Section » Michigan Economy

The futility of resisting new realities

By • on April 17, 2014

Policy makers on a bi-partisan basis continue to try to recreate the economy of the past.

Lets start with the basic facts from our latest report: The New Path to Prosperity: Lessons for Michigan From Two Decades of Economic Change. The chart below summarizes job growth in America from 1990 – 2011. As you can see over more than two decades job growth in America has overwhelmingly occurred in private sector services. While manufacturing has shed almost six million jobs. (Other goods producing includes construction, farming, fishing, mining (including oil and natural gas) and forestry.)

And yet policy makers––from both parties––continue to make restoring manufacturing jobs the lynchpin of their jobs and economic development strategy. It won’t work! The reasons why are laid out in a terrific Reuters article entitled: Obama manufacturing hubs face uphill struggle to create jobs. Reuters writes:

But after more than a year of operation, the Youngstown hub underscores the challenges facing Obama’s goal of ensuring “a steady stream of good jobs into the 21st century,” as he put it in remarks at a White House event last month. … The Youngstown hub is still in its very early stages but so far, at least, there are no obvious signs of a wider impact. About 29,600 people held factory jobs in the Youngstown metro area in January, the latest month for which data are available. That’s actually slightly lower than the number of manufacturing jobs there when the administration awarded the hub to Youngstown in August 2012 and when it opened its doors that October.

… One of the biggest challenges is the nature of factory innovation itself, which often reduces, rather than bolsters, the need for workers who aren’t very skilled. That means the manufacturing initiative could help create jobs for people with highly specialized skills, such as engineers, but it may do far less to help people struggling to find work after the shuttering of local steel mills.

Increasingly smart machines are doing more and more of the work that used to be done by factory workers. And that trend is almost certain to accelerate. The simple fact is that technology trumps government programs. Yes it is likely that American manufacturing output will increase, but no that increase will not be accompanied by many good paying factory jobs.

What can and should increase as pointed out in the Reuters article are jobs in pre and post production––in fields like engineering; design; supply chain and logistics; and sales and marketing. These are all part of private sector knowledge-based services that have been growing the past two decades and almost certainly will continue to grow. And unlike the remainder of the service sector are the high wage sectors of the American economy.

 

 

jobs 90-11

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College attainment and prosperity

By • on April 14, 2014

At Michigan Future our goal for the state is high prosperity. A place, once again, with a broad middle class. A status we enjoyed for most of the 20th Century. But now have lost.

Prosperity is best measured by per capita income. What we have found is that with the exception of a few states that enjoy high per capita income because of high energy prices, the best predictor of whether a state is prosperous or not is the proportion of adults with a four-year degree or more.

Preliminary 2013 per capita income for states is now available as is 2012 college attainment rates. So lets see if the alignment of the two remains as powerful as it has been in previous years. Below are the top 15 states in 2012 in the proportion of adults with a four-year degree or more and their rank in 2013 per capita income.

  1. Massachusetts 3rd in per capita income
  2. Colorado 16th
  3. Connecticut 1st
  4. Maryland 5th
  5. New Jersey 4th
  6. Vermont 19th
  7. Virginia 10th
  8. New  Hampshire 8th
  9. New York 6th
  10. Minnesota 11th
  11. Washington (state) 13th
  12. Illinois 15th
  13. Rhode Island 14th
  14. California 12th
  15. Utah 44th

As you can see there is quite an alignment. Of the top 15 states in four year degree attainment, 12 are in the top 15 in per capita income. And 14 are in the top 20. The only exception is Utah. The three states in the top 15 in per capita income with low four year degree attainment rate are North Dakota, Wyoming and Alaska (the energy rich states).

So how does Michigan stack up? Not well. We are 36th in the proportion of adults with a four-year degree or more.  And we are 35th in per capita income.

And what about Indiana, the Great Lakes state that Lansing policy makers have identified as the state they want Michigan to be like? Even worse. They are 43rd in four year degree attainment and 38th in per capita income. Not exactly on the road to prosperity.

What matters most to returning Michigan back to a place with a broad middle class is clear. In a word talent, best measured by four year degree attainment. Michigan needs to make preparing, retaining and attracting talent its economic development priorities. Unless we do we are almost certainly going to continue to be one of America’s poorest states (along with Indiana). End of story!

