Section » Michigan Talent
Interesting New York Times column on the recent economic fortunes of Minnesota and Wisconsin. And the correlation between that and the policies pursued by their Governors the past three years: Minnesota’s progressive Mark Dayton and Wisconsin’s conservative Scott Walker.
The column’s conclusion: “Which side of the experiment — the new right or modern progressivism — has been most effective in increasing jobs and improving business opportunities, not to mention living conditions? Obviously, firm answers will require more time and more data, but the first round of evidence gives the edge to Minnesota’s model of increased services, higher costs (mostly for the affluent) and reduced payments to entrenched interests like the insurers who cover the Medicaid population.”
The column then goes on to detail the outperformance of Minnesota’s economy. As we have detailed here many times before. Its not just Wisconsin, but every other Great Lakes state (including Michigan) that Minnesota is performing better than with a policy regime of higher state taxes and spending. Which according to convention wisdom should lead to economic ruin.
As readers of this blog know I believe the Dayton approach to growing the economy is more likely to lead to long term prosperity than the Walker approach. But I am skeptical that the outperformance of the Minnesota economy compared to Wisconsin’s the past three years has much to do with the policies of either Dayton or Walker. State tax and spending polices simply are not powerful enough to have an immediate impact on a state’s economic performance. If they matter at all, it is over the long term. Either building or not the assets that matter for long term economic success.
To me the more accurate lesson to learn is Minnesota, under both D and R governors, for at least two decades, has been a higher tax/higher spending state than Wisconsin, Michigan, Ohio and Indiana, also under both D and R governors, and for that entire period has done best on every measure of economic well being with the gap between Minnesota and the rest growing greater over time.
The higher taxes Minnesota has imposed over the long term has enabled them to make more of the public investments that matter most to concentrating talent: education from early childhood through higher eduction; infrastructure; and quality of place to prepare, retain and attract talent. Which leads to a state with higher college attainment than the other Great Lakes states. Which leads to higher employment and personal earnings. The more and better jobs nearly everyone agrees should be the goal of state economic policy.
The Lansing State Journal provides extensive coverage of our latest report in their Outlook section today. Worth checking out! Included are columns by me and Doug Stites, who just retired from his long-time position as CEO of Capital Area Michigan Works.
And there is an editorial on what the findings in the report mean for the future of metro Lansing. The Journal’s editors write:
Economic development leaders have spoken eloquently about the need to attract young professionals to the region. They can speak at length about the importance of the knowledge-based service sector — jobs in health care, insurance, professional services — to the region’s prosperity. But in the hearts of many a Michigander beats the proud history of manufacturing. That’s true in mid-Michigan, too, where the region continues to celebrate successes of its two state-of-the-art General Motors Co. plants even as it watches new companies such as Niowave work to develop superconducting linear particle accelerators. Manufacturing, particularly advanced manufacturing, has a role in the region’s future. Yet two decades of data compiled by Michigan Future Inc. strongly suggest that the knowledge economy will support the middle class of the future and that’s where the region and the state must devote more attention and energy.
… The good news is, we have a road map. Greater Lansing needs more educated workers: More high school graduates, more community college graduates, more university graduates. And we need them to stay here, which means protecting the quality of life not only with basic public services but with amenities that set the community apart. Nurture talent and companies with jobs will come. If the region succeeds, prosperity follows. (Emphasis added.)
Metro Lansing has the assets needed to be prosperous in the future. Mainly a big research university in Michigan State as well as a growing cluster of IT and insurance companies. The asset though that is missing most is talent. College educated adults, particularly young talent. Stites has it exactly right when he writes:
The key to creating this economy is by growing places where young talent want to live — that is, dense, walkable and urban communities with excellent public transportation. Lansing cannot be Chicago or Minneapolis, but we can be a successful mid-sized metro region with a major research university almost identical in size to Madison, Wis.. We have 8,000 25- to 34-year-olds with four-year degrees here in the metro Lansing area. Madison has 24,000. Our per capita income is $33,273; Madison’s is $42,456. Young talent matters
Michigan Future’s latest report examining how Michigan can return to prosperity reviews the changing patterns of employment and private sector income from 1990 to 2011 in the United States, Michigan and Minnesota. The lesson Michigan needs to learn is clear: The places that are doing best today and almost certainly will do the best in the the future are those states and regions that are concentrated in knowledge-based services, not factories. Read the press release here.
