Section » Michigan Economy
Terrific Bridge article by Chris Andrews on the importance of being welcoming. Highly recommended! Its entitled “Are Michigan’s restrictions on gay and abortion rights holding state back?”
Andrews writes: ”A number of experts on economic and community development say Michigan policies on gay rights and women’s access to abortion are creating barriers to growth and prosperity. While states like Minnesota and Illinois reach out to gay individuals and families, proponents of stronger protections for gays and women say the same-sex marriage ban and a new law that will require women to purchase an insurance rider to cover abortions send a different message.”
That certainly is our point of view. The asset that maters most to future prosperity of states and regions is human capital. The knowledge, creativity, and entrepreneurship of its citizens. In a word talent. As Governor Snyder wrote: “Today, talent has surpassed other resources as the driver of economic growth.”
The bottom line is straight forward: The places with the greatest concentration of talent from anyplace on the planet win! A core characteristic of prosperous places in a flattening world is they are welcoming to all. Talent is both diverse and mobile. If a place is not welcoming, it cannot retain and attract talent. People will not live and work in a community that isn’t welcoming.
As the Bridge article makes clear state policy matters. Welcoming is an area where Michigan has not been a leader. Governor Snyder’s leadership on immigration is an important step forward. His opposition to domestic partner benefits is not.
Minnesota provides a model. Its polices across the board are more welcoming than here. Gays can marry, there is no ban on affirmative action at their public universities and they have a Dream Act which allows undocumented students who graduated from state high schools to obtain in-state tuition.
As we have explored previously Minnesota is, by far, the Great Lakes leader in both employment and personal income. It has the economic outcomes all of us want for the region and state. It gets those results in large part from its talent concentration. Also the best in the Great Lakes. It is almost certain that their ability to retain and attract talent is helped by its welcoming policies.
My biggest concern for the state and its regions––particularly metro Detroit–is that we have a vision of what we want the future to look like and a public policy agenda, from across the political spectrum, that are grounded in the past––which we can’t go back to–-rather than the future. So we end up not having the debates that we need.
One area where this is particularly true is transit. Particularly rail and bus rapid transit. Across the country––in red and blue states––big metros are investing in light rail and bus rapid transit. Either regions starting from scratch to get in the game or those who have it, expanding. Why? Because they understand that rapid transit is a key ingredient to retaining and attracting young talent. And that young talent is an essential ingredient to future prosperity.
In Michigan there is some recognition in metro Grand Rapids that transit matters, far less so in metro Detroit. At the state level, transit, by and large, is either viewed with hostility or disinterest. Not smart!
Atlantic Cities––which does a great job covering transportation––recently published an in–depth article on the debate in Chicago over a proposed Ashland Avenue bus rapid transit line. What struck me most reading it is that the vigorous debate they are having is completely missing here. And that until that debate is occurring here regularly we are going to be non competitive in retaining and attracting young talent.
The city of Chicago has about 250,000 residents––the second most in the country––25-34 year old with four year degrees. Detroit has 11,000. (The cities of Grand Rapids, Lansing/East Lansing, and Ann Arbor are in the same ball park as Detroit.) An extensive rail transit system is one of the core assets that has made Chicago a talent magnet. You can live there and not own a car, an increasing priority for college educated Millennials.
As Atlantic Cities notes Chicago is not resting on its laurels. They write: “In 2012, shortly after Rahm Emanuel was elected mayor, he and then-Chicago DOT Commissioner Gabe Klein got to work on a progressive transportation agenda that aimed to create 100 miles of protected bike lanes, a number of rail improvements, and a trio of BRT lines.”
Apparently the one controversial part of the expansion plan is the Ashland BRT. Which Atlantic Cities frames as a debate between those in Chicago who are car-oriented and those who are transit friendly. But Atlantic Cities portrays the Ashland BRT debate as about the appropriateness of rapid buses on one non-downtown corridor rather than a debate about the importance of rapid transit to the city’s and regions future. That seems to enjoy near universal support. So Chicago is debating whether or not to add a third bus rapid transit line to a system of more than 100 miles of rail.
That the debate is vigorous––both side well organized and engaged–-is something that doesn’t exist here at all. Where no one has to get organized to defend/support a car orientation. Its simply assumed to be the right answer. And hardly anyone has made the need in our urban centers for an alternative a priority.
