Michigan was one of the most prosperous places on the planet in 1979. Its per capita income three percent above the national average. No more! In 2022 Michigan’s per capita income was 13 percent below the nation’s. The worst Michigan has even been compared to the nation.

The prime reason for this four decade long decline is Michigan has gone from a state with lots of good-paying jobs to a state with far too many low-wage jobs. The American mass middle class is now dominated by professionals and managers who before the pandemic work in offices, schools and hospitals. Michigan workers are under-concentrated in these higher-paid occupations compared to the nation.

It turns out in addition to this under-concentration in higher-paying occupations, Michigan is a low-wage state in all occupations irrespective of education attainment. You can see that clearly when you look at median wages for full time workers 25 and older. (All of the data below are for for those full time workers 25 and older.)

In 1979 Michigan median wages were an astonishing 19.2 percent above the nation’s. Now they are 9.6 percent below. If Michigan’s median wages were still 19.2 percent above the nation’s the typical Michigan worker would be be earning $19,518 more: $80,695 rather than today’s $61,178.

Michigan was a high-prosperity state in 1979 largely due to highly-paid, unionized, overwhelmingly male, hourly workers primarily in the auto industry. General Motors was America’s largest employer. With a little more than 600,000 American employees, around 450,000 of them highly-paid hourly workers. Hourly manufacturing workers were the core of Michigan’s–and the country’s–mass middle class.

More broadly 1979 was a time when male Michigan high school graduates were highly paid compared to their counterparts across the country. With median wages 13.7 percent higher. The typical male Michigan high school graduate made slightly more that the median for all male American workers and 90.9 percent of the median for all male Michigan workers.

Today it is a completely different story. Median wages for male Michigan high school graduates are 2.6 percent less than their counterparts from across the country. And have median wages 23.4 percent lower than all U.S. workers. If male Michigan high school graduates still made as much as all male U.S. workers they would be earning $12,167 more: $52,012 rather than $39,845.

There was a B.A. wage premium for male Michigan workers in 1979. With male Michigan workers with a high school degree having median wages 30.9 percent less than male Michigan workers with a B.A. Today that wage premium has grown to 45.1 percent: $39,845 as compared to $72,604.

So the story we tell ourselves over and over about Michigan use to be a place where one worker––almost always a male––with a high school degree could support a middle class family is accurate. Unfortunately those days are long gone.

The story for female workers is similar. Obviously there are far more women workers today than in 1979. But for those Michigan women who did work in 1979 they enjoyed a median-wage premium compared to their counterparts across the country: 10.7 percent above the nation for all female workers; 10.0 percent for those with a high school degree; and 9.3 percent for those with a B.A.

Four decades later Michigan female workers earn substantially less than their counterparts across the country. 7.5 percent less for all female workers; 8.5 percent less for those with a high school degree; and 4.8 percent less for those with a B.A.

If the typical Michigan female worker still earn 10.7 percent more than the typical American female worker, she would be earning $7,175 more: $43,713 compared to today’s median of $36,538.

Depressingly Michigan male workers still earn substantially more than Michigan female workers. In 1979 median wages for Michigan women was 52.4 percent of Michigan male workers; today it is 70.8 percent of Michigan male workers.

So it turns out Michigan has both a occupational and industry mix problem––too few jobs in knowledge-based occupations and industries––and a wage level problem in both high education attainment occupations and low education attainment occupations. To return to high-prosperity––a place with a broad middle class––Michigan both needs to grow jobs in high-paid occupations and to increase wages in all occupations.

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As Rick Haglund chronicled for Crain’s Detroit Business, since General Motors in 1992 chose Arlington Texas over Willow Run for a motor vehicle assembly plant, Michigan’s economic development priority has been to compete for auto assembly and auto parts plants. That motor vehicle factory strategy has failed.

Data from the Quarterly Census of Employment and Wages, Bureau of Labor Statistics makes the magnitude of that failure abundantly clear. (The data below is from the fourth quarter of each year.)

In 1990 motor vehicle manufacturing employed 93,000 Michiganders. In 2021 it was 47,000. The state’s share fell from 37.4 percent of the nation’s to 17.9 percent. Motor vehicle parts manufacturing employment fell from 189,000 in 1990 to 123,000 in 2021. The state’s share fell from 26.0 percent to 22.9 percent.

To make matters worse, these are declining sectors of the American economy. In 1990 the two industries combined employed 1.1 percent of American workers. In 2021 it was 0.6 percent. (In Michigan the two industries combined employed 8.5 percent of workers in 1990 and 4.6 percent in 2021.)

So Michigan both chose as its economic development priority a declining industry and suffered employment declines in those industries far worse than the nation. Losing in the two industries a combined 112,000 jobs. A decline of an astonishing 40 percent.

The cost of the state’s failed motor vehicle factory strategy unfortunately goes far beyond just the loss of motor vehicle industry jobs. Since the predominant lever the state deploys to attract motor vehicle factories is subsidizing motor vehicle manufactures, it reduces the revenue needed to invest in education and placemaking. Which are the keys to attracting and growing knowledge-based enterprises which are the high-growth/high-wage sectors of the economy.

