Section » Michigan Cities
How residents of metro Lansing earn their income
We conclude our look at the components of income data from our new annual report with how residents of metro Lansing earn their income. We use the broadest definition of the region which includes four counties: Clinton, Eaton, Ingham and Shiawasee.
Per capita income for metro Lansing in 2009 was $33,273. By major components it was:
- Private sector employment earnings $16,672
- Government employment earnings $7,769
- Dividends, Interest, Rent $4,796
- Transfer payments $6,952
We also looked at per capita income growth between 1989 and 2009 corrected for inflation. Over that 20 year period real per capita income grew by $5,351. An increase of 19 percent. By component the twenty year growth was:
- Private sector employment earnings $829
- Government employment earnings $1,222
- Dividends, Interest, Rent $2
- Transfer payments $3,721
As you can see, transfer payments account for a large proportion (69 percent) of metro Lansing’s real personal income growth over the past two decades. The other obvious highlight (really lowlight) is small real growth (a little more than 5 percent) over two decades in private sector employment earnings. The region’s private sector employment earnings are 29 percent below the national average. Both of these trends need to change if metro Lansing is going to be a high prosperity region.
In 2009 73 percent of metro Lansing’s personal income came from employment earnings (50 percent from private employers and 23 percent from government employers.) Transfer payments were 21 percent. And if you combine transfer payments and government employment earnings, you find that 44 percent of the region’s personal income is paid for with government revenue. Twenty years earlier employment earnings were 81 percent of personal income (57 percent from private employers and 24 percent from government employers.) Transfer payments were 12 percent. And personal income paid for with government revenue was 35 percent.
How does metro Lansing compare to the US? Not well! The region’s per capita income is now $6,362 (16 percent) below the national average. Over the past two decades the region’s real per capita income grew $2,446 slower than the nation. About two-thirds the growth the country experienced. By component compared to the nation the 2009 levels and 20 year growth were:
- Private sector employment earnings -$6,655/-$2,684
- Government employment earnings $2,536/$302
- Dividends, Interest, Rent -$2,347/-$718
- Transfer payments -$32/$616
How residents of metro Grand Rapids earn their income
We continue our look at the components of income data from our new annual report with how residents of metro Grand Rapids earn their income. We use the broadest definition of the region which includes seven counties: Allegan, Barry, Ionia, Kent, Muskegon, Newaygo and Ottawa.
Per capita income for metro Grand Rapids in 2009 was $31,637. By major components it was:
- Private sector employment earnings $20,396
- Government employment earnings $2,877
- Dividends, Interest, Rent $4,887
- Transfer payments $6,355
We also looked at per capita income growth between 1989 and 2009 corrected for inflation. Over that 20 year period real per capita income grew by $3,700. An increase of 13 percent. By component the twenty year growth was:
- Private sector employment earnings $889
- Government employment earnings $440
- Dividends, Interest, Rent -$55
- Transfer payments $2,994
As you can see, transfer payments account for a large proportion (81 percent) of metro Grand Rapids’ real personal income growth over the past two decades. The other obvious highlight (really lowlight) is small real growth (less than 5 percent) over two decades in private sector employment earnings. Both of these trends need to change if metro Grand Rapids is going to be a high prosperity region.
In 2009 73 percent of metro Grand Rapids’ personal income came from employment earnings (64 percent from private employers and nine percent from government employers.) Transfer payments were 20 percent. And if you combine transfer payments and government employment earnings, you find that 29 percent of the region’s personal income is paid for with government revenue. Twenty years earlier employment earnings were 79 percent of personal income (70 percent from private employers and nine percent from government employers.) Transfer payments were 12 percent. And personal income paid for with government revenue was 21 percent.
How does metro Grand Rapids compare to the US? Not well! Particularly when you take into account that big metros on average are doing far better than the nation. The region’s per capita income is now $7,959 (twenty percent) below the national average. Over the past two decades the region’s real per capita income grew $4,097 slower than the nation. Less than half the growth the country experienced. By component compared to the nation the 2009 levels and 20 year growth were:
- Private sector employment earnings -$2,931/-$2,624
- Government employment earnings -$2,346/-$482
- Dividends, Interest, Rent -$2,256/-$755
- Transfer payments -$629/-$111
How residents of Metro Detroit earn their income
We continue our look at the components of income data from our new annual report with how metro Detroiters earn their income. We use the broadest definition of the region which includes nine counties: Genesee, Lapeer, Livingston, Macomb, Monroe, Oakland, St.Clair, Washtenaw and Wayne
Per capita income for metro Detroit in 2009 was $37,083. By major components it was:
- Private sector employment earnings $22,723
- Government employment earnings $4,103
- Dividends, Interest, Rent $5,938
- Transfer payments $7,783
We also looked at per capita income growth between 1989 and 2009 corrected for inflation. Over that 20 year period real per capita income grew by $3,747. An increase of 11 percent. By component the twenty year growth was:
- Private sector employment earnings -$542
- Government employment earnings $730
- Dividends, Interest, Rent -$104
- Transfer payments $3,727
As you can see, transfer payments account for virtually all of metro Detroit’s real personal income growth over the past two decades. The other obvious highlight (really lowlight) is no real growth over two decades in private sector employment earnings. Both of these trends need to change if metro Detroit is ever again going to be a high prosperity region.