In metro Detroit we finally have created a regional transit agency (which is good news), but haven’t funded it. And its Board seems not to share a vision of the central role rapid transit (rail and bus) can and should play in the region’s future.
As with so many other issues, either we get engaged in this debate about what being competitive in the 21st Century requires or we are going to continue to be an economic laggard.
The Pew Research Center has just released a terrific new report entitled “The Rising Cost of Not Going to College”. If you care about understanding the reality of today’s economy for young adults this is a must read report.
Using data from the Census Bureau’s Current Population Survey (CPS) it makes clear that in terms of both employment and wages 25-32 year olds with a four year degree are doing substantially better than their peers with some college or a two year degree as well as those with only a high school degree. So much for the increasing conventional wisdom that many young adults would be better off with an occupational certificate or community college degree rather than a four year degree!
The report presents a comparison of 25-32 in 2013 by education attainment. As well as comparing today’s 25-32 years olds to those in previous generations. They do that by looking at CPS data for 25-32 year olds in 1969, 1979, 1986 and 1995. Each is four years into a national recovery from the trough of a recession. And with all earnings in 2012 dollars to correct for inflation.
Lets review first the headlines for today’s 25-32 year olds by education attainment.
- Bachelors or more: 3.8%
- Two year degree or some college: 8.1%
- High school degree: 12.2%
Median Annual Earnings for full time workers
- Bachelors or more: $45,500
- Two year degree or some college: $30,000
- High school degree: $28,000
No matter what you hear the reality is Millennials with a four year degree are doing substantially better than their peers without a four year degree. End of story!
(The good news is that the Millennials seem to be ignoring the conventional wisdom. They have a much higher four year degree attainment rate than previous generations. 34 percent compared to around 25 percent for Generation X and the Boomers and only 13% for the generation before the Boomers which Pew calls the Silents.)
In many ways what is more interesting in the report is the comparison of generations data. Pew summarizes those findings this way:
On the one hand, it is clear that young, college-educated workers are having more difficulty landing work compared with earlier cohorts of young adults. They are more likely to be unemployed, and it takes them longer, on average, to find a job. On the other hand, once they’re employed, their earnings are higher than those received by earlier cohorts of young, college-educated adults. For less-educated young workers, there is no upside: They are more likely to be unemployed and they are spending more time searching for a job compared with less-educated young workers who came before them. And their earnings are significantly below those received by less-educated young workers in earlier generations (with the exception of high school-educated Gen Xers).
The unemployment rate for today’s 25-32 year olds is substantially higher than those of the same age in 1969, 1979, 1986 and 1995 at all education levels. The unemployment rate ranged in those years from 1.4-2.8 percent for those with four year degrees compared to 3.8 percent today; from 3.2-5.0 percent for those with two year degrees or some college compared to 8.1 percent today; and from 4.3-9.0 percent for those with high school degrees compared to 12.2 percent today.
But the median annual earnings story is different. Here those with a four year degree today are doing better than their peers of previous generations. Certainly not the story we are told over and over again. Today’s 25-32 year olds with a four year degree working full time have median annual earnings of $45,500. The range for previous generations at the same phase of the cycle and in inflation adjusted dollars is $38,833-44,770. The gap in median annual earnings for young full time workers has grown consistently for those with a four year degree compared to those with a high schools degree from $7,500 in 1965 to $17,500 today. (The proportion of those working who worked full time is virtually the same for the generations at around 90 percent.)
This is not true for those who have a two year degree or some college and those with only a high school degree. In both cases those 25-32 year olds working full time have lower inflation adjusted median annual earnings than the previous four generations. For those with two year degrees or some college the gap is between roughly $2,000 and 6,500. For those with only a high degree the gap ranges from roughly even for Generation X (in 1995) to $4,000 in 1979 (what Pew calls Early Boomers).
What is most surprising to me is how poorly 25-32 year olds with some college or a two year degree are doing compared to their peers both with only a high school degree and those with a four year degree. The earning premium for those with some college or a two year degree compared to those with a high school degree has collapsed. From about $4,000 in 1979, 1986, and 1995 to $2,000 today. And the gap between those with a four year degree and those with a two year degree or some college has grown steadily from $5,000 in 1969 to $15,500 today. (From 1995 to 2013 its grown from $11,000 to $15,500.)
