That bump in pay? Poof — Michigan income gains erased by high inflation

• Michigan median household income rose $7,400 to $66,986 between 2019 and 2022
• But inflation rose 15 percent over that time, leading to a 2.6 percent dip in actual buying power
• Michigan’s median income is now ranked 37th nationally, down from 32nd in 2019

High inflation more than erased income gains in Michigan households since the COVID-19 pandemic began, new census data shows, lowering the state’s economic ranking.

With a median household income of $66,986 in 2022, Michigan now ranks 37th in the nation, down from 32nd in 2019 when the median household income was $59,584.

That $7,402 gain (a seemingly healthy increase of 12.4 percent over 2019) was wiped out by even higher levels of inflation from 2019 to 2022, in which inflation rose by 15 percent. 

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The result: When adjusted for inflation, the median Michigan worker saw an $1,819 drop in buying power by the end of last year, a drop of 2.6 percent, according to the latest U.S. Census Bureau data released last week.

Over this period, five states that had lower median household incomes than Michigan before the pandemic have now surpassed us: South Dakota, Florida, Maine, North Carolina and Montana.

Other findings, when adjusted for inflation:

• Affluent residents suffered less of a percentage decline than low-income workers. The top 20 percent of income earners (average household income of $230,959 in 2022) saw just a -0.8 percent inflation-adjusted decline compared to a -8.4 percent drop for the bottom 20 percent (average income: $14,784).
• Among racial and ethnic groups, Hispanic households saw a 9 percent increase. White households saw a -2.4 percent decline and African-American households had a -1.1 percent decline. 
• The biggest drop in income occurred from 2021 to 2022, when inflation hit 8.5 percent. The state saw a -2.8 percent decline in inflation-adjusted income, the nation’s 9th worst.
• Steep differences remain based on education level. Median income in 2022 for someone with a high school diploma was $35,865, compared to $41,762 for those with some college, $63,077 for someone with a bachelor’s degree and $78,984 for someone with a graduate or professional degree.

The pandemic triggered the highest inflation rates since the early 1980s as supply chains were disrupted and Washington poured billions of dollars into the economy to moderate the financial impact of COVID, which is blamed for nearly 39,000 deaths in Michigan and more than 1.1 million in the nation.

Government-ordered lockdowns designed to prevent the spread of the virus briefly sent the jobless rate to over 22 percent in Michigan — the highest in the nation — and led to an extra $600 a week in jobless benefits.

Then, as the economy restarted, wages rose quickly as employers attempted to lure workers back into the workforce. That pushed wages higher but also the cost of food, gas and lodging that led to inflation outpacing wages in Michigan and 33 other states.

But the overall arc of Michigan’s stagnant wages is rooted in a longer history in the state, said Lou Glazer, president of Michigan Future, a nonprofit that advocates for helping Michigan “succeed as a world class community in a knowledge-driven economy.”

He blamed the state’s sluggish income rise, compared to other states, on the state’s continued pursuit of a manufacturing-based economy.

The impact of inflation and Great-Recession era contracts that created lower-paid workers have driven the United Auto Workers to strike against the three Detroit automakers seeking big pay increases.

The UAW has seen wages in heavy industry, once affording millions of Michigan residents with a middle-class life, fall over time while those in “knowledge-based” industries like computers have risen, Glazer said.

“We’re over-concentrated in the declining industrial economy,” he said. “Michigan’s policy problem — in both parties — is they both want to recreate 1979. It’s the wrong policy.”

In 1979, GM employed 600,000 workers nationwide and now employees 95,000, Glazer said. That same year, Michigan’s per capita income was 3 percent higher than the nation’s.

In 2022, Michigan’s per capita income was 13 percent below the nation’s. Nearly 19 percent of Michigan workers are in manufacturing, the highest percent in the nation; the national rate is 10 percent.

By comparison, in Massachusetts, the per capita income — which was lower than Michigan’s in 1979 — was 30 percent higher than the nation’s in 2022, Glazer said. The difference? Nearly half of Massachusetts’ adults — 46.6 percent — had a college degree in 2022 compared to 32.1 percent in Michigan. The national rate was 35.7 percent in 2022.

Glazer and his organization have advocated the state adopt policies to encourage more people to pursue a college degree and attract more knowledge-based businesses, which, he said, is “high wage and growing.”

In May, the advocacy group Business Leaders for Michigan looked at the state’s economic progress shows and concluded Michigan is now a “below-average state.”

According to BLM’s report, two-thirds of U.S. job growth from today through 2030 will come from knowledge-based jobs that require some form of post-high school degree or training.

While those jobs grew by 35 percent across the nation since 2000, the group found they did not increase in Michigan.

Xuan Liu, demographer and director of research at the Southeast Michigan Council of Governments, said Michigan is trying to tap into its auto legacy to join the race to build a knowledge-based economy. He pointed to efforts by Ford and GM to develop electric vehicles and future transportation models, with Ford focusing on mobility research in Detroit and GM on its Warren campus.

“I think one way (to improve incomes in Michigan) is to leverage what we have now,” Liu said.

But it’s more than adding higher-paying, knowledge-based jobs to the state, he said. If Detroit automakers do not remain leaders in the next automotive phase, Michigan could be hurt economically, he said, because of its reliance on the industry.