The millennials are an economic growth priority

Across the country state and local leaders have made retaining and attracting young college graduates an economic development priority. Not in Michigan. Here, by and large, state and local policy makers and economic developers are missing in action. So are the major business organizations. Some pay lip service to the importance of retaining and attracting talent, and then do nothing. Many are dismissive of the importance of talent to the economy.

This is counterbalanced somewhat by individual business leaders like Dan Gilbert, the Ilitch family and Peter Karmanos and by foundations, most notably in Detroit, the Hudson-Webber Foundation and the Kresge Foundation who are “all in” in doing everything they can and then some to make sure that Detroit becomes a talent magnet. But they can’t do it alone.

A recent Governing article provides a good overview of why attracting millennials is vitally important to economic success and what communities around the country are doing to attract highly mobile young professionals. The article’s author William Fulton writes: “Here are the facts most people know: For the foreseeable future, the so-called millennials (currently ages 18-30) will drive both the housing market and the fast-growing innovation economy. It’s a huge cohort of about 70 million people. And as I mentioned above, they are gravitating toward a select group of metros and small cities.But there are a couple of other facts that we don’t usually think about. Most people settle down by age 35, and usually don’t move from one metro area to another after that. And the demographic group behind the millennials is a lot smaller. Just like baby boomers, the preferences of the millennials will drive our society for two generations. They’re making location decisions based on their idea of quality of life. And they’re going to make all those decisions in the next few years — by the time they’re 35.” (Emphasis added.)

Fulton continues: “So if you’re not one of the hip places today, you have only a few years — the length of one real estate cycle and the time horizon for planning an infrastructure project — to become hip enough to keep your kids and attract others. This might seem like a daunting, if not insurmountable, challenge, but frankly I’m encouraged by what I see. Over the last six months I’ve been to many second-tier cities — Omaha, Neb.; Oklahoma City; Richmond, Va.; Syracuse, Buffalo and Rochester, N.Y.; and Manchester, N.H., among them — that would not to be good candidates for a hip urban core. Yet they’re all developing one.”

What do these cities and many others across the country––many of them in red states––understand that we in Michigan don’t?

• That in an increasingly knowledge-based economy the asset that matters most to economic growth is human capital/talent.
• The places with concentrated talent are far more likely to be the most prosperous places today and even more so in the future.
• That talent is increasingly mobile and that young talent are the most mobile.
• And young professionals decide where to live after college based in large part on quality of place attributes and for many of them that means a vibrant central city neighborhood.

There is no reason Detroit, Grand Rapids and Lansing can’t compete with Fulton’s list of cities. And they need to. If those regions are going to be prosperous in the future they need to get in the game big time. And all of us in Michigan have a big stake in those cities becomming talent magnets. Because the states with the highest per capita incomes, by and large, are those with an even more prosperous big metro anchored by a vibrant central city.

In a previous post we laid out an urban agenda. Its elements are the core of what government (state and local) need to do to create the quality of place that millennials are looking for. The agenda is:

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New report: the metro Lansing economy

We have included metro Lansing in all our annual reports because mid sized regions anchored by a major research university can do well in a knowledge-driven economy. We use metro Madison, Wisconsin in the report as a comparison to metro Lansing. Metro Madison––although with a population of only 632,000––has a per capita income exceeded by only 12 of the 54 metropolitan areas with population of one million or more.

From 2001-2010, the four county Lansing regional economy––like the state––performed worse than the national economy.

Employment and Wages

In 2010 there were 212,000 jobs in metro Lansing, a decline of 24,000 (-10.1%) from 2001. Just like the nation, underneath the poor jobs record of the decade is the continuing divergence between the high and the low education attainment sectors. Metro Lansing’s employment in the high education attainment was 106,000 in 2010, a loss of 3,000 jobs (-2.6%) from 2001. In health care and education––where the national high education attainment job growth was concentrated––job growth in metro Lansing was 1,653 (3.3%) between 2001 and 2010. In the low education attainment sectors employment was 106,000 in 2010, a decline of 21,000 jobs (-16.3%) from 2001.