Richard Florida in a recent Atlantic Cities article writes about a new study on what matters most in attracting entrepreneurs. The study done by Endeavor Insight can be found here. As Florida writes what attracts entrepreneurs is “…talented workers, and the quality of life that the educated and ambitious have come to expect – not the low-tax, favorable-regulation approach that many state and local governments tout.” (Emphasis added.)
The report then dug deeper into exactly what these entrepreneurs reported as the most important part of their location choices. The top rated factor by far was access to talent. … Entrepreneurs explained that they proactively sought out the places that educated and ambitious workers want to be. … Perhaps even more interesting from the perspective of urban policy are the location factors that did not make the cut – those that high-growth entrepreneurs found to be of little consequence in their location decisions. At the very bottom of the list were taxes and business-friendly policies, which are, unfortunately, exactly the sorts of things so many states and cities continue to promote as silver bullets. Just 5 percent of the respondents mentioned low taxes as being important, and a measly 2 percent named other business-friendly policies as a factor in their location decisions.
Who says? The 150 or so founders of some of the fastest growing companies in the country that Endeavor interviewed and/or surveyed. The report is entitled: What Do the Best Entrepreneurs Want in a City? Lessons from the Founders of America’s Fastest-Growing Companies. These are, of course, the kind of “job creators” that are at or near the top of every state’s and region’s economic development priority list. The report’s conclusion: “The magic formula for attracting and retaining the best entrepreneurs is this, a great place to live plus a talented pool of potential employees, and excellent access to customers and suppliers.”
Consistent with our work, Endeavor found that these entrepreneurs were setting up shop in big metros and in places which are talent magnets for young professionals. As we have found that means big metros–of at least one million–-anchored by a vibrant central city with a high proportion of its residents with a four year degree. Its those cities which are the winners in concentrating young professionals.
This is the lesson Michigan policy makers and economic development officials, by and large, have not learned. Until they do and switch their focus away from trying to be the place with the lowest business costs and to preparing, retaining and attracting talent, Michigan is going to continue to be near the bottom on all the measures of economic well being.
The Census Bureau released in September a report on poverty in American from 2000-2012. Not good news for the country. The poverty rate since 2000 has risen from 12.2 percent to 15.9 percent. The number of people living in poverty has increased from 33.3 to 48.8 million.
The trends are worse in Michigan. The poverty rate since 2000 has risen from 10.1 percent to 17.4 percent. The number of people living in poverty has increased from 975,000 to 1,685,000. So Michigan has gone in twelve years from a poverty rate 2.1 percentage points below the national average to 1.5 percentage points above the national average.
In previous posts we have used 2007 as the benchmark year to assess Michigan’s recent economic performance. The year before the Great Recession. Since 2007 Michigan’s poverty rate has increased by 3.4 percentage points from 14.0 to 17.4 percent. And from 1.0 to 1.5 percentage points above the national average.
Once again, Minnesota is the Great Lakes leader with consistently the lowest poverty rate. In 2000 Minnesota’s poverty rate was 6.9 percent, 3.2 percentage points better than Michigan. In 2007 it was 9.5 percent, 5.5 percentage points better than Michigan. In 2012 it was 11.4 percent, 6.0 percentage points better than Michigan and 4.5 percentage points lower than the nation. If Michigan had the same poverty rate as Minnesota there would have been 585,000 fewer Michiganders in poverty in 2012.
In 2012 Michigan had the 14th highest poverty rate in the country. (In 2000 Michigan had the 18th lowest poverty rate.) The only states with higher poverty rates: Alabama | Arizona | Arkansas | Georgia | Kentucky | Louisiana | Mississippi | New Mexico | North Carolina | South Carolina | Tennessee | Texas | West Virginia. So much for wanting to be like the South!
In 2012 Minnesota had the 7th lowest poverty rate in American. The only states lower: Alaska | Connecticut | Massachusetts | New Hampshire | New Jersey | North Dakota. Either energy rich states or those––including Minnesota–with high college attainment rates. The same pattern we find in states with high per capita income.
Just as we explored before with employment and education, when it come to reducing poverty Michigan has a long ways to go before its time for either victory laps or celebration.