In 2009 72 percent of metro Detroit’s personal income came from employment earnings (61 percent from private employers and 11 percent from government employers.) Transfer payments were 21 percent. And if you combine transfer payments and government employment earnings, you find that 32 percent of the region’s personal income is paid for with government revenue. Twenty years earlier employment earnings were 80 percent of personal income (70 percent from private employers and 10 percent from government employers.) Transfer payments were 12 percent. And personal income paid for with government revenue was 22 percent.
How does metro Detroit compare to the US? Not well! Particularly when you take into account that big metros on average are doing far better than the nation. The region’s per capita income is now $2,552 (6 percent) below the national average. Over the past two decades the region’s real per capita income grew $4,050 slower than the nation. Less than half the growth the country experienced. By component compared to the nation the 2009 levels and 20 year growth were:
- Private sector employment earnings -$604/-$4,055
- Government employment earnings -$1,130/-$192
- Dividends, Interest, Rent -$1,205/-$824
- Transfer payments $799/$622
One final note: metro Detroit is not a big government region. Wasn’t twenty years ago, isn’t today. In fact one can make a better case that it is a small government region. Government employment earnings for the region are 78 percent of the nation’s.
Schools and cities driving economic growth
In a recent New York Times column Harvard’s Edward Glaeser wrote: “In the long run, America will be richer than China only by having smarter citizens, and that requires the skills that come from schools and cities, not dispersed factories.”
Rick Haglund in an insightful Mlive column reviewing Governor Granholm’s new book makes the same point:
Her prescriptions are heavy on government partnerships with industry, and a focus on “clean energy” and advanced manufacturing. But Granholm says precious little about the areas where most of the good-paying jobs in a changing knowledge economy are being created — information, health care, education and financial services. Nor does she say much about the need for an urban strategy and boosting state financial support for higher education — two areas that are critical in attracting and retaining the young talent Michigan needs. But state government has been cutting revenue sharing to cities and university appropriations for years, a practice Gov. Rick Snyder has continued. Reversing those trends will be hard at a time when Snyder’s fellow Republicans want to abolish as much government as possible. But if Snyder fails in his pledge to make our cities more attractive and our workers smarter, he may find himself hiding behind sunglasses and a ballcap as his days as governor wind down.
Skills that come from schools and cities. Think about how different that is from the normal approach to economic development. Most policy makers and practitioners would think you are from Mars if you suggested that schools and cities are the levers that matter most for economic success. They almost exclusively focus on retaining and attracting businesses.
The evidence, in an economy being constantly transformed by globalization and technology, supports Glaeser’s central conclusion: concentrated talent is the most important ingredient driving economic growth. And where are college educated adults concentrating? Big metros anchored by vibrant central cities.
We found in our just released progress report on Michigan’s transition to a knowledge-based economy that high prosperity is occurring chiefly in those places where knowledge-based enterprises across many sectors are concentrating. They are concentrating in areas with a high proportion of adults with a bachelor’s degree or more.
In 2000, at the end of the boom years, Michigan still ranked 18th in per capita income. We were 34th in four-year 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 2009 Michigan ranked 36th in college attainment and 37th in per capita income — 13 percent below the national average, our lowest since the federal government started keeping statistics in 1929.
Our basic conclusion: what most distinguishes successful areas from Michigan is their concentrations of talent, where talent is defined as a combination of knowledge, creativity and entrepreneurship. Quite simply, in a flattening world where work can increasingly be done anyplace by anybody, the places with the greatest concentrations of talent win. States and regions 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. The knowledge-based economy is now the path to prosperity for Michigan.
Michigan has lagged in its support of the assets necessary to develop the knowledge-based economy at the needed scale. The assets that matter most: a quality and agile higher education system and big metropolitan areas, anchored by vibrant central cites, where talent want to live and work. These are two areas the state has been disinvesting in this decade. Not smart!
Scientific American on cities
Scientific American’s September issue is titled Cities: Better, Greener and Smarter. They conclude ” We have seen a brighter future, and it is urban.” The whole issue is terrific, worth picking up at the newsstand or you can check it out at.
