Median household income in the Twin Cities of $73,231 was the seventh highest among the 53 metro areas with a population of 1 million or more in 2016, according to American Community Survey figures. (Detroit ranked 38th and Grand Rapids 29th.)

Unemployment hasn’t reached double-digit levels in at least the past three decades. The highest annual jobless rate since 1990 in metro Minneapolis was 7.7 percent in 2009 at the depth of the national Great Recession. Just 2.7 percent of the Twin Cities’ workforce was unemployed in April 2018, the fifth-lowest jobless rate among the 50 largest metro areas in the country. (Metro Detroit, with a jobless rate of 3.6 percent, ranked 31st.)

Economists attribute much of the metro area’s economic vitality to its diverse mix of industries, including food processing, health care, medical device manufacturing and financial services, and to its highly educated workforce.

“It’s very clear that the quality of our workforce is a key element in our success,” said Art Rolnick, a senior fellow at the University of Minnesota’s Humphrey School of Public Affairs and a former economist at the Minneapolis Federal Reserve. “It’s been a big payoff in this economy.”

A roster of highly educated, mostly home-grown workers and managers is a major reason why Minnesota hosts the largest number of Fortune 500 companies per capita in the country, said Myles Shaver, a management professor in the University of Minnesota’s Carlson School of Management. And most don’t leave.

“Metro Minneapolis doesn’t attract people well,” he said, citing a climate he says many equate with the Arctic. “But it’s been able to build a strong workforce because it retains so many talented people. Retention rates here are extreme.”

Minnesota was home to 18 Fortune 500 companies in 2017, the most per capita of any state. All but one are located in metro Minneapolis. Paced by metro Minneapolis, the state’s largest metro area, Minnesota also has long ranked as one of the top knowledge economies in the country.

The Washington, D.C.-based Information Technology and Innovation Foundation ranked Minnesota 12th in its 2017 State New Economy Index, which uses 25 indicators to measure how well state economies are “knowledge-based, globalized, entrepreneurial, IT-driven, and innovation-oriented.” Michigan ranked 15th, up from 34th in 1999.

Its broadly educated workforce also has helped metro Minneapolis grow new industries as old ones fell away.

The Twin Cities became a center of supercomputing in the late 1950s. (The CDC 6600, introduced in 1964 by Control Data Corp. in suburban Minneapolis, is considered the world’s first supercomputer.) But as the computer industry gradually moved to west to Silicon Valley, local computing engineers, scientists and others shifted to the expanding medical device industry.

While the conventional wisdom is that low taxes are key to economic growth, metro Minneapolis—and the rest of the state—has taken the opposite approach.

Twin Cities’ residents and businesses pay some of the highest taxes in the country. Minnesota regularly ranks as among the worst states in the Tax Foundation’s Business Tax Climate Index, which includes corporate, personal income, sales, unemployment insurance and property taxes.

Minnesota ranks 46th in the Tax Foundation’s 2018 study in which a lower number indicates a better rank.

Gov. Mark Dayton and the then-Democratic controlled Legislature raised taxes on the wealthy in 2013, boosting the top individual rate in its progressive income tax system from 7.85 percent to 9.85 percent.

On top of high state taxes, Twin Cities’ residents pay additional special levies to support regional government (the Metropolitan Council), public transit and other amenities, such as parks.

Rolnick said he doesn’t think economic growth is necessarily predicated on low or high taxes. It’s how the money is spent.

“If you’re investing well, you get great infrastructure and great education,” he said. “That’s what you need for a thriving economy.”

The Twin Cities’ diverse economy is somewhat serendipitous. Companies in different industry sectors, such as General Mills, Target and United Healthcare, were born there. But none dominated the economy in the way the auto industry, which is subject to wild cyclical swings, did in Detroit.

Local experts say the key to maintaining that healthy diversity and the wealth it engenders is a continued focus on education and infrastructure.