 

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On the wrong track: Michigan education policy

By • on April 10, 2014

Two new reports make clear again that Michigan is on the wrong track when it comes  to education policy. Both k-12 and higher education. Given the increased alignment between education attainment and state economic prosperity, getting education policy right should be an economic growth priority.

As reported by DBusiness a new study from Demos ranks Michigan 47th for higher education affordability. DBusiness writes:

According to the report, written with support from the Troy-based Kresge Foundation, the average tuition for a public, four-year college in Michigan in 2011-’12 was $10,527, up 15 percent from the 2007-’08 school year. State funding also dropped about 34 percent during this time. In comparison, the national average for tuition was $7,701 in 2011-’12.

“If you want to make Michigan globally competitive, nationally competitive in the 21st century, we’re going to have invest more in education,” says Bill Moses, managing director of education at the foundation. “It’s going to be difficult for Michigan to become one of the better educated states in the country if we’re investing less in higher education on a per capita basis than states like Mississippi, Arkansas, or West Virginia, let alone states with really high college completion rates, like Massachusetts.”  (Emphasis added.)

… The Dēmos study also found that tuition at four-year public universities now averages 15 percent of the median family income in 26 states, and nearly 23 percent of the median family income in Michigan.

You can read the complete Demos report here.

Susan Demas in a MLive column sums up Michigan higher education policy this way: “… the state is spending far less on higher education that it has in the past, slashing its support 33 percent from 2008 to 2012. So students are paying higher tuition and are at the mercy of folks with political axes to grind. Michigan has been known for having one of the finest public university systems in the country. Now our philosophy has been reduced to: less money, more meddling. You don’t need to have an M.B.A. to realize that’s a pretty poor tradeoff for students.” Not smart!

The k-12 report comes from Education Trust-Midwest using data from the past ten years from the National Assessment of Educational Progress. The Detroit Free Press wrote about the report’s findings this way:

A new analysis of student performance on a rigorous national exam shows that not only are Michigan students not keeping pace with the rest of the nation, but many states are soaring past Michigan and showing faster improvement. Results from 2013 show Michigan students scoring below the national average in math and reading. … More concerning, though, is that if you look at improvement over the 10-year period, Michigan students are at the bottom or near the bottom. Michigan was ranked 49th out of the 50 states, the District of Columbia and Department of Defense schools in improvement in fourth-grade reading since 2003. Other Michigan rankings: 51st in fourth-grade math improvement, 38th in eighth grade reading improvement; 39th in eighth-grade math improvement.

The Eduction Trust-Midwest report makes clear that this under performance is not primarily happening to poor, minority kids or in traditional public schools. The all too common excuses for our poor results. They find that: “(1)Learning levels are similar in both Michigan’s charter school and traditional public school sectors. (2) Across all groups of students — white, African American, Latino, low-income, higher-income — Michigan’s student achievement rank has fallen in the last decade.”

You can read the full report here. Recommended!

Human capital/talent is the asset that matters most to future economic success. For a state like Michigan, that attracts very few high education attainment adults from elsewhere, the human capital of the state’s future workforce will largely be homegrown. States like Minneapolis with the Twin Cities and, even more so, Illinois with Chicago, which are major talent magnets, can recruit from across the globe at scale their future workforce. But Michigan, without a vibrant central city that is essential to attracting mobile talent at scale, is highly dependent on the quality of its schools to build the skills needed in an increasingly knowledge-based economy.

Unless we get serious about improving the quality of our education system (from early childhood through college) there is almost no chance that Michigan will return to high prosperity. As theses two studies make clear Michigan has not yet gotten serious about making the investments needed to improving education outcomes. If we care about our future economic success, its time for that to change.

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43rd and falling?

By • on April 7, 2014

As we explored in my last post on the best measure of employment––the proportion of those 16 and older with a job–-in 2013 Michigan ranked 43rd. Clearly not something to celebrate.

To make matters worse there is a good chance that things will get worse, not better. Take for example the future job growth projections done for the Michigan Economic Development Corporation by Idaho based Economic Modeling Specialists International. (You can access all their national, state and regional profiles, including projections, at the MEDC website here.) As part of their Michigan Economic profile they did job projections for the state from 2012-2023. The graph below is from their report and compares future job growth trends in Michigan compared to the nation.