For this post I want to highlight three of their articles. The first is from two physicists who present compelling data that big cities are the most productive and greenest places across the planet. The article is titled Big Cities Do More With Less. They write:
The numbers show that urban dwellers produce more inventions and create more opportunities for economic growth. Often large cities are also the greenest places on the planet because people living in denser habitats typically have smaller energy footprints, require less infrastructure and consume less of the world’s resources per capita. Compared with suburban or rural areas, cities do more with less. And the bigger cities get, the more productive and efficient they tend to become.
Looking at diverse metropolitan regions across the U.S., China, Brazil and other nations they systematically found an average increase of around 15 percent in economic measures such as wages and patents produced per capita. And the inverse on use of infrastructure. “On average, the bigger the city the more efficient its use of infrastructure, leading to important savings in materials, energy and emissions. “ Their data are clear: big cities are more productive and efficient.
The issue also includes a guest column from New York Mayor Michael Bloomberg. It stands in stark contrast to Michigan policies. Unlike us, he understands that universities are major engines of economic growth and deserve increase public investments. He writes about a $100 million in infrastructure upgrades plus prime real estate competition the City is conducting to attract a world-class science and engineering campus to the city. His reasoning:
Boston leaped ahead of us historically, mostly for one reason: the strength of its research institutions, especially M.I.T. Every year researchers there develop technological advances that are spun off into new businesses. In fact, active companies founded by M.I.T graduates generate annual revenues of about $2 trillion. That’s roughly equal to the GDP of Brazil, the seventh-largest economy in the world. 
We estimate that in its first 30 years, a new applied science campus in New York could spin off some 400 new companies and create more than 7,000 construction jobs and more than 22,000 permanent jobs.
Finally the issue includes policy recommendations from the editors of Scientific American. They write:
But if cities are so beneficial, then why are U.S. policies stacked against them? … Cheap gas, highway subsides, tax incentives for home ownership, complacency over urban education and the apportionment of legislators all give preferential treatment to suburbs and rural areas. … Why should government policy favor owning over renting, driving over mass transit, or kids in one school district over another? The current incentives encourage people to settle in the outskirts when they might otherwise prefer to live downtown—a bias that makes little sense even when you leave out its environmental costs. And those costs are enormous. To keep our carbon emissions in check, we will need to edge closer to our neighbors. From the perspective both of simple fairness and of rational, science-based public policy, eliminating the incentives for citizens to spread out should be our goal.
Once again an agenda that we should be – but aren’t – pursuing in Michigan. Unless we have big dense cities with large talent concentrations we are not going to be prosperous. End of story. The lesson we need to learn quick is that big cities are the most important engine of economic growth across the planet.
Density drives economic growth
In our 2006 A New Agenda for a New Michigan we wrote: For many Michiganians, vibrant central cities are part of the past. No longer relevant or just something you visit in unique places like Manhattan, Toronto or Chicago. Think again! They are an important ingredient to future economic success. The pattern across the country is clear: high prosperity metropolitan areas have central cities with a concentration of knowledge workers. … So metropolitan Detroit, and to a lesser degree, metropolitan Grand Rapids, are highly likely to be the main drivers of a prosperous Michigan. In fact, it is hard to imagine a high prosperity Michigan without an even higher prosperity metropolitan Detroit.
In a must read column in the New York Times Ryan Avent explains why this is the case. Why high density places are the most productive places and therefore the engines of economic growth. Avent writes: Cities have long been incubators and transmitters of ideas, and, correspondingly, engines of economic growth. … But what makes a city a city and a not-city a not-city is the fact that a city is dense and a not-city isn’t. … And when it comes to economic growth and the creation of jobs, the denser the city the better.
Avent continues: Density simply facilitates interaction. Interactions translate into wealth when a population is educated and local institutions support private enterprise and entrepreneurship. … The world’s richest places tend to be dense, with well-educated residents and a free-market-orientation (or tax havens or oil-rich) — think of New York and the Bay Area, of Singapore, Hong Kong and the Netherlands. Without a stock of skilled workers and a relatively open marketplace, density’s impact on growth and productivity will be limited.
He explains why this is the case using as an example a low tech industry: ethnic restaurants. Small towns, no Vietnamese restaurants; midsize maybe one; big metro many. And because of lots of customers and workers with the right skills to support many you get competition, variety and innovation. What works for Vietnamese restaurants, works for all industries. Density allows for greater specialization; increases competition which drives prices down and quality up and peer to peer learning. All of which increases productivity and spurs innovation and creativity which are the engines of economic growth particularly in an increasingly knowledge-based economy.
Michigan’s two big metros are lagging. Of 55 regions with populations of one million or more metro Detroit is 39th in college attainment and 41st in per capita income. Metro Grand Rapids ranks even lower at 44th in college attainment and 54th in per capita income. If those rankings don’t change Michigan is going to be one of the country’s lowest income states. End of story. Everything else we do to grow the economy are trumped by not having dense places with large talent concentrations.