The average wage in metro Lansing followed the same pattern as the nation: high education attainment industries growing and low education attainment industries declining. The average wage for all jobs in the Lansing region in 2010 was $42,945, an increase of 4.2% from 2001. (In sharp contrast to the state and metro Detroit and Grand Rapids which had declining average wages.) In the high education attainment sectors the average wage was $53,005 a gain of 9.0%. In the low education attainment sectors the average wage was $32,955, a decline of 5.6% from 2001.

The gap in the average wage between the high and low education attainment sectors grew from $13,687 in 2001 to $20,050. In 2010 the average worker in the high education attainment sectors had wages about 1.6 times that of the average worker in the low education attainment sectors. Metro Lansing’s average wage in 2010 was 5.1% below the national average in the low education attainment industries and in the high education attainment industries, metro Lansing’s average wage in 2010 was 14.6 percent below the national average.

Personal Income

Per capita income in metro Lansing in 2010 was $32,866, a gain of $34 (0.1%) from 2001.  But, even more so than for the nation, the underlying sources of region’s personal income is very worrisome, with the big loss of real private sector employment earnings per capita from 2001 – 2010 masked by the even larger personal income gains from government––either government employment earnings or, most importantly, transfer payments.

• Private sector employment earnings per capita in 2010 was a very low $16,705 a loss of  $2,082(-11.1%) from 2001
• Government employment earnings per capita in 2010 was a very high $7,697 a gain of $665 (9.5%) from 2001.
• Personal income per capita from interest, dividends and rent was $4,317, a loss of $785 (-15.4%) from 2001.
• Transfer payments per capita in 2010 were $7,119, a gain of $2,536 from 2001 (55.3%).

The dramatic growth in transfer payments was accompanied by a sharp increase in the share of the population who were poor or nearly poor.  In 1999, 17.3% of the metro Lansing population had an income that was less than 1.5 times the poverty level.  By 2010, this value had increased to 24.3%. Metro Lansing also has an economy that is very dependent on government employment earnings rather than private sector employment earnings. Government employment earnings per capita are nearly 150% of the national average, while private sector employment earnings per capita are 70% of the national average. Rising poverty and growing transfer payments, combined with high government employment earnings and low private sector employment earnings are not a good way to start the 21st Century.

How metro Lansing in 2010 compared to the country

• Proportion of wages from high education attainment industries: 105.3% of US
• Average wage: 91.9% of US
• Average wage in high education attainment industries: 85.4% of US
• Average wage in low education attainment industries: 94.9% of US
• Proportion of adults with a four year degree: 98.6% of US
• Households with income 1.5 times the poverty rate or less: 97.5% of US
• Households with income 4 times the poverty rate or more: 93.8% of US
• Per capita income: 82.3% of US
• Private sector employment earnings per capita: 70.5% of US
• Government employment earnings per capita: 144.9% of US
• Interest, dividends and rent per capita: 64.5% of US
• Transfer payments per capita: 96.0% of US

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New report: the metro Grand Rapids economy

From 2001-2010, the seven county Grand Rapids regional economy performed better than the Michigan economy. That said it was a decade of decline. And the region in 2010 was one of the poorest of all the metropolitan areas in the country with a population of one million or more.

Employment and Wages

In 2010 there were 534,000 jobs in metro Grand Rapids, a decline of 62,000 (-10.4%) from 2001. Just like the nation, underneath the poor jobs record of the decade is the continuing divergence between the high and the low education attainment sectors. Metro Grand Rapids employment in the high education attainment was 190,000 in 2010, an increase of 6,000 jobs (3.1%) from 2001. In health care and education––where the national high education attainment job growth was concentrated––job growth in metro Grand Rapids was around 11,000, an increase of 12.8% between 2001 and 2010. In the low education attainment sectors employment was 343,000 in 2010, a decline of 68,000 jobs (-16.5%) from 2001.

The average wage in metro Grand Rapids followed the same pattern as the nation: high education attainment industries growing and low education attainment industries declining. The average wage for all jobs in the Grand Rapids region in 2010 was $39,823, a decline of 0.8% from 2001. In the high education attainment sectors the average wage was $49,160 a gain of 4.7%. In the low education attainment sectors the average wage was $34,647, a decline of 6.6% from 2001.