The combination of Michigan’s motor vehicle manufacturing failure and being a national laggard in knowledge-based industries growth led to a decline in total state employment from 3.6 percent of the nation’s employment in 1990 to 2.9 percent in 2021. And a decline in average weekly wages from 108.9 percent of the nation’s in 1990 to 90.7 percent in 2021.

If Michigan still had 3.6 percent of the nation’s employment there would be 855,000 more Michiganders working today. If Michigan still had average weekly wages 8.9 percent above the nation’s Michigan workers would be earning $262 more each week which adds up to $13,624 more annually for full-time, year-round workers.

It is far past time that Michigan abandon its low-tax/high business subsidy dominant economic strategy. And it is far past time that Michigan abandon its motor vehicle factory dominant economic strategy. Both have failed and will continue to do so in the future.

The goal of Michigan’s economic strategy should be good-paying jobs growth. That requires a fundamental transformation in Michigan’s economic strategy. From factory focused to knowledge-enterprise focused. From competing for business investments based on low costs to competing for business investments on high talent––particularly young adults with four-year degrees or more––concentrations focused. To do that requires substantially higher public investments in education for all Michigan children from birth through college and in creating places where talent wants to live, work and play.

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The 21st Century path to prosperity––to a broad middle class––is concentrating talent. Not factory jobs. Why? Because today’s mass middle class are professionals and managers who work in offices, schools and hospitals. Not production workers who work in factories.

You can see that clearly in the table at the bottom of this post. We compared Michigan to three states with a high proportion of adults with a four-year degree or more (places that are concentrating talent) and three states with a high proportion of production jobs. Minnesota, Colorado and Washington are the three in the first category. Tennessee, Kentucky and Alabama are in the second.

The table looks at each state’s per capita income ranking in 1990 and 2020; their rankings in B.A. attainment in 2019; and their concentration compared to the nation in production (blue collar factory) jobs in 2020.

(Location quotient compares an occupation’s share of state employment with its share of national employment. A location quotient of 2.0 means a state’s employment is twice as concentrated in that occupation as the nation. A location quotient of 0.5 means a state is half as concentrated in that occupation as the nation.)

In 1990 Washington, Colorado, Minnesota and Michigan had nearly identical per capita income rankings. No more. Over the past three decades Washington, Colorado and Minnesota have become more prosperous compared to the nation, while Michigan has fallen from a high-prosperity state to a low-prosperity state.

The common characteristic of Washington, Colorado and Minnesota? A high proportion of adults with a four-year degree or more. This alignment is true across the nation. High per capita income states overwhelmingly are high college attainment states.

What is not a common characteristic of Washington, Colorado and Minnesota? Lots of production jobs. As we explored in our last post, production jobs have been for decades a declining share of employment and now have median wages below the national median. In each state included in the table below, except Kentucky, production jobs have median wages lower than the state median wage.

As Washington, Colorado and Minnesota have gotten more prosperous over the last three decades compared to rest of the country the exact opposite is true for Tennessee, Kentucky and Alabama. In 1990 they were national laggards in per capita income. In 2020 they have fallen even farther behind. And unfortunately Michigan is in the same boat, even more so. Falling from 20th in per capita income in 1990 to 33rd in 2020.

What do Tennessee, Kentucky, Alabama and Michigan have in common? Low college attainment and high concentration in production jobs. Yes Tennessee, Kentucky and Alabama have been successful in those three decades in attracting auto plants and auto supplier plants. Most recently Ford’s decision to locate an electric vehicle assemble plant and three battery plants in Tennessee and Kentucky. But that auto factory attraction success has most definitely not been a path to prosperity for Tennessee, Kentucky and Alabama.

As Rick Haglund detailed in a recent article for Crain’s Detroit Business, since General Motors chose Arlington Texas over Willow Run for an assembly plant in 1992, Michigan’s economic development priority has been retaining and attracting motor vehicle factories. It has most definitely not been a path to prosperity for Michigan. Per capita income in 1990 in Michigan was 97% of the nation. In 2020 it is 90%. If Michigan had just stayed at 97% per capita income in Michigan in 2020 would have been higher by $4,400.

While Michigan was declining by more than seven percentage points compared to the nation, Washington––the most prosperous of our talent concentrated states––was growing by 10 percentage points compared to the nation. If Michigan had grown by 10 percentage points since 1990 per capita income in Michigan in 2020 would have been higher by $10,351. To do that Michigan would have to have focused on concentrating talent, rather than competing for factories.

Rather Michigan chose to compete with production jobs concentrated states. Tennessee––the most prosperous of our production jobs concentrated states––had per capita income growth less than one percentage point compared to the nation. It moved from 14 percent below the national average to 13 percent below. Yes it narrowed the gap with Michigan from 11 percentage points to three. But that is almost all because of Michigan’s decline, not Tennessee’s rise.