I do a monthly post for the Grand Rapids Business Journal. Last month I wrote about the occupations and industries their latest 40 Under Forty worked in. Turns out these future leaders in West Michigan overwhelmingly don’t work for manufacturers or are in STEM based occupations. In fact, the nearly 150 nominees, at the undergraduate level, primarily have liberal arts degrees. Those are the kind of degrees that conventional wisdom increasingly predicts is a path to underemployment and wages too low to pay off so-called crushing student loans.
As I wrote: “The 40 Under Forty nominees work, of course, in the private sector, but also for nonprofits and government. And they overwhelmingly work in the knowledge-based sectors of the economy: health care and social assistance; education; management of companies; professional services; finance and insurance; and information. In terms of occupations, the 40 Under Forty nominees represent the broad diversity of opportunity in a 21st century economy. They also represent the continuing reality that the liberal arts remain a reliable path to success. Hardly any of these future leaders of the region work in STEM occupations.”
Both are good news for the future of the West Michigan economy. Successful regions are going to be those that are broadly diversified across all the knowledge-based services, rather than narrowly concentrated in a few industries. Certainly that is true for the two most prosperous Great Lakes regions: Chicago and Minneapolis.
This is a lesson that the state and nation need to learn. This narrow focus on STEM occupations, and even worse, the oft repeated message from too many of our political and business leaders that if you don’t get a four year degree in a STEM field you are better off going to a community college to become a machinist (or similar technical occupation) is bad for both students and the state’s and nation’s economic well being.
Do the nation and state need more people with math and science expertise? Of course. But that doesn’t mean we need fewer people with the kind of skills developed by getting degrees in fields other than engineering and the sciences. The only way to build a broad knowledge-based economy is to have a large talent pool with the widest variety of skills in plentiful supply.
Two recent articles explore why broader––rather than narrow occupation focused––college degrees, are good for our future well being. Both highly recommended:
In a terrific Wall Street Journal column entitled Why Focusing Too Narrowly in College Could Backfire, Peter Cappelli of the Wharton School makes the case why a broad liberal arts college education is good for the long term economic well being of students. The article is subtitled “Students are told learn the subjects that will best land them a job when they graduate. But that could be the worst thing they could do.”
The New York Times recently wrote about Indian business leaders starting a new liberal arts college. Why? As the Times writes: “Yet a group of successful professionals and entrepreneurs, some of them alumni of these universities, have come together to establish an alternative to what they say is an educational paradigm that overly emphasizes technical capabilities while neglecting vital skills like critical thinking, communications and teamwork.” (Emphasis added.)
West Michigan currently has too small of a talent pool — it has one of the lowest college attainment rates of metros with populations of 1 million or more in the country. So it’s good that the next generation of West Michigan leaders represented by this year’s Grand Rapids Business Journal’s 40 Under Forty class chose to follow their own passion with degrees and occupations that are not those selected as the future winners by government or the so-called experts. But it also is good for the future of metro Grand Rapids.
Lets hope all across Michigan––which also has too small a talent pool––students follow their own passion and earn degrees and enter occupations that are not those selected as the future winners by government or the so-called experts. It will be good for them and the future of Michigan.
There is a growing––but certainly not universal––understanding that the economic well being of the country and state are now highly dependent on the proportion of adults in the workforce with a college––particularly four year––degree. That human capital is the asset that matters most and is in the shortest supply for economic growth and prosperity.
And that a––if not the––key to rising college attainment rates is students from families where no adult has a college degree. So-called first generation students. Many will be minorities from lower income families. This is particularly true in a low education attainment state like Michigan where only 28% of adults have a four year degree or more.
Understanding that reality, the President and First Lady recently hosted a college access summit. Lawrence O’Donnell on his MSNBC show provided extensive coverage of the event. O’Donnell featured a young man growing up in New Orleans who couldn’t read at 14 but made it to Bard College and introduced the First Lady at the White House. Pretty amazing! You can watch here and here. Worth watching.
Travis Reginal in his Times piece wrote: “For low-income African-American youth, the issue is rooted in low expectations. There appear to be two extremes: just getting by or being the rare gifted student. Most don’t know what success looks like. Being at Yale has raised my awareness of the soft bigotry of elementary and high school teachers and administrators who expect no progress in their students. At Yale, the quality of your work must increase over the course of the term or your grade will decrease. It propelled me to work harder.” (Emphasis added.)