The gap in the average wage between the high and low education attainment sectors grew from $9,841 in 2001 to $14,513. In 2010 the average worker in the high education attainment sectors had wages a little more than 1.4 times that of the average worker in the low education attainment sectors. The average wage differential between the high and low education attainment sectors is much smaller in metro Grand Rapids than the country. Metro Grand Rapid’s average wage in 2010 was just about at the national average in the low education attainment industries. By comparison in the high education attainment industries, metro Grand Rapid’s average wage in 2010 was 20.8 percent below the national average.

Personal Income

Per capita income in metro Grand Rapids in 2010 was $33,441, a loss of $1,337 (-3.9%). The underlying sources of region’s personal income is worrisome, with a large decline of real private sector employment earnings per capita from 2001 – 2010 masked by even larger income gains from government––either government employment earnings or, most importantly, transfer payments.

• Private sector employment earnings per capita in 2010 was $20,937 a loss of  $3,399 (-14.0 %) from 2001
• Government employment earnings per capita in 2010 was $2.897 a gain of $74 (2.6 %) from 2001.
• Personal income per capita from interest, dividends and rent was $5,166, a loss of $612 (-11.4%) from 2001.
• Transfer payments per capita in 2010 were $6,762, a gain of $2,392 from 2001 (54.7%).

The dramatic growth in transfer payments was accompanied by a sharp increase in the share of the population who were poor or nearly poor.  In 1999, 15.3% of the metro Grand Rapids population had an income that was less than 1.5 times the poverty level.  By 2010, this value had increased to 25.2%. Metro Grand Rapids has become increasingly poor and more dependent upon transfer income, not a good start to the 21st Century.

How metro Grand Rapids in 2010 compared to the country (Note: the rankings are out of 54 metros with a population of one million or more)

• Proportion of wages from high education attainment industries: 53rd/75.4% of US
• Average wage: 49th/85.2% of US
• Average wage in high education attainment industries: 50th/79.2% of US
• Average wage in low education attainment industries: 27th/99.8% of US
• Proportion of adults with a four year degree: 48th/88.3% of US
• Households with income 1.5 times the poverty rate or less: 36th/100.9% of US
• Households with income 4 times the poverty rate or more: 52nd/82.4% of US
• Per capita income: 52nd/81.2% of US
• Private sector employment earnings per capita: 44th/88.3% of US
• Government employment earnings per capita: 54th/54.6% of US
• Interest, dividends and rent per capita: 45th/71.2% of US
• Transfer payments per capita: 31st/91.2% of US

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New report: the metro Detroit economy

As bad as the Michigan economy was from 2001-2010, the nine county Detroit regional economy was worse. As the epicenter of the domestic auto industry, the region suffered most from the near collapse of the Detroit Three.

Employment and Wages

In 2010 there were 1.996 million jobs in metro Detroit, a decline of 454,000––an unprecedented 18.5%–– from 2001. Just like the nation, underneath the terrible jobs record of the decade is the continuing divergence between the high and the low education attainment sectors. Metro Detroit employment in the high education attainment was 917,000 in 2010, a decline of 72,000 jobs (-7.3%) from 2001. In the low education attainment sectors employment was 1.079 million in 2010, a staggering decline of 382,000 jobs (-26.1%) from 2001. The loss of jobs in the knowledge-based industries we believe is due in large part to the decline in employment in the knowledge-based portions of the domestic auto industry. In health care and education––where the national high education attainment job growth was concentrated–– job growth in metro Detroit was around 26,000, an increase of 6.4% between 2001 and 2010.

The average wage in metro Detroit followed the same pattern as the nation: high education attainment industries growing and low education attainment industries declining. The average wage for all jobs in the Detroit region in 2010 was $48,792, a decline of 0.9% from 2001. In the high education attainment sectors the average wage was $60,831, a gain of 3.5%. In the low education attainment sectors the average wage was $38,562, a decline of 9.9% from 2001.

