakes’ most prosperous state – exemplifies the new path to prosperity. It is 13th in per capita income, 10th in employment earning per capita,10th in college attainment,12th in the proportion of wages from knowledge-based services and 3rd in the proportion of 25-64 year olds who work.

The three major differences between Michigan and Minnesota, in order of importance, are: the proportion of the population working, the proportion working in knowledge-based services, and a substantially higher wage in knowledge-based services.

Metro Minneapolis on all these metrics outperforms the rest of the state. It also has a central city – Minneapolis – that has a higher proportion of its residents with a four-year degree than its suburbs. The city is doing particularly well among 25-34 year olds, who across the county are concentrating in vibrant central cities. In Minneapolis, 49 percent of 25-34 year olds have a four-year degree or more.

We are confident that, primarily due to the ongoing force of globalization and technology, the American economy will become more and more service-, rather than goods-producing, based. And, in that economy, knowledge-based services will be where average wages are the highest and wage growth will be the strongest.

An era already ended

The lesson from the data analyzed is clear: Jobs in goods-producing industries – particularly manufacturing – are experiencing a long-term structural decline that almost certainly is irreversible.

Notwithstanding the current auto recovery-driven manufacturing rebound here in Michigan, long-term trends are clear: The defining characteristic of those places with the most prosperous economies today – and almost certainly even more so in the future – is their concentration in the knowledge-based sectors of the economy. The only exceptions have been and likely will be those states with commodity-based economies, particularly energy-related commodities.

To be clear, we are not advocating that Michigan abandon goods-producing industries. They are and will be important parts of the Michigan economy, especially in smaller regions and rural communities, and as such deserve support. But they are not a path to high prosperity or a broad middle class.

Nor is tourism. It is characterized by job growth, but low wages. The reality is if Michigan’s economic future is built on a base of factories, farms and tourism, we will be a low-prosperity state.

The world has changed fundamentally. We either adjust to the changes or we will continue to be poor compared to the nation.

Michigan’s fundamental economic challenge is that we rank 34th in the proportion of adults with a four-year degree. States without concentrations of talent will have great difficulty retaining or attracting knowledge-based enterprises, nor are they likely to be the place where new knowledge-based enterprises are created.

Michigan has lagged in its support of the assets necessary to develop the knowledge-based economy at the needed scale. Building that economy is going to take a long time, and it will require fundamental change. But we believe it is the only reliable path to regain high prosperity.

The choice we face is, do we do what is required to build the assets needed to compete in the knowledge-based economy or do we accept being a low-prosperity state?