Click here to read the full report
Click here to download a PDF version of the report
See past reports, here.
As we explored previously Michigan is now a low wage state. What a turnaround! From Henry Ford’s $5 a day wage in 1914 Michigan was the place where if you were willing to work hard you could earning a living and realize the American Dream. No more.
Two new studies provide more evidence on the decline in wages. Both worth reading. The first comes from the Michigan League for Public Policy. It documents the decline in Michigan wages over the past three decades. The headline: Michigan has seen the second lowest change in median hourly wage between 1982 and 2012. (Only Alaska ranks lower.) Corrected for inflation, over those three decades, Michigan’s average hourly wage declined by seven percent and its national ranking fell from 4th to 24th.
Consistent with our work –– and that of many others –– the report finds that those Michiganders with the highest wages are those with the highest education attainment. The average hourly wage for those with a high school degree is $13.09 for those with a four year degree or more its almost double at $25.85.
As we explored previously, the importance of education attainment to higher wages is the topic of a terrific new report from the Economic Policy Institute. Entitled A Well-Educated Workforce Is Key to State Prosperity. The major finding: “Overwhelmingly, high-wage states are states with a well-educated workforce. There is a clear and strong correlation between the educational attainment of a state’s workforce and median wages in the state.”
Michigan is 34th in college attainment. Its the major reason why we are now a low wage state. And the path to becoming a high wage state once again is primarily increasing education attainment.
The EPI study also looks at the correlation between state taxes and median wages and finds none. They find: “The figure shows no clear relationship between state taxes (as a share of state personal income) and median wages. Higher-tax states appear to have slightly higher median wages, but that correlation is not significant.”
From the evidence EPI’s policy recommendations –– similar to Michigan Future’s –– are:
States can build a strong foundation for economic success and shared prosperity by investing in education. Providing expanded access to high quality education will not only expand economic opportunity for residents, but also likely do more to strengthen the overall state economy than anything else a state government can do. Cutting taxes to capture private investment from other states is a race-to-the-bottom state economic development strategy that undermines the ability to invest in education.
Not good news for Michigan. The unemployment rate is going up again. Up to 9.0% in August from a post recession low of 8.4% in both April and May 2013.
This turn for the worse, comes with the huge Snyder business tax cuts in effect. You know the ones that were supposed to drive Michigan’s economic comeback from the depths of the Great Recession. Think again!
Turns out the business tax cuts did get us higher ratings in the Tax Foundation’s 2013 Business Tax Climate Index. Where Michigan is now ranked 7th in business taxes. Which the Snyder Administration (and many others) celebrates as a major accomplishment. But as we have explored previously doing well in business climate ratings has little to do with what really matters: whether Michiganders have more and better jobs.
Minnesota on the other hand has an unemployment rate that is falling. 5.1% in August, their post Great Recession low. The number of unemployed in Minnesota is down ten percent over the past year compared to less than two percent in Michigan. Minnesota’s Tax Foundation business tax ranking is 44th. So much for low business taxes driving more and better jobs!
I’m not a big fan of the unemployment rate as a measure of economic well being. Particularly the monthly unemployment rate. But it is what everyone else uses as the basic measure of how well a state’s economy is performing. In this case the unemployment rate comparison is aligned with all the economic measures that matter more. The employment to population ratio, per capita income, private sector employment earning per capita, poverty rate, on and on and on. On each Minnesota has the best performance in the Great Lakes. Far better than Michigan. And with Michigan the gap is growing larger. (You can find a Minnesota economy overview here.)
So in two huge business tax cuts we have given away more than $2 billion a year in state and local taxes. For what? Certainly not a lot of new jobs. And because of those tax cuts (and many others the past 15 years or so) we have been forced to slash the public investments that matter to long term economic prosperity: education, infrastructure and quality of place.
Minnesota has done the opposite. Starting with higher taxes and just raising them again to protect their ability to make important public investments.
I don’t know whether Michigan’s unemployment rate over the next several months is going to go up or down. But it is almost certain that for the foreseeable future Minnesotans are going to enjoy better economic outcomes (both employment and income) than Michiganders. Because Minnesota has both the concentration of knowledge based employers and college educated adults that are the main drivers of more and better jobs.
And to the degree that state, regional and local policy matters, the evidence strongly suggests that their public investment driven policies work far better than our tax cut driven policies in building the assets that matter most.
