This, of course, is the exact opposite of Michigan in the 20th Century when the state was structurally a high-prosperity state. In 1999 we ranked 16th in per capita income, just a smidge below the nation. In this post I want to focus on the reasons for Michigans decades-long economic well-being decline by comparing the components of Michigan per capita income in 1999 and 2022.

As readers of this blog know the core MFI description of the reason Michigan has been getting poorer compared to the nation is that we are over concentrated in manufacturing which is declining in both employment and wages and we are under concentrated in knowledge economy industries––information; finance and insurance; professional and business services; and corporate HQs––which are both growing and high wage.

And that is exactly what has happened between 1999 and 2022. U.S. per capita income in $2022 grew by $19,389. Michigan grew by $11,095. Knowledge economy industries share of per capita income in the U.S. has grown from 16.0 percent to 17.4 percent. In Michigan it has declined from 14.7 percent to 14.1 percent. Manufacturing share of per capita income in the U.S. has fallen from 10.9 percent to 6.1 percent. In Michigan it has declined from 18.9 percent to 10.3 percent.

Massachusetts, which is the economic well-being gold standard state, by comparison gets about 26 percent of its per capita income from knowledge economy industries and about 5 per cent from manufacturing.

Knowledge economy earnings (both wages and employer paid benefits) per capita in the U.S. went from $7,379 to $11,364. Manufacturing earnings went from $5,029 to $4,008. In Michigan, knowledge economy earnings went from $6,742 to $8,024; manufacturing earnings went from $8,689 to $5,888. A very big proportion of Michigan’s manufacturing earnings decline is in motor vehicles and motor vehicle body parts manufacturing where earnings declined by $2,026 out of a total decline in Michigan manufacturing earnings per capita of $2,801.

32.6 percent of Michigan’s decline compared to the nation is attributable to slower growth in knowledge economy earnings. Another 26.4 percent is attributable to our much steeper decline in motor vehicles, fabricated metals, and machinery manufacturing earnings. The two other big contributors to Michigan’s growing gap with the nation are slower growth in government earnings which explains 12.5 percent of the gap (so much for the Michigan is big government myth) and capital income which explains 18.6 percent of our decline.

Capital income, which is investment earnings not including capital gains, are almost certainly highly aligned with knowledge-economy employment and four-year degree attainment rates.

One item that does not explain our growing gap is transfer payments which grew in Michigan by $6,143 compared to $6,081 nationally.

For us the basic lesson of this data is what matters most to Michigan reversing its decades-long economic well-being decline is growing the knowledge economy. The knowledge economy is the high- wage and high-growth sector of the 21st Century American economy.

You can find our recommendations for how the state can best grow the knowledge economy here.

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Michigan’s per capita income––in a strong economy with an even stronger domestic auto industry––is 11 percent below the national average. In 2000––the last time Michigan had a strong economy and domestic auto industry––Michigan’s per capita income was one percent below. Maybe most concerning is that the portion of per capita income that comes from wages and employer-paid benefits is now 12 percent below the national average. In 2000 it was one percent above.

Michigan’s per capita income is now more than $3,000 below the nation’s. Its employment earnings per capita is nearly $4,000 below the nation’s

How does Michigan compare to Minnesota–the Great Lakes state with the best economic outcomes? Minnesota’s per capita income in 2017 is five percent above the national average. Employment earnings per capita are nine percent above. The difference is more than $8,000 in per capita income between Michigan and Minnesota, with more than $6,500 of the difference coming from employment earnings per capita.

(You can explore what Minnesota has done to become so successful here. And the metro Minneapolis success recipe here.)

Since our inception more than a quarter of a century ago we have used per capita income as our prime measure of economic well being. It is the most comprehensive measure of income calculated by the statistical agencies of the federal government. It includes more sources of income than that used to calculate median household income for instance. Over the past decade or so we have concentrated more and more on the portion of per capita income that comes from employment earnings (wages, self-employment net earnings and employer paid benefits). The other two major categories of per capita income are government transfer payments and interest, dividends and rent (but not capital gains). Employment earnings represent 63 percent of the nation’s per capita income and for Michigan it is 62 percent.

Employment earnings combine both how many people work and how much they earn in wages and benefits. To us rising employment earnings are the key to our goal of recreating a high-prosperity Michigan. A place with a broad middle class.

That Michigan is now––in a strong economy––12 percent below the national average in employment earnings per capita is evidence that too many Michigan families unable to pay the bills, save for their retirement and the kids education is the preeminent economic challenge of our time. Michigan has both too many adults not working and way too many Michigan workers in low-paid and low-benefit jobs. We need to make dealing with both the state’s economic priorities.

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What is brand new in the new report is data on the components that make up per capita income. We got interested in the components when we had difficulty explaining some state income growth rates that were concentrated in neither high education attainment industries nor college-educated adults. The dominant pattern we have identified with the most prosperous states and regions in the country.

Our previous analysis has been focused almost exclusively on jobs and income that comes from employment—both public and private. But it is also clear that there are other ways in which residents of states and regions earn income. Employment earnings are a major, but not the only, component of personal income. (In 2009 employment earnings were 72% nationally of per capita income.) Personal income from other sources benefits not only individuals and households, but the whole community, as folks spend their income. We decided that we could provide a more complete picture by looking at all components of what makes up personal income.

We collected data for the new report on six components of per capita income:

• Employment earnings (both wages and employer paid benefits) from natural resources (mining, agriculture, forestry, and fishing) private sector employers.

• Employment earnings from all other private sector employers.

• Employment earnings from government (local, state, federal, public schools, and public universities and colleges) employers.

• Dividends, interest, and rent.

• Transfer payments. These are payments made by government to or on behalf of individuals. They include Social Security, Medicare, Medicaid, TANF cash benefits, food stamps, veterans’ benefits, tuition support like Pell grants and subsidies for college loans, the Earned Income Tax Credit, etc. The one change we made to the official statistics is that we include farm subsidies in transfer payments (not private sector earnings).

• Social insurance taxes and residential adjustments. These are subtractions from income for taxes paid by both individuals and employers for items like Social Security, Medicare, and unemployment insurance, as well as adjustments for people who live in one state or region and work in another. The category is needed to balance income totals, but has little or no analytical value.

The new report will have data on both 2009 per capita income by component for the US, states and regions and change in per capita income corrected for inflation from 1989 to 2009. We chose 1989 as the base year because we are primarily interested in the long-term structural changes occurring in the American economy.

We are confident that readers of the new report will find this more detailed description of how the residents of the country, states and regions earn a living revealing. What we found surprised us. The data provide a more complete picture of the nation’s, states’ and regions’ economies. Turns out there are big differences between states and regions in how their residents earn a living and how that has changed over the past two decades.

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