Post Arlington Michigan has chosen a low-prosperity state economic development strategy. One that might be categorized as chasing factories. To recreate a high-prosperity Michigan, that was the wrong strategy then and is the wrong strategy today.

The path to prosperity for Michigan is having an economy like Washington, Colorado and Minnesota not like that of Tennessee, Kentucky, Alabama. And the key to having an economy like Washington, Colorado and Minnesota is concentrating talent. Which means an economic development strategy that makes preparing, retaining and attracting talent––not factories––THE priority.

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Seems like the Toyota investment is far more important to economic well being than the General Motors investment. Think again! As the New York Times reports, “the investment will not add jobs at Toyota’s plant in Georgetown, Ky.” On the other hand, the Detroit Free Press reports “General Motors said today it will add 1,100 jobs over the next five years and invest more than $14 million in a new research and development facility for its San Francisco-based self-driving technology company.”

Let’s be clear both investments are good news for the American economy. You want companies investing in plants and equipment here to stay globally competitive even if the investment doesn’t yield any new jobs or, in some cases, leads to replacing workers with machines. But what the American economy needs more than anything else is more good-paying jobs. And that is what the far smaller General Motors investment will yield. 1,100 new jobs––largely high-paid professional and managerial jobs.

There are two important lessons to learn about improving the economic well being of Americans from these two announcements. First the way to improve the economic well being of Americans is with more good-paying jobs. Other measures of economic progress––such, as in this case, the size of the investment in facilities––that don’t produce more good-paying jobs at best maintain, rather than improve, the well being of Americans.

The second lesson is that new good-paying jobs are going to be concentrated in knowledge-based services, not goods-producing industries like motor vehicle manufacturing. The places likely to get those new good-paying job are going to be places like metro San Fransisco that have large concentrations of college-educated workers.

Which reinforces the basic Michigan Future message: that the key to returning Michigan to high prosperity is preparing, retaining and attracting college-educated talent. It is the asset that matters most to high-wage employers. College-educated talent also are those most likely to start new high-wage businesses. (For those interested in learning more about the essential role of talent concentration to prosperity see our Michigan’s Transition to a Knowledge-Based Economy report.)

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What is not included in most of those stories – or the self-congratulatory public conversation here – is that the preeminent reason for the success of the domestic auto industry and for Michigan’s recovery is an $86 billion federal government bailout of the auto industry. No bailout, no turnaround. End of story.

Funded by the Bush Administration and implemented by the Obama Administration, the federal government rescued the domestic auto industry – and the industrial Great Lakes – from collapse. Rather than Michigan job growth in the tens of thousands, without the bailout there would today be hundreds of thousands more Michiganders out of work. General Motors and Chrysler would be gone (think Borders). And lots of the supply base would be gone as well. Not only did they receive part of the $86 billion, but many could not have survived the loss of two of their major customers. And that supply base is not just manufacturers, it includes lots of knowledge-based businesses in pre and post production work for the auto industry.

So lets celebrate. The last decade was awful and it looks like we are on track for growth again. But also lets learn the right lessons for why we are recovering. First and foremost is that government – big government, the federal government – if done right, is a positive force for economic growth. Make no mistake this is the ultimate big government intervention. Not just a huge amount of taxpayers money to allow the companies to pay their bills, continue to operate. But also intervention in decisions on how to run the companies and structure the industry. There is a reason his many critics have labelled this exhibit #1 of Obama the socialist.

From firing the high-paid, top management that led the companies into bankruptcy, to walking away from stock and bond holders, to closing dealerships, to eliminating brands, to lowering labor costs and ending uncompetitive work rules, the federal government forced changes that the companies and unions would and/or could not do on their own. This was active government at its most assertive.

The Economist magazine is one of the few critics of the bailout which has publicly admitted they were wrong. That federal government intervention worked. See their article “Government Motors no more. An apology is due to Barack Obama: his takeover of GM could have gone horribly wrong, but it has not.”

Froma Harrop, in a terrific column responding to the Economist article, wrote:

Two years ago, General Motors and Chrysler were headed for oblivion. Letting these companies reorganize under normal Chapter 11 bankruptcies, as many free-marketeers advocated, would have ended in failure. … The industrial Midwest could have utterly collapsed. The psychological blow of seeing GM — the symbol of American manufacturing might — go down amid a terrifying Wall Street meltdown would have spread economic disaster coast to coast. Thanks to the government intervention, General Motors is out of bankruptcy and again turning profits. Chrysler is stabilized. … The $86-billion bailout was a gamble, all right, but it was a bet that America won. And it was won not through dumb luck but the administration’s skilled management of the bankruptcy. And the good news keeps coming.

Thanks to the federal government, Michigan has a big head start on repositioning itself for economic growth. There is a long way to go to return to our former status as one of the country’s most prosperous states. To get there we need to relearn the lesson that the bailout should have taught us: that active government has functions that it can uniquely do that are essential to long-term economic growth.

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