 

 

michigan employmentAs you can see they are projecting over the next decade or so job growth in Michigan at a rate about two thirds the national average. About 10% job growth in Michigan over the time period compared to 15% nationally. The difference between a 10% growth rate and 15% is about 263,000 jobs. So if Michigan were projected to grow at just the same rate as the country there would be 263,000 more Michiganders with jobs a decade from now than is currently projected by a report commissioned by the state’s economic development agency.

These projections were done in 2013. This is after the state had enacted huge business tax cuts and right to work legislation. And after Michigan zoomed up in the Tax Foundation rankings of business friendly states.

And the projections are not an outlier. They are consistent with the Bridge projections we wrote about previously that show Michigan likely to be 49th in job growth over the next decade.

What these projections reflect is that Michigan continues to have structural liabilities it has not addressed. Those liabilities were not business friendly related. As we wrote in the post on the Bridge projections:

Across the country the places which are creating more and better jobs have two characteristics in common: a high proportion of adults with a four-year degree and a high proportion of their jobs and wages are concentrated in the knowledge-based sectors of the economy. Michigan ranks in the mid thirties in each. (The only exception are the few states with oil and natural gas driven economies.)

These projections are predominantly based on Michigan’s current demographics (slow population growth, lower college attainment and aging faster than the country) and our current industrial structure (concentrated in slow growth and low pay industries). If the state doesn’t change this we, almost certainly, will continue to grow slower than the country in both jobs and personal income.

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Oh boy we are 43rd

By • on April 2, 2014

Listening to the press, Lansing elected officials and Michigan business leaders one gets the sense that Michigan has one of––if not the––best state economy. Yes Michigan’s economy is better than it was in the depth of the Great Recession in 2009. And since 2009 on most economic metrics we have grown faster than the country.

That is good news. But it doesn’t mean that Michigan is now, or is on track in the future to be, a national economic leader. The Detroit Lions have improved their win total more than just about anyone since they were 0-16. That doesn’t make them either now, or likely to be in the future, one of the NFL’s best teams.

Lets look at Michigan at the end of 2013.  Employment data are now available from the Bureau of Labor Statistics for the full year for all states and the nation. Michigan’s annual average unemployment rate for 2013 was 8.8 percent. The fifth worse in the country. On the best measure of employment––the population to employment ratio for those 16 and older––Michigan does a little better, ranking 43rd.

Its almost certain, that for most Michiganders, who want plentiful jobs, being 43rd makes the state a national laggard, not a leader.

55.0 percent of Michiganders 16 or older worked in 2013. That is better than the cyclical low of 53.6 percent in 2010. But quite a ways lower than in 2007, the year before the Great Recession, when Michigan’s employment to population ratio was 59.9 percent.

In 2013 Michigan was significantly below the national average of 58.6 percent and far behind Minnesota––the Great Lakes leader––at 66.8 percent.

Lets translate all these statistics into jobs:

  • If the same proportion of Michiganders 16 and older worked in 2013 as in 2007, 382,000 more Michiganders would have worked in 2013.
  • If Michigan were at the 2013 national average, 281,000 more Michiganders would have worked in 2013.
  • If Michigan’s 2013  employment to population ratio was the same as Minnesota’s, 924,000 more Michiganders would have worked in 2013, (Yes you read that right, the gap between Michigan and the Great Lakes best economy is nearly a million jobs!)

When it comes to employment, Michigan’s travails are structural. Michigan has been declining in both absolute terms and compared to the nation since at least the turn of the century. The pattern looks the same as it does for per capita income. Michigan in 2000 is still a top tier state. 18th in per capita income and 23rd in the proportion of those 16 and older with a job.

Unlike per capita income, in 2000 Michigan was above the national average in employment to population ratio: 66.5 percent compared to 64.5 percent. If the same proportion of Michiganders were working today as in 2000 there would be 897,000 more Michiganders working today.

The unemployment rate tells the same story. In 2000 Michigan had an unemployment rate of 3.6 percent compared to 4.0 percent for the US and 3.3 percent for Minnesota. Once again you read that right, Michigan at the turn of the century had an unemployment rate below the national average and almost as good as Minnesota. In 2013 the story is quite different. Michigan’s 8.8 percent unemployment rate is substantially higher than the US at 7.4 percent and way higher than Minnesota at 5.4 percent.