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. Michigan employers who are recruiting young talent from across the country understand this. Those we talked with for this project told us that the absence of a vibrant central city impedes their ability to attract talent.”
Today its even clearer that central cities are a major engine of economic growth. Unfortunately that reality is not reflected in Michigan’s policy priorities. Its another major area where we are pursuing 20th Century policy in a world that has changed fundamentally. As former State Treasurer Robert Kleine demonstrated in a terrific Detroit Free Press op ed the state has not made central cities a priority since Governor Milliken four decades ago. Big mistake.
Knowledge-based private sector employers increasingly get it. Think Quicken Loans here. The New York Times recently featured Amazon’s new headquarters in a formerly not great Seattle neighborhood. The Times writes:
The setting is significant. In casting its lot in the center of a congested, bustling city, Amazon has rejected the old model of the suburban company campus that is typical of Silicon Valley and the technology ring road around Boston. The old way is perhaps most vividly exemplified by Microsoft. Its offices, and most of its 42,000 local employees, are about 18 miles from downtown Seattle, in the suburb of Redmond. …
Other technology companies are moving into urban spaces. Twitter and Dropbox, the social networking and online storage services, have made San Francisco home, while Tumblr and Etsy, blogging and shopping sites, are in New York. Google has huge urban spaces from Paris to Pittsburgh. The appeal of cities to potential employees is part of the reason for the shift. An urban setting, with access to good restaurants, nightclubs and cultural attractions, has become as important a recruiting tool as salary or benefits for many companies. (Emphasis added.)
… Mr. Schoettler, Amazon’s real estate director, said environmental considerations were an important factor in the company’s decision to remain in Seattle, along with the type of employee that an urban location attracts. “The energy and excitement from employees being in an urban environment — I hear it daily,” said Mr. Schoettler, who walks to work. “A lot of people don’t even have a car. They want that urban experience right there.”
In a talent driven economy –– where talent increasingly wants to live and work in a vibrant, walkable central city neighborhood –– companies are moving to where the talent is. And its not just established companies like Amazon and Quicken its also venture capital backed start ups. In a terrific series on where venture capital is investing Richard Florida for Atlantic Cities is documenting this move of technology start ups from what he calls suburban nerdistans to central cities.
In an overview article for the series entitled The Connection Between Venture Capital and Diverse, Dense Communities Florida writes: “When all is said and done, venture capital and start-up activity today is associated with denser, more talent-driven, more diverse and innovative metros, reflecting the increasingly spiky nature of America’s economic landscape.” Be sure to check out his articles on San Fransisco –– which now is garnering more venture fund investment than Silicon Valley (amazing!) and the big east coast metros (New York, Boston, and believe it or not Washington DC) where the central city is becoming the big player in venture capital investments. You read that right DC is no longer just a government town (even more amazing).
As Florida writes: Long gone are the days when high-tech startups were overwhelmingly located in sprawling suburban nerdistans. The center of gravity for venture capital and startup activity in the Bay Area today appears to have shifted to central cities. “For all its power, Silicon Valley has a great weakness,” wrote legendary Silicon Valley investor Paul Graham, its “soul-crushing suburban sprawl.” But, he added, “a competitor that managed to avoid sprawl would have real leverage.” That “competitor” has turned out to be nearby San Francisco. … This is of course in line with what urban theory has long held: That it is dense, diverse and dynamic cities filed with flexible and reconfigurable old buildings that are the real font of innovation.
Whether its established companies like Amazon or technology based start ups this is the kind of investment that is central to every state’s economic development strategy. These are the investments everyone wants. Turns out to get them you need central cities that are attractive places for mobile talent to live and work. Not exactly the current Michigan economic policy priority. The sooner we learn this new reality the better off we will be.
Terrific study by Noah Berger and Peter Fischer for the Economic Policy Institute entitled A Well-Educated Workforce Is Key to State Prosperity. Sound familiar? That four-year degree attainment is increasingly what determines which states and regions are prosperous has been the central tennant of Michigan Future’s work for years.
Berger and Fisher use median wage as their metric for prosperity/higher standard of living. We have used per capita income and lately private sector employment earnings per capita as our metrics that best measure state prosperity today and tomorrow. But no matter which metric you use the findings are the same: college attainment is the best predictor of a state’s standard of living.
