Report: Michigan held down by low income, education

“The formula that worked for Michigan in the 20th century does not work in the 21st century.” – Lou Glazer, president of Michigan Future, Inc.

 

LANSING — Michigan is struggling to achieve economic prosperity during a boom time for the auto industry. Among the reasons: low per-capita income and fewer than a third of its residents hold bachelor’s degrees, according to new research released today.

The state that gave birth to cars now ranks in the bottom half nationally on those two measures, according to the study conducted by University of Michigan economist Donald Grimes and Lou Glazer, president of Ann Arbor-based think tank, Michigan Future, Inc.

The researchers found that Michigan shed workers and wages by 2 percent since 2007, the start of the last economic downturn, despite growth of roughly 1 percent nationally in both areas. Detroit was hit harder, because the city disproportionately was affected by the auto industry’s woes. In Grand Rapids, meanwhile, wages are spectacularly low for a region of its size.

What the trends mean for Michigan, Glazer said, is that the state no longer can rely on high-paying, low-skilled manufacturing jobs — the jobs that built its middle class starting with Henry Ford’s promise of a $5 daily wage a century ago — if it wants to prosper.

Rather, he said, Michigan needs to put more of its residents to work, concentrate more people with four-year degrees in its cities and speed up the transition to a knowledge-based service economy — all traits of more prosperous states.

Graphic by Lisa Sawyer

 

“This is something that basically has never happened in Michigan,” said Glazer, whose Michigan Future think tank studies talent and the transition to an information economy. “What we’re basically saying is, the formula that worked for Michigan in the 20th century … does not work in the 21st century.”

A slow slide

That shift has been going on for several years, partly because the auto industry had inflated Michigan’s per-capita income relative to the rest of the country even though the state had a lower percentage of college graduates.

When the auto sector collapsed during the recession, it took income levels with it. In 2000, Michigan had the 18th-best per-capita income in the U.S.; in 2013, the state had fallen to 37th, according to state data and the Michigan Future report. That same year, Michigan ranked 33rd for the share of adults with a bachelor’s degree.

Glazer and Grimes analyzed economic and education data from 2007 to 2014 and compared Michigan with national averages and with other states. They did a similar analysis for the metropolitan regions in Detroit and Grand Rapids, comparing both regions with other U.S. metros with at least 1 million people.

They found the only sector nationally to add jobs and raise wages was high-education services, which include finance, health care and social services.

Other sectors they studied include low-education services, which includes lower-paying jobs in such fields as retail and tourism; low-education goods, often low-skilled manufacturing jobs; and high-education goods, a sector with the fewest employees and includes oil and gas extraction and aerospace, chemical and computer manufacturing.

The only way a state today can land on top 10 lists for employment, wages or income is either to have a wealth of energy resources, like Alaska and North Dakota, or have a high concentration of adults with bachelor’s degrees, Glazer said.

The trends don’t necessarily indicate causation, merely correlation. But places that perform well by those measures place less of an emphasis on making things, Glazer said.

Growing attention to income

The idea that Michigan should aim to be a top 10 economy state has other researchers’ attention.
Business Leaders for Michigan, the state’s business roundtable, released a study this month showing that Michigan continues to languish in the bottom half of states when it comes to income metrics.

In 2014, Michigan ranked 34th in per-capita GDP and 36th in per-capita personal income and had the fifth-worst unemployment rate in the nation, ranking 46th, according to BLM’s study.

But signs of optimism are emerging: The state’s per-capita personal income growth rate ranked 10th, while its per-capita GDP growth rate was third-fastest in the country, according to the study.
In the report released today, Grimes and Glazer found:

• Detroit is doing better in high-education service fields than places like Milwaukee and Pittsburgh, former manufacturing-heavy cities now transitioning to knowledge economies.
  That could be because metro Detroit has a greater concentration of knowledge jobs in the auto industry, from engineering to design, Glazer said. Metro Detroit had an average wage of $68,222 in high-education services in 2014, compared with $62,480 in Milwaukee and $65,988 in Pittsburgh.
• Wages are low in Grand Rapids. The region had an overall average wage of $43,801 in 2014, compared with $54,168 in Detroit, $56,337 in Minneapolis and $69,427 in Boston. The Grand Rapids area ranked 49th of 52 U.S. metropolitan areas with a population of at least 1 million, and last when factoring for knowledge-based jobs’ share of total wages, data show.
• The good news: Michigan is adding jobs at a faster rate than the nation, and the state has better college attainment rates among younger people — ages 25-34 — than across the population as a whole. Yet, Glazer said, “no question, it’s still low.”