The gap in the average wage between the high and low education attainment sectors grew from $15,980 in 2001 to $22,269. In 2010 the average worker in the high education attainment sectors had wages a little less than 1.6 times that of the average worker in the low education attainment sectors. Metro Detroit’s average wage in 2010 was 11.0% above the nation in the low education attainment industries. By comparison in the high education attainment industries, metro Detroit’s average wage in 2010 was 2.0 percent below the national average.

Personal Income

Per capita income in metro Detroit in 2010 was $37,398, a loss of $2.137 (-5.4%) from 2001.  But, even more so than for the nation, the underlying sources of region’s personal income is very worrisome, with a huge decline of real private sector employment earnings per capita from 2001 – 2010 masked by the large income gains from government––either government employment earnings or, most importantly, transfer payments.

• Private sector employment earnings per capita in 2010 was $23,071 a loss of  $5,534(-19.3 %) from 2001
• Government employment earnings per capita in 2010 was $4,215 a gain of $609 (16.9%) from 2001.
• Personal income per capita from interest, dividends and rent was $6,085, a loss of $953 (-15.3%) from 2001.
• Transfer payments per capita in 2010 were $8,384, a gain of $3,228 from 2001 (62.6%).

The dramatic growth in transfer payments was accompanied by a sharp increase in the share of the population who were poor or nearly poor. In 1999, 17.1% of the metro Detroit population had an income that was less than 1.5 times the poverty level. By 2010, this value had increased to 25.8%. Metro Detroit has become increasingly poor and more dependent upon transfer income, not a good start to the 21st Century.

How metro Detroit in 2010 compared to the country (Note: the rankings are out of 54 metros with populations of one million or more.)

• Proportion of wages from high education attainment industries: 34th/98.1% of US
• Average wage: 16th/104.4% of US
• Average wage in high education attainment industries: 21st/98.0% of US
• Average wage in low education attainment industries: 5th/111.0% of US
• Proportion of adults with a four year degree: 35th/98.9% of US
• Households with income 1.5 times the poverty rate or less: 40th/103.2% of US
• Households with income 4 times the poverty rate or more: 28th/101.1% of US
• Per capita income: 38th/93.6% of US
• Private sector employment earnings per capita: 34th/97.3% of US
• Government employment earnings per capita: 38th/79.4% of US
• Interest, dividends and rent per capita: 32nd/78.6% of US
• Transfer payments per capita: 6th/113.1% of US

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Previews of our new report

Two recent articles preview our upcoming annual progress report on Michigan’s  transition to a knowledge-based economy. This is will be the fifth of these reports that Don Grimes and I have done on how well Michigan is doing compared to the country in terms of employment and particularly personal income. And which states are doing well, which aren’t and what are the common characteristics of those who are doing well. The new report covers the period from 2001-2010.

Detroit News columnist Daniel Howes in a column entitled Talent in big cities drives growth explores our findings that big metros anchored by vibrant central cities are where per capita income is the highest and, maybe most importantly,  where private sector employment earnings per capita are also the highest. The main reason is that  big metros are where both college educated adults and knowledge-based enterprises are concentrated. Howes writes that it is important and encouraging that the city of Detroit––despite all the headwinds––is moving in the right direction to becoming a talent magnet.

Governing did an overview of the upcoming report in an article entitled Analysis offers path to Michigan’s economic prosperity. The article includes an easy to use table––using our data––on how all 50 states rank in  per capita income, private sector employment earnings per capita and the proportion of wages from high education attainment industries.

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Worth reading

As always there are too many good articles to write about. Some recent articles that I think are worth checking out:

On cities:

A Washington Post article on the importance of immigrants to central city redevelopment.

A terrific Dome article on the importance of Detroit to all of Michigan

A USA Today article on the growth of downtown living

On education:

A Wall Street Journal op ed by Adam Falk, President of Williams College, on the value add of campus based higher education

Three great columns on the importance of education attainment to Michigan’s future prosperity. From Phil Power for Bridge,  Lawrence Glazer for Dome, and John Austin for MLive.

And on state tax and spending policy:

A terrific Peter Luke column for Bridge on Proposal 5 and state taxes

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Ohio

Interesting New York Times Sunday Magazine article on the Ohio economy and politics. The article is primarily about the intersection between the state’s economy and the presidential election. What is of more interest to me is three insights about the long-term success of the state’s economy. Each matter to Michigan as well as Ohio.