2000, as we have documented in our research reports, in many ways was the end of a 100 year run Michigan had as one of the best economies in the country. American’s 20th Century mass middle class was in many ways invented in Michigan. Based on high paid, lower education attainment jobs––mainly in factories. That economy is over. Its not coming back.

The new path to state economic success is anchored in the knowledge-based sectors of the economy. That is where the 21st Century mass middle class will be centered. Michigan continues in 2013 to be over concentrated in the sectors of the economy that led to 20th Century success, rather than those that lead to 21st Century success. Until that changes, no matter how strong the cyclical bounce from an expanding auto industry, Michigan is, almost certainly, going to continue on a long term path as a national laggard in employment.

 

 

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Go to college II

By • on March 27, 2014

At about the same time that Google Chairman Eric Schmidt was saying “Go to college. I can’t be any clearer.”, the Grand Rapids Business Journal reported that Governor Snyder at an economic summit he hosted in Grand Rapids said: “Michigan education is “too often focused on a diploma or a degree,” he said, “and not saying, ‘Are you career ready?’”

What Schmidt understands is that the best way to prepare for a successful career/meet the Governor’s career ready standard is getting a four year degree or more. The evidence is overwhelmingly: those with a four year degree earn more and work more over a career than those with less education. And the gap since the onset of the Great Recession is growing, not, as conventional wisdom increasingly tell us, shrinking .

The Business Journal writes: “In determining Michigan’s economic future, “probably the single most important issue is talent,” according to Gov. Rick Snyder — specifically, technically skilled talent for Michigan manufacturing and agriculture.” (Emphasis added.)

Does the Michigan economy need more young adults after high school to pursue careers in the skilled trades and other technical jobs requiring the equivalent of an Associates degree or occupational certificate? Of course. Although not mainly in manufacturing and agriculture. Two sectors that are a declining component of the American and Michigan economy.

But the need for more skilled technicians should not be instead of more Michiganders earning four year degrees. As the chart below on the Millennials economic well being by education attainment from the Pew Research Center makes clear Michigan’s education system is not too focused on college degrees. One can make a strong case that the opposite is the case. That both the Michigan public and its leaders––a too large proportion of both political and business––are not committed enough to the need to increase four year degree attainment.

It is not just the most reliable path to prosperity for individuals but also the state as a whole. States with high college attainment rates are overwhelmingly the most  prosperous states. Michigan is 34th in the proportion of adults with a four year degree which leads to being 35th in per capita income.

pew

At the 2011 Mackinac Policy Conference, Geoffrey Canada, President and CEO of Harlem Children’s Zone offered what might be the best advice on whether going to college makes sense for all Michigan kids or not when he said: “… I tell people, when you’re in doubt, when the experts at Harvard are writing that college is not for everyone, when in doubt, do what rich people do. … I know a lot of wealthy people. And I have yet to see one of my friends who has three kids, and says ‘Ok, I’m sending you to Harvard, I’m sending you to Princeton, but you, I’m thinking hair dresser school,’ right? I’ve never heard it. They only have one goal, which is to get all of their kids in college.” (Emphasis added.)

And to get to the best possible four year degree university, the affluent by and large send their kids to college prep high schools either in the best public schools or private schools. Schools that emphasize a broad liberal arts curriculum. And where vocation training in most of those schools is not offered.

As Geoffrey Canada concluded: “… if you get paid to teach other people’s kids, you should have the same expectations for those kids as you do your own.” Exactly!

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“Go to college”

By • on March 24, 2014

So says Google’s Chairman Eric Schmidt in a speech at SXSW. Schmidt said: “If all you care about is money, you should go to college. If all you care about is culture and creativity, you should go to college. If all you care about is having fun, you should go to college. Go to college. I can’t be any clearer.” (Emphasis added.)

What is amazing is that this is news. If facts matter––and increasingly they don’t in our politics or public conversation––this is the ultimate no-brainer.  As Schmidt says it can’t be clearer: the value of a four-year degree over a career is rising, not falling. See this recent report from the Pew Research Center and this report from the Hamilton Project at the Brookings Institution and this report from the Center on Education and the Workforce at Georgetown University for the detailed evidence.