Triumph of the city: the data
As we explored in my last post, Edward Glaeser in his terrific new book, Triumph of the City, compellingly makes the case that vibrant central cities that anchor big metros are the geographic engines of economic growth across the planet, not just here in the US. They are the most productive places and the places where the innovations that create the future happen.
But as Glaeser makes clear it is not all central cities. The ones that drive the economy are what he calls smart cities. Places where college educated adults concentrate. The book includes a chapter called Why Do Cities Decline? which features Detroit. In it he compares Detroit’s decline over the past four decades to New York City’s stunning revival. As he writes:
Cities thrive when they have many small firms and skilled citizens. … Detroit’s twentieth-century growth brought hundreds of thousands of less-well-educated workers in vast factories, which became fortresses apart from the city and world. While industrial diversity, entrepreneurship, and education lead to innovation, the Detroit model led to urban decline. The age of the industrial city is over, at least in the West.
Consistent with Glaeser’s work, Don Grimes and I have found in our research that one of the core characteristics of almost all prosperous states is a big metropolitan area anchored by a central city with a high proportion of its residents with a four year degree. In 2009 for the 12 metros of one million or more with the highest per capita income, the central city college attainment rates are:
- San Jose: 35.7%
- Washington DC: 48.5%
- New York: 34.0%
- Hartford: 12.3%
- Boston: 44.7%
- Seattle: 56.0%
- Houston: 40.8%
- San Diego: 41.3%
- Denver: 40.4%
- Philadelphia: 23.2%
- Minneapolis: 42.4%
- Chicago: 33.1%
As we demonstrated in our Young Talent in the Great Lakes report having a central city that is an attractive place for college educated adults to live is a terrific asset in creating high prosperity metros and states. It is a lesson we are having a hard time in Michigan learning. But it is a lesson we need to learn quickly: Michigan’s future prosperity will be greatly enhanced by a vibrant Detroit and to a lesser degree Grand Rapids and Lansing. Vibrant central cities matter!
Triumph of the City
In my post on ineffective green subsidies I featured a column by Harvard’s Edward Glaeser. To me the key take away of that column is his claim that: In the long run, America will be richer than China only by having smarter citizens, and that requires the skills that come from schools and cities, not dispersed factories.
Skills that come from schools and cities. Think about how different that is from the our normal approach to economic development. Most policy makers and practitioners would think you are from Mars if you suggested that schools and cities are the levers that matter most for economic success. They almost exclusively focus on retaining and attracting businesses.
Glaeser’s terrific new book Triumph of the City details the reasons why cities are the drivers of economic growth and prosperity.
For centuries (think Thomas Jefferson) – despite all the evidence to the contrary – Americans have viewed central cities as a problem. The place where “they” live that drag down the country. The reality is as Glaeser writes: The ideas that emerge in cities eventually spread beyond their borders and enrich the rest of the world. Massachusetts rises or falls with Boston just as Maharashtra rises and falls with Mumbai. You read that right: cities are the engines of economic growth.
When it comes to economic development Glaeser concludes: The bottom up nature of urban innovation suggests that the best economic development policy may be to attract smart people and get out of the way. You read that right too: the foundation of economic development should be creating central cities where smart people want to live and work. Because where they concentrate you get the ideas, innovation and entrepreneurship that drives the economy across the planet.
The facts are: Within the United States, workers in metropolitan areas with big cities earn 30 percent more than workers who aren’t in metropolitan areas. These high wages offset the higher costs of living, but that doesn’t changes that fact that the high wages reflect high productivity. The only reason why companies put up with the high labor costs and land costs of being in a city is that the city creates productivity advantages that offset those costs. Americans who live in metropolitan areas with more than a million residents are 50 percent more productive than American who live in smaller metropolitan areas.
The main reason big metros anchored by vibrant central cities are so much more productive is concentrated talent. As Glaeser writes: Cities enable the collaboration that makes humanity shine most brightly. Because humans learn so much from other humans, we learn more when there are more people around us. Urban density creates a constant flow of new information that comes from observing others‘ success and failures. … Cities make it easier to watch and listen and learn.
And the big city/concentrated talent advantage is growing in a flattening world. Glaeser poses and then answers the essential question about why cities can be the engines of growth despite being the most expensive places to live and do business:
Once you can learn from Wikipedia in Anchorage why pay New York prices? But a few decades of high technology can’t trump millions of years of evolution. Connecting in cyber-space will never be the same as sharing a meal or smile or kiss. … The most important communications still take place in person, and electronic access is no substitute for being in the geographic center of an intellectual movement. The declining cost of connecting over the long distances has only increased the returns of clustering close together. … The death of distance may have been hell on the goods producers in Detroit, who lost out to Japanese competitors, but it has been heaven for the idea producers of New York and San Francisco and Los Angeles who have made billions on innovations in technology and entertainment and finance.
• Copyright 2009 • Twitter: #michiganfuture