First the analysis of what will drive the state’s economy forward in the future. And where that growth will take place. Matt  Bai, the article’s author, writes: “… as important as autos and factories and shale deposits are in creating a diverse stream of jobs and revenue, Ohio’s economic future will be largely tied to the new economy that Columbus and Cincinnati represent — banking and insurance and management consulting, state-of-the-art medical facilities, high-tech manufacturing and research. These industries thrive on the kinds of major investments in infrastructure and quality of life that only government can make, in schools and transportation and fiber optics and parkland. How politicians think about these kinds of investments, and how they intend to pay for them, would probably make for a more relevant debate this year than arguing over who created 1,000 new jobs in Canton last May, or whether the guy who sold you your Malibu can really be classified as an autoworker.”

Exactly right! The political debate may be about who better has and/or can bring back manufacturing and mining jobs but future growth is going to be increasingly knowledge-based and centered in big metros.  And that there are public investments that matter to the growth of the knowledge-economy. That holds true for Michigan as well as Ohio.

Second the Columbus story. Columbus––both the city and region––has a stronger economy than the state. The city has dealt with the contraction of funding caused by the Great  Recession with a combination of spending cuts and a voter approved income tax increase. The Times reports: “Concerned that businesses would begin to flee the city once its services began to disappear, he (Columbus Mayor Michael Coleman) went to the business leaders and persuaded them that the city needed to raise its income tax by half a percentage point at the height of the recession. They agreed to finance the campaign for a pro-tax ballot initiative … and the voters ultimately approved it. Most of the additional $100 million a year or so in revenue went to restoring services and improving infrastructure, like resurfacing streets and buying new police cars. But it also enabled the city to continue making planned investments in capital projects like its riverfront restoration.”

You read that right: a business supported tax increase to build the economy! Why? The article continues: “… when it came to the recovery in Columbus, Coleman credited the way local businesses had come together around the idea that raising revenue could stave off cuts and preserve investments. “They understand that part of selling a local economy is selling the quality of life in that local economy,” he said. “So if you don’t have good streets and good parks, if you don’t have a strong safety force and a strong fire department, if you don’t have the ability to grow the economy locally, businesses will not locate there. They’ll shrink and go somewhere else, because the quality of life is so bad. There are a lot of Ohio cities where that has happened, and it hasn’t happened in Columbus.” ”

Third the article delves into the role state policy plays in economic growth. The bottom line: in the short term not much. Bai interviewed Treasury Secretary Timothy Geithner for the article. Bai reports: “Was he suggesting, I asked, that individual governors didn’t really have much impact on the economic recoveries in their states?“No, very little impact,” Geithner replied. He wanted me to understand that he wasn’t trying to denigrate Kasich, whom he doesn’t know, nor was he suggesting that governors couldn’t do some very important things to affect the quality of life in their states. But he noted that there are limits to the power of the office. “States generally don’t affect whether their banks fail or not,” Geithner said. “They don’t affect whether their banks lend or not. They can’t affect whether a national industry like the automobile industry survives or not. None of them have the ability to provide tax cuts on the scale that we provided them. They can’t have any material effect on the price at which people can borrow, the interest rate people have to pay to finance a car or a home in Ohio.”

By contrast, Geithner said, the levers that Washington policy makers had been able to pull were the only ones consequential enough to change the direction of Ohio’s economy. He reached for the graph again. “You know, unemployment in the country would have gone like that everywhere,” Geithner said, making an ominous upward sweep with his finger along the y-axis. “To be able to stabilize it so that it starts to turn down — that was overwhelmingly the choices that the president made and that the Fed made.” ”

Bai concludes: “It’s probably true, as Geithner says, that states rise and fall with the national economy. But it’s also true that a state or a city can make choices that enable it to ride out the economic lows and then take advantage when times get better.” This is a lesson we need to learn here in Michigan. That the levers available to states (and local governments) to impact the economy is limited and far more important long term than short term. And that the policies that matter most are infrastructure and quality of life public investments.