Metro Detroit and the rest of Michigan could copy that formula for success if policymakers can muster the political will to do it.

Check our new report, Regional Collaboration Matters, How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States, for more stories and lessons from the most successful state in the Great Lakes.

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Karlgaard understood years ago what many still don’t today, that increasingly employers are following talent, rather than people moving to where the jobs are. In many ways this is the central insight of Richard Florida’s influential book The Rise of the Creative Class. That talent––primarily those with four year degrees or more––is the asset that matters most to knowledge-based employers.

Increasingly where talent is concentrated––particularly college educated Millennials––are central cities of big metropolitan areas. So it shouldn’t be a surprise that recently GE announced the relocation of its corporate headquarters from suburban Connecticut to Boston. And several months ago ConAgra announced the relocation of its corporate headquarters from Omaha to Chicago. These are just two examples of a larger trend of companies locating in vibrant central cities where young talent is concentrated. (Think Quicken to downtown Detroit.) Both GE and ConAgra cited access to talent as a major factor in their relocation.

In a Minneapolis Star Tribune article entitled ConAgra’s Move from Omaha to Chicago Shows Big Cities Still Reign Lee Shafer writes:

To a lot of us, big cities like Chicago primarily look expensive and crowded. But it’s long been observed by economists that productivity improves in cities. One reason is that good ideas and know how seem to leak between people who share the same place, even if they work for competitors.

Companies can thrive in places like that, in turn attracting engineers, marketers and other highly skilled people. It certainly helps attract them if the region also has a lot of sports, arts, outdoors and other amenities to make the hours after work more pleasant.

All of that means that in this case Chicago, a big metro area in a state so dysfunctional that its legislature and governor still can’t agree on a budget, gets another Fortune 500 company headquarters to add to the 31 already there.

Exactly! Talent trumps a lot of what conventional wisdom claims are the keys to retaining and attracting jobs––particularly high paid professional and managerial jobs. Things like taxes, regulation, well run state and local government, etc.

Former New York city mayor Michael Bloomberg in a Financial Times column summed up best what matters most to retaining and attracting employers this way:

Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent.

I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. The most creative individuals want to live in places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities. A city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations.

In this respect, part of what sets cities such as New York and London apart cannot be captured by rankings. Recent college graduates are flocking to Brooklyn not merely because of employment opportunities, but because it is where some of the most exciting things in the world are happening–in music, art, design, food, shops, technology and green industry. Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet. 

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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.”

Exactly!

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What I want to explore in this post is how does this compare to past recoveries. Particularly the first two years of the Blanchard Administration (which I was part of) when Michigan was also recovering from a strong national downturn and a near collapse of the Detroit 3. As I wrote in a previous post:

… Governor Blanchard inherited a Michigan economy in worse shape – one can make a strong case far worse shape – than Governor Snyder. We have short memories. The story we have told ourselves over and over again that Governor Snyder inherited the worse economy in Michigan since the Great Depression is not true. Jim Blanchard took office in January 1983. The month before (December, 1982) the state’s unemployment rate was 16.8%. And going up. That month was the peak unemployment rate during the serve downturn of the early Eighties. For all of 1982 the unemployment rate was 15.6%. Rick Snyder took office in January 2011. The month before (December, 2010) the state’s unemployment rate was 11.2%. And going down. The peak Michigan unemployment rate during the Great Recession was 14.2% in August, 2009. When Governor Snyder took office the Michigan unemployment rate had been falling for 16 consecutive months. For all of 2010 the unemployment rate was 12.7%.

Michigan job growth for 1983 and 1984 was 187,700, an increase of 5.9%. The year before (1982) Michigan lost 171,000 jobs. The year before Governor Snyder came to office (2010) Michigan lost 7,000 jobs. Michigan added 180,000 more jobs in 1985 and 96,000 in 1986. No one expects that size job growth in Michigan the next two years.