One of the commitments the White House announced at the summit is a partnership we have developed with Alma College. It will provide scholarships initially for qualified students from the DEPSA Early College of Excellence to Alma. Ultimately the hope is we can extend the program to qualified students in all of the Michigan Future Schools high schools. This will provide Detroit students at the MFS high schools with the ability to earn a degree at a high quality small private liberal arts college. Where there is growing evidence that first generation minority students have the greatest success in earning college degrees.
Clearly we need more colleges to step up as Alma is doing to the affordability challenges faced by many high school students. Better yet we need state policy makers to stop disinvesting in higher education. Increased public investment in higher education is the best way at scale to make college more affordable.
But as Travis Reginal writes we also need far more high schools to overcome the soft bigotry of low expectations, that is so endemic in many of our high schools, particularly in central cities and rural communities, that most of their students can’t succeed in college. At its core that is what the Michigan Future Schools initiative is all about. Investing in and working with new college prep high schools in the City of Detroit that are committed to all of their students (1) graduating from high school ready for admission to colleges like Alma and (2) ultimately earning a college degree.
Meeting that standard is hard work. No one across the country has gotten there yet. But there are urban high schools across the country that have made substantial progress. None of this is possible if those in charge don’t believe that all kids can earn a college degree (not that all kids need a college degree, but all deserve a k-12 education that gives them the opportunity to pursue a four year degree if that is what they want). Higher expectations and the accountability for educators that go with it are not only vital to the economic well being of the students but also to the economic well being of Michigan and the country.
Two terrific articles on the declining role of manufacturing in the American economy. One from Bloomberg Businssweek entitled Factory Jobs Are Gone. Get Over It. The other a Steve Rattner column for the New York Times entitled The Myth of Industrial Rebound.
Both clearly present the overwhelming data that manufacturing employment has been and will continue to be a smaller and smaller part of the American economy. And the unwillingness of elected officials of both parties to recognize this reality.
The fact that President Obama, Governor Snyder or any other national or state policy maker declare manufacturing a vital component of job creation and/or rebuilding the middle class won’t make it so. Globalization and technology–the drivers of the manufacturing decline–trump politics and policy. End of story!
The facts: As Businessweek writes:
Any attempt to draw lessons from the 1950s, when many a high school-educated (white, male) person got a job in a factory and joined the middle class, doesn’t account for the changes in the U.S. and global economy since the middle of the last century. While it’s smart to focus on creating more stable, remunerative jobs, few of them are likely to come from manufacturing. In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).
Rattner in addition to reviewing the data on job loss also deals with the new reality that blue collar factory jobs no longer pay high wages. And the combination of the two–fewer jobs and lower wages–make manufacturing not the path to rebuilding a mass middle class. He writes:
But we need to get real about the so-called renaissance, which has in reality been a trickle of jobs, often dependent on huge public subsidies. Most important, in order to compete with China and other low-wage countries, these new jobs offer less in health care, pension and benefits than industrial workers historically received. …
For all the hoopla, the United States has gained just 568,000 manufacturing positions since January 2010 — a small fraction of the nearly six million lost between 2000 and 2009. That’s a slower rate of recovery than for nonmanufacturing employment. “We find very little real evidence of a renaissance in U.S. manufacturing activity,” a recent Morgan Stanley report stated, echoing similar findings from Goldman Sachs. …
This disturbing trend (declining wages) is particularly pronounced in the automobile industry. When Volkswagen opened a plant in Chattanooga, Tenn., in 2011, the company was hailed for bringing around 2,000 fresh auto jobs to America. Little attention was paid to the fact that the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received.
With benefits added in, those workers cost Volkswagen $27 per hour. Consider, though, that in Germany, the average autoworker earns $67 per hour. In effect, even factoring in future pay increases for the Chattanooga employees, Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States). (Emphasis added.)
As we explored in our latest report, rather than manufacturing, the key sector of both job and personal income growth (the two together create a mass middle class) in America going forward are knowledge-based services. That is where the combination of job growth and high wages have been, and almost certainly will continue to be, the strongest.