As I wrote in a post three years ago: “The value of a college degree is far more than how quickly a graduate gets a first job and how much it pays. These are the short term metrics that fuel the “college isn’t worth it” nonsense. Rather the payoff is over an entire career. It comes from having skills that give you a competitive edge in all industries and most occupations, in having skills that may not be in demand today but will be in the future and in learning how to learn so that you can better spot new opportunities and take advantage of them in a constantly changing labor market.”

(The Pew and Georgetown research makes clear that even if the measure is only the first job, those with four-year degrees are doing substantially better than those with less education on both employment and pay in the still less than robust post Great Recession  economy.)

The value of higher education is in developing broad skills –– including becoming a lifelong learner –– that are the foundation of successful forty year careers. Careers that will look much more like rock climbing than ladder climbing. Building a foundation to do well over a long career is only going to grow in value in an economy where technology and globalization accelerate creative destruction. Destroying jobs and occupations and creating new, unimaginable, jobs and occupations at a quicker and quicker pace.

 

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21st Century jobs policy

By • on March 19, 2014

Jobs is the area where our vision of future success and the policies we are pursuing to realize that vision are most stuck in the past. Both across the country, and even more so here in Michigan.

MIT’s Erik Brynjolfsson and Andrew McAfee are doing the cutting edge work on the implications of smarter and smarter machines doing more and more of the work humans use to. For more on their work check out this You Tube video or this interview from Slate entitled Robots are stealing your job: How technology threatens to wipe out the middle class. 

They describe where we are heading as the Great Decoupling. Where all the traditional metrics of economic success do well: GDP, productivity, corporate profits. But workers don’t. Where jobs and wages grow far slower than the traditional growth metrics. A world where technology advances enable companies to do well, but not more and more workers.

New York columnist Ross Douthat tackles the policy implications of an economy that structurally struggles to produce enough jobs, particularly good paying jobs, in a must read column entitled When Work Disappears. Douthat previews the debate about job policy we should be having now––and ultimately will have––for  a world where machines are constantly destroying jobs and occupations.

Douthat lays out the thinking of many economists and technologists who believe the Great Decoupling is the new reality. They are thinking about a world where more and more of us work less and less, if at all. Their policy advice is not to fight that trend but rather to go to some system of guaranteed income for people whether they work or not. Big expansion of government redistribution. There is a sense that trying to keep people employed is a drag on the economy rather than using machines to do the work it can do better and cheaper .

Douthat writes:

In effect, these forays are opening a window into tomorrow’s policy debates, and raising the question of whether 21st century public policy should even really try to slow the decline of workforce participation — as opposed to welcoming that decline as a sign of liberation, and perhaps hastening it for the sake of efficiency as well.

I think it’s important to concede up front the possibility that Wolf and Avent could be right about where we’re going. My doubts about the basic-income prescription notwithstanding, in the event that do we end up with an ever-growing share of the population consisting of what Tyler Cowen calls “zero marginal product” workers, whose continued employment is effectively a drag on productivity relative to the machine alternatives, ideas along those lines could end up being the only plausible policy response.

Douthat explores what he sees as the negative consequence of paying people not to work. Basically the negative consequences––and there are  many––of societies where folks, particularly men, don’t work. He writes:

And while a sufficiently generous basic income would no doubt raise living standards and reduce deprivation at the bottom, the experience of Appalachia, among other blasted social landscapes, suggests that it’s very easy for the absence of work to intertwine with social pathologies in ways that government assistance can’t necessarily ameliorate. The workless society could be a place where the “potential for a more enjoyable life” is available to all … but it could just as easily be a society with more alcoholism, more drug addiction, more obesity, lower lifespans, more social isolation, and less human flourishing overall.

Wow! What a difference in how to construct policy going forward. The debate Douthat previews has the virtue of being anchored in the economy of the future. It starts with the new realities. Rather than trying, as both parties are, to resist or ignore these new realities. Policies designed to create lots of jobs, particularly good paying jobs, anchored in an economy driven by factories and farms can’t work. Globalization and technology have eliminated both as a source of mass middle class employment.

We need a new public conversation/debate about jobs and income in the context of what is possible in an economy that is constantly being reshaped by globalization and technology.

 

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