So what drives these economic turnarounds? The Snyder Administration and its supporters argue that it is their policies working. Basically big business tax cuts, smaller government and now right to work. The Blanchard Administration (as do state elected officials of both parties across the county when their state economies are strong) argued that the Eighties turnaround was driven by their policies working. But in many ways the policies it pursued are the exact opposite of the Snyder Administration. A big income tax increase (to 6.35%), no reduction in the so-called job killing Single Business Tax and once the economy began to expand increased state investments in education, infrastructure and activist business development programming.

So what is the prime driver of the recovery? Quite simply the national economy and particularly the fortunes of the domestic auto industry. Both Governor Blanchard and Governor Snyder took over immediately after the domestic auto industry was in such bad shape that it required federal government bailouts. Those bailouts –– as we explored here and here –– allowed the Detroit Three to reposition itself to regrow once the national economy and auto sales rebounded.

As I wrote previously: …  “I don’t believe that the Blanchard tax increases were a major reason for Michigan’s growth in the Eighties. Anymore than I  believe the Engler tax cuts were a major reason for Michigan’s economic growth in the Nineties. Or the Snyder business tax cuts have much of anything to do with the growth we are now experiencing that started at the end of the Granholm Administration. … The evidence is overwhelming that what drives Michigan’s economy is the national economy and, most importantly, the domestic auto industry.”

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New report finds most prosperous states focus on high-education jobs, which hold key for Michigan’s economic rebound

Michigan’s economy continues to founder because it remains primarily a factory-based economy that has not taken important steps aimed at increasing the proportion of college graduates living in the state, a new report by Michigan Future, Inc. shows.

The 2011 progress report on Michigan’s transition to a new economy, issued this week by Michigan Future and available at www.michiganfuture.org, also reports that since the start of the Great Recession job losses in low-education sectors (manufacturing, construction, retail, hospitality and temporary services)  have accelerated around the nation and in Michigan, further proving the need for Michigan to focus more attention on preparing, attracting and retaining the talent that high education industries require.

Nationally since the start of the Great Recession in December 2007 through May 2011, 7 million jobs have been lost, 6.4 million of them in the low education attainment sectors. The high education attainment sectors – primarily health care, education, professional and technical services, information, financial services and insurance – have held nearly constant, losing just 546,000 jobs. Approximately 9 percent of the low-education industry positions have been eliminated compared to 1 percent of positions in high-education attainment sectors.

“What we found is stunning. The trends we have written about in past reports have accelerated,” said Glazer, president of Michigan Future, who conducted the study with Donald Grimes, Senior Research Specialist at the Institute for Research on Labor, Employment and the Economy at the University of Michigan. “It’s even more apparent now than before: What made Michigan prosperous in the past is no longer our path to prosperity. We will not prosper by chasing low education jobs. This is an inescapable truth.”

This contrasting fortune of high education attainment vs. low education attainment sectors is part of a two decade long trend. Since 1990 high education attainment industries have experienced job growth of 36 percent compared to 7 percent in the rest of the economy.

Glazer and Grimes show Michigan and its largest metropolitan areas are lagging in the transition to a knowledge-based economy. In 2009, Michigan ranked 37th in per capita income, an unprecedented drop of 19 places in a relatively short nine-year period but in line with its position as 36th in college attainment. Michigan also ranked 30th in the share of wages from knowledge- based industries.

“Metro Detroit ranked 41st in per capita income of the 55 metropolitan areas with populations of one million or more, 31st in knowledge-based industries concentration and 39th in college attainment,” Grimes said. “Metro Grand Rapids was even further behind, ranking 54th in per capita income, 54th in knowledge- based industries concentration and 44th in college attainment,” the report says.

“Unless we substantially increase the proportion of college-educated adults, especially in our biggest metropolitan areas, Michigan will continue to be a low-prosperity state.”

New data shows earnings from private sector employment highest in high education states

New in this report is data on the components that make up per capita income for the nation, states and big metros.