Berger and Fisher found: “Overwhelmingly, high-wage states are states that have a well-educated workforce, … . The correlation is very strong and there are very large differences between median hourly wages in states with well-educated workforces and hourly wages in states with less-well-educated workforces (as measured by the share of workers who have at least a bachelor’s degree). … There are no states with a relatively well-educated workforce and relatively low wages and virtually no states with low levels of education and relatively high wages. There are two outliers: Alaska and Wyoming. Their locations on the graph suggest that states with valuable natural resources and a very limited number of people may be able to offer reasonably high wages without a well-educated workforce.” (Emphasis added.)
What about taxes, the current lever of choice in Michigan and most states to drive economic growth? Comparing median hourly wage and state and local taxes as share of personal income, Berger and Fisher found: “no clear relationship between state taxes (as a share of state personal income) and median wages. Higher-tax states appear to have slightly higher median wages, but that correlation is not significant.”
They conclude: ”States can build a strong foundation for economic success and shared prosperity by investing in education. Providing expanded access to high quality education will not only expand economic opportunity for residents, but also likely do more to strengthen the overall state economy than anything else a state government can do. …
States would do well if they focused their resources on their historic role as the guarantors of high quality education for all, while broadening the scope of that role to include universal preschool and other early childhood education programs, and beginning to view high quality postsecondary education and training as the standard for all students. In most states that would mean reversing recent cuts to, and even elimination of, publicly funded preschool, and declines in public investments in postsecondary education. From 1990–1991 to 2009–2010, real funding per student at public colleges and universities declined 26 percent, and the share of state personal income going to higher education fell 30 percent, while tuition at four-year institutions more than doubled and at community colleges rose 71 percent (Quinterno 2012). Instead of improving access to higher education in response to the needs of a changing economy, most states have restricted it.”
Just finished reading the End of the Suburbs by Leigh Galagher, assistant managing editor at Fortune. Highly recommended.
She details, with data and stories, the new reality that more and more Americans want to live in high density, walkable, mixed use neighborhoods. Where walking and transit are as important as driving. That the odds are that we have a big over supply of housing, retail and everything else in what we think of as the typical suburb and exurb: big lot, big house, in single use neighborhoods where you have to drive long distances for anything and everything. And an equally big under supply of housing in walkable neighborhoods in both the suburbs –– predominantly inner ring and with good transit –– and central cities.
Talk about an area where we have politics –– on a bi-partisan basis both in Michigan and across most of the country –– that are designed to recreate the 20st Century. Not sure if this out-of-touch framework is worse when it comes to housing and neighborhoods or transportation (as we explored here). They are linked. And together help saddle Michigan with a preponderance of places where people increasingly don’t want to live. Not smart! And because mobile talent –– particularly college educated Millennials –– moves to where they want to live, they take the future of the Michigan economy with them when they move to those regions that offer them the walkable quality of place they increasingly are demanding.
My friends, many of whom have kids that have left Michigan for Chicago, New York and other big cities, are always astonished at the high prices their kids pay for central city housing. What I tell them is that their kids are not dopes, they know they can get the same house or apartment in Michigan for less –– in many cases far less –– but they are paying high prices –– normally rent for a generation that is increasingly renting before they have kids –– for the neighborhood, not the house.
They are looking –– and pay more –– to live in neighborhoods that look entirely different from the ones they grew up in in the suburbs. Where you can walk, bike or take transit to what you want or need to do, rather than drive. Where you can rent, not own. Where your neighbors and lots of other folks are nearby, not far away. Where their is an exciting and diverse nightlife nearby that you can enjoy everyday, not miles and miles away which you have the time to get to only every once in a while. Where houses are oriented to the front porch, not the back yard. And on and on and on.
Unfortunately our politics are far behind these trends. (As Galagher writes even far behind the big suburban/exurban housing developers, who increasingly are building walkable neighborhoods in both the suburbs and central cities.) Where our policies and politics in taxation; zoning and other regulatory areas; housing finance; transportation; etc. still greatly favor what Chris Leinberger calls drivable suburbanism over walkable urbanism. This is another area where we are having a hard time learning that what made us prosperous in the past, won’t in the future.
(For those interested in learning more about this topic, in addition to the End of the Suburbs, I also recommend reading Chris Leinberger’s The Option of Urbanism and Alan Enrehalt’s The Great Inversion.)