As Mayor Coleman said: “So if you don’t have good streets and good parks, if you don’t have a strong safety force and a strong fire department, if you don’t have the ability to grow the economy locally, businesses will not locate there. They’ll shrink and go somewhere else, because the quality of life is so bad. And as Bai writes: These industries (knowledge-based) thrive on the kinds of major investments in infrastructure and quality of life that only government can make, in schools and transportation and fiber optics and parkland.

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Lessons from D.C. and Portland

Recent articles about Washington D.C. and Portland Oregon once again highlight the essential role that education attainment is playing in defining what places are doing best in post Great Recession America. You can find the D.C. story in a New York Times article by David Leonhardt. Portland’s story is told in a Matthew Yglesias’ article for Slate.

Leonhardt writes:

Washington may have the healthiest economy of any major metropolitan area in the country. The unemployment rate was 5.7 percent in June, compared with 9.3 percent in Chicago, 9.6 percent in New York and 10.3 percent in Los Angeles. The average housing price in the region is more than 10 percent above the 2009 nadir, while nationwide prices remain near a decade-long low.

… Some of the local prosperity, of course, is not worth celebrating. It stems from what economists call rent-seeking — tapping into the economic value created by someone else, rather than creating new value. …  Still, Washington’s good times are not all — or even mostly — about rent-seeking. The region has two legitimate economic lessons to offer the rest of the country.

The narrower of the two is a reminder that, for all its unpopularity, a Keynesian response to an economic crisis really can make a difference. The Washington area’s households and businesses have cut back in recent years, too, but their frugality has been offset by steady government spending. If anything, government has helped fill the void, with the District of Columbia’s having received more stimulus dollars per capita than any state, …

Washington’s second lesson is arguably even more important. If you wanted to imagine what the economy might look like if the country were much better educated, you can look at Washington. …  About 47 percent of the region’s adults have a bachelor’s degree, more than any other major metropolitan area in the country, according to the Census Bureau. In an economy ever more organized around knowledge, Washington’s employers — from biotechnology and Internet companies to retail and health care — have an easier time finding workers who fit their needs. Especially in bad times, employers can have more confidence they are hiring someone they will want to keep.

How do we know that education matters more than stimulus or rent-seeking? Other highly educated regions, like Boston and Minneapolis, join Washington near the bottom of the unemployment ranking and the top of the household-income ranking.

In many ways that metro Portland is on the list of places doing well in post Great Recession America is even more surprising. Portland has been a place where young talent has concentrated––largely for quality of place reasons––but with a relatively weak economy. No more! Those talent concentrations are now paying off. Yglesias writes:

But in relative terms, the turnaround is striking. National unemployment is still about two percentage points higher today than at its post-dot-com peak in 2003, while Portland’s unemployment is one point lower. What’s even more impressive is that while high unemployment is driving the national labor-force participation rate down, the Portland area’s participation rate is now growing. In the aggregate, Texas is where people have been moving to get jobs, but if you like overcast weather and independent coffee shops, greater Portland’s not a bad alternative.

… The truth is that local economies are buffeted by an awful lot of luck over the short term. … Relatively strong performance today is not so much a new thing as a return to form—Portland had a better-than-average economy in the 1990s, too. What’s coming through today are strong underlying fundamentals. Über-hip Portland and its supersquare opposite, Washington, D.C., are probably doing well for the same underlying reason. Portland has an above-average share of college graduates and a below-average unemployment rate. The D.C., Boston, and Minneapolis areas have even more college graduates and even stronger local labor markets.

That the slow, boring work of improving a local area’s educational attainment is the best path to prosperity is rarely what people want to hear—Portland Mayor Sam Adams, to his credit, has put a lot of emphasis on reducing the city’s dropout rate—but it’s what the data show. Different kinds of urban planning fads come and go, and different local industry mixes are sometimes beneficial at different times. But over the long term, cities are first and foremost made up of people. The cities with large numbers of skilled workers will either attract employers from outside or else lay the groundwork for homegrown success. (emphasis added) The unfortunate news for local officials in places that draw the short straw is that more economically dynamic cities will also tend to attract the most skilled workers. Even if you do a better job of educating your local population, that’s no guarantee they won’t just move elsewhere when they graduate.

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