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

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Fri, 12/04/2015 - 9:45pm
Perhaps part of the problem is that local media (at least in Lansing) are still a cheerleader for General Motors and anything associated with it despite the fact that GM jobs in this area have declined over the years from around 20,000 to about 4800. The continuing focus on GM I believe reinforces a mindset in people that the only way to get ahead is still in manufacturing. While there is some rebound in auto and other manufacturing it should be obvious that things will never be what they once were.
S cooper
Sun, 12/06/2015 - 10:28am
Too bad education isn't more important than tax cuts for big corporations and wealthy individuals.
Mon, 12/07/2015 - 10:07am
No, YOU go it the books yourself and study the Bureau of Labor Statistics job and career projections and predictions. The latest analysis covers 2012-2022. Then write another column about what you discover.
Mon, 12/07/2015 - 11:32am
One question/relationship that is not really addressed but seems to be totally assumed, is the issue of location. Does generating a bunch of bachelor degrees in an area necessarily lead to jobs and prosperity following into that area? What keeps those holding degrees locked into that location? Remember, currently about 40% of our grads (and I'll bet disproportionally the information/technology types you extol), leave the state. Not to mention the situation where a large amount (and growing) of our engineering (as well as other fields) is done by overseas (and domestic) engineers via the internet. Why do so many foreign born doctors come here? Does this not dampen the benefits you claim to arise from just jumping the number of degree holders (assuming they're even employable), in a specific area? The second logical glitch purported here is that of degrees in essence cause wealth. Couldn't it be equally be argued that the even stronger correlation is that WEATH CAUSES DEGREES, and that the entire discussion of driving prosperity in a given area is far more complicated and organic that one simple factor (send more kids to college) can explain?
David Waymire
Mon, 12/07/2015 - 11:38am
You are right...we need to both focus on increasing the production of talent here...and on retaining and attracting it. That means making sure our cities are like those cities that are winning the talent battle: Safe, good mass transit, lots of activities. The bottom line, as the Michigan Future report shows...if we don't start increasing our talent supply, companies won't locate their best-paying jobs here and we will get poorer. My analogy: You put a coal mine where the coal is. You put a talent-oriented company where the talent is. Talent will attract business.
Mon, 12/07/2015 - 2:46pm
My analogy would be that if Minot North Dakota built the finest film school on earth and trained a 1000 film people each year, with free tuition, it still wouldn't make a dent in the existing industry in southern California, if it amounted to anything at all. And for all that they probably wouldn't even get a thank you note. Which goes to the point that economic development happens when a number of unpredictable factors come together at a point in time and for the most part this is unrepeatable. The best you can hope for is having people around with the XXX factors to catch the next flash of fire in the bottle. But what XXX factor is, is probably not taught in a college course, even mentioned by a consultant or facilitated by a government program.
Mon, 12/07/2015 - 7:15pm
Let me offer a bit to your analogy, the coal while in the ground isn't mobile, but once extracted much like the person receiving a degree then they become mobile and go where the market is. What we need to do is better understand what makes a market place and see if we can draw the market makers here. Why is Ann Arbor growing while not so far away Detroit is dying? Why is Grand Rapids growing while no so far away Muskegon is at best stagnant? Is it the geography or is it the culture? Is it the government or is it the people? Is it the marketplace or it the market makers? Once we decide than we consider what we can do to leverage what we find.
Tue, 12/08/2015 - 1:54pm
It is culture and perception, in the specific examples you give negative racial stereotypes are a big factor.
Wed, 12/09/2015 - 1:04pm
You see it as race, I see it as culture. Cultures are not driven by race, they are driven by circumstances. Consider the difference between cultures of the rice farmers and city dwellers from China. The culture of rice farming drives those raised growing rice to be more diligent and invested in their livelihoods than those from the less demanding urban environment, a cultural difference for the same ethnicity. I would encourage you to read Malcolm Gladwell’s books, you might start with 'Outlier'. Detroit and Muskegon cultures were built around auto manufacturing and Ann Arbor built around education, and Grand Rapids built on manufacturing other than autos? Recognize that the influences on current cultures from 40 or 50 years or more ago. Consider the culture of the auto companies, the university, or non auto industries in Grand Rapids such as furniture. The auto companies were created with a top down culture, benevolent organization not individual achievement structure. Detroit and other communities that were dominated by autos assimilated that culture, the individual was rewarded by the benevolence of the city organization not for individual effort and responsibility. Education is founded on individual effort and achievement, what you learn is determined by what you do. The Grand Rapid industries started with individual craftsmanship, the building of furniture is about the skills and results of the individual. Detroit and the other automotive communities are built around being the conduit of moneys for their communities, the others are built around individual achievements. As much as Ann Arbor [the University] wants to do for others it is still built on the individual and personal responsibility and achievement. Detroit is about being the place to gather moneys and be the disburser of those moneys. The visible elements in a culture can be manipulated by individuals for their benefit and over time that manipulation can exacerbate the weaknesses in the culture. As long as people look only at the surface of a community and not at its culture the community will not change and the manipulation will continue. People may want it to be about race because that can make it simpler to explain and to blame, but reality is that race is only a tool for those promoting getting other people's money to spend. Race does not determine individual success or failure. The culture/micro cultures the individual is the part has the greatest impact. Each of us is part of various micro cultures within the larger community culture and it is the micro cultures we chose to be part of that influences what and how we act/react. It is the micro culture that influences whether we decide to learn or not, it is the micro culture that influences our work ethic, it is the micro culture influence the socialization. It is how we chose and who we include in our micro cultures that are more important than, race, gender, social and economic status, in influencing individual success or failure. You pick the situation, education, work, socialization, financial, etc, then we can better discuss culture/micro cultures and how race is not the factor. Think of your own situation and consider your micro cultures and how they reflect you actions/reactions.
John Q. Public
Tue, 12/08/2015 - 7:53pm
While we are 34th proportionately, how are we in raw numbers? Employers don't hire proportions; they hire people. We can have half the rate of college grads as a state half our size and still have as many college grads for employers to hire. Switch seems to think we have an adequate supply of "talent." They aren't even being coy about saying, "Give us a handout or else." They "love" Grand Rapids, but unless we serenade them with money.... I suspect it isn't really as bleak, relatively, as the article would have us believe. Look who is ridiculously included and excluded in the "Detroit metro area". How do you suppose the numbers (particularly the college grads in the 25-34 group) would look if we swapped Lapeer County for Washtenaw? You know, instead of Lapeer, Almont and Imlay City we counted Ann Arbor, Chelsea and Dexter? The Minneapolis numbers include their U-M, and Detroit's exclude ours. Metropolitan Grand Rapids includes Barry and Montcalm Counties, but excludes Muskegon. How would that swap change their look? Who you measure matters as much as what you measure.
Mike Reade
Wed, 12/09/2015 - 1:46pm
I have not read the report, but thought this was a well researched and articulated piece. I just can't believe that in 2015 this even needs saying. Of COURSE high paying, low skilled manufacturing jobs are gone. And of COURSE the path to prosperity overall is through a highly educated and skilled populace. I think a major part of the problem is the "blue collar" mentality we cling to in Michigan. Too many still falsely believe that the good old days are just around the corner and refuse to accept reality. I've also run into more than a few blue collar mentality types that have an anti-education mentality. And you wonder why college graduates are fleeing the state? We can change our mentality or we can end up becoming Michissippi.