Nationally employment earnings account for 72 percent of the country’s personal income. Non-natural resources private sector employment earnings are 58 percent of personal income. Transfer payments are nearly 18 percent. If you combine transfer payments and government employment earnings, you find that 31 percent of national personal income comes from government revenue.

The top 10 states in earnings attributable to non-natural resources private sector per capita (taking out the non-natural resource jobs reduces the impact of the oil and grain economy on certain states) were Connecticut, Massachusetts, New York, New Jersey, Minnesota, Delaware, Illinois, New Hampshire, Colorado and California. Except for Delaware, all of the top ten states are also high college attainment states.

The bottom 10 states in that category were, from the very bottom and moving up, Mississippi, West Virginia, New Mexico, Arkansas, Idaho, South Carolina, Montana, Kentucky, Alabama and Oklahoma. The report notes that all of those states except Montana have very low percentages of their population with college degrees.

As should be expected given Michigan’s relatively low education attainment status, our state looks more like the bottom 10 than the top 10. Employment earnings account for 70 percent of Michigan’s personal income. Non-natural resources private sector employment earnings are 57 percent of the state’s personal income. Transfer payments are more than 22 percent. And if you combine transfer payments and government employment earnings, nearly 34 percent of Michigan’s personal income comes from government revenue.

The report highlights data on non-natural resources private employment earnings. It is an essential ingredient in any state or region being prosperous in the long term, and it is what policymakers at the state and local level are primarily focused on when they put forward economic development policy and programs.

“There are two clear messages from the data,” said Glazer. “First, for Michigan to return to prosperity it must focus on accelerating employment earnings, particularly from the private sector. And secondly, to accomplish that the key ingredient is talent. Quite simply, in a flattening world, economic development priority one is to prepare, retain and attract talent.”

These findings reinforce the action agenda laid out in the New Agenda report:

• Build a culture aligned with (rather than resisting) the realities of a flattening world. We need to place far higher value on learning, an entrepreneurial spirit and being welcoming to all.

• Creating places where talent – particularly mobile young talent – wants to live. This means expanded public investments in quality of place with an emphasis on vibrant central city neighborhoods.

• Ensuring the long-term success of a vibrant and agile higher-education system. This requires a renewed commitment to public investments in higher education – particularly the major research universities.

• Transforming teaching and learning so that it is aligned with the realities of a flattening world.

• Developing new private and public sector leadership that has moved beyond both a desire to recreate the old economy as well as the old fights. Michigan needs leadership that is clearly focused, at both the state and regional level, on preparing, retaining and attracting talent.

For a copy of the report and more on Michigan Future Inc., visit www.michiganfuture.org.

Below are edited versions of Tables 13 and 14 in the report.

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Before the Great Recession I heard this same story over and over again from knowledge-based employers across the state. This is the first time one of them has put it in writing. Of course, the conventional wisdom still is this cannot happen. People go to where the jobs are. Fix the cost of doing business in Michigan and jobs will blossom, talent will rush here and we will be prosperous again. As Mr. Basile writes that ain’t the way the world works today.

He writes: We’d like to stay in Michigan, but we have a problem.  It’s not taxes or regulations.  There’s lots of talk about these issues but they have no impact on our business.  We spend more on copiers and toner than we do on state taxes. Our problem is access to talent.  We have high-paying positions open for patent attorneys in the software and semiconductor space.  Even though it is one of the best hiring environments for IP firms in 40 years, we cannot fill these positions.  Most qualified candidates live out of state and simply will not move here, even though they are willing to relocate to other cities. … There’s a simple reason why many people don’t want to live here: it’s an unpleasant place because most of it is visually unattractive and because it is lacking in quality living options other than tract suburbia.   Some might call this poor “quality of life.”   A better term might be poor “quality of place.”   In Metro Detroit, we have built a very bad physical place.   We don’t have charming, vibrant cities and we don’t have open space.

Quality of place matters. We need to keep pushing to get this at the top of the state’s economic growth agenda.

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So it was with great pleasure that I read a recent Paul Krugman column that made the case that education and infrastructure are still the foundation on which you build a strong economy. Unfortunately as Krugman points out we are headed in the wrong direction. Increasingly as a nation we are disinvesting in both. Big mistake!

As Krugman writes: … a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel. And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead. … And what about the economy’s future? Everything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial. Emerging nations are making huge efforts to upgrade their roads, their ports and their schools. Yet in America we’re going backward.

Certainly that is true here in Michigan. For the first time ever we can’t pass a much needed gas tax to fix our roads and develop a 21st Century transit system despite nearly unanimous support from the business community. We are apparently willing to give up millions in federal aid rather than raise the gas tax. And, of course, for a decade we have been disinvesting in our higher education system. In the 20th Century, when it didn’t matter so much, we built one of the best systems of community colleges and universities on the planet, now that it is essential for economic growth we are cutting higher ed spending with bipartisan support.  Real stupid!

If we want to recreate a prosperous Michigan we need to get back to the basics. That means reestablishing public investments in education and infrastructure as a priority. Without a quality lifelong system of teaching and learning as well as a quality of place that increasingly mobile talent demands when they decide where to live and work we are going to continue to get poorer compared to the nation. Public investments in the basics are that important.

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As they report, when they asked what state had lowered unemployment with lower taxes, the candidate, John Hune, answered Minnesota. First congratulations to the Daily Press and Argus for asking the question. By and large the media does not ask for evidence that low taxes lead to stronger economies. But to their credit they didn’t stop with reporting the answer, they checked how Minnesota’s taxes compared to Michigan.

Their conclusion: So just how attractive are Minnesota’s taxes? If he thinks Minnesota has the model tax structure, then Hune — who brands himself as the conservative anti-tax avenger — is actually favoring higher taxes. While it is true that Minnesota has a lower unemployment rate than does Michigan — at about 7 percent, it’s nearly half Michigan’s current rate — it hasn’t come about because of low taxes. By almost any measurement, Minnesota taxes its residents and its businesses at a higher rate than does Michigan.

We couldn’t have said it better. For years we have cited Minnesota as the Great Lakes state that Michigan should pattern itself after. Why? Not because of a predetermined set of “good” policies, but because they have the highest per capita income (our goal) by far of any Great Lakes state. They also have the lowest poverty rate, the lowest unemployment rate and the highest employment rate. They have the economic outcomes that all residents of Michigan want. They have achieved those outcomes with the highest taxes in the region.

Strong evidence that either state and local taxes are largely irrelevant to a state’s economic performance or that the public services paid for by those taxes are an asset to economic growth. Our best guess is it is a bit of both.

What Minnesota does have – that, by far, trumps a state’s level of taxes and spending – is the highest proportion of adults with a four-year degree in the region. That allows them to more concentrated in the knowledge-based sectors of the economy. The sector where both the highest wages are and most of the country’s job growth. How to increase the education attainment of Michiganians should be what candidates are debating. It is the path back to prosperity.

The post The Real Minnesota Story appeared first on Michigan Future Inc..

Leinberger is best in describing the changing patterns of consumer demand for housing and neighborhoods. As he would describe it from driveable suburbanism to walkable urbanism. He cites data that housing prices have fallen far more in outlying areas than near central cities in the current downturn. And that change in demand is likely to continue, probably accelerate.

He makes the case that rail transit is what makes these neighborhoods work. As he writes: Urban spaces of the kind that people want today feature mixed-use zoning and lots of stores and parks within walking distance. But most of all, they feature good public-transit options—usually rail lines.

Rail transit is a key ingredient to creating the kind of walkable neighborhoods consumers are demanding. And it’s those neighborhoods that are key to retaining and attracting talent that increasingly is the asset that matters most in growing a knowledge-based economy. In the article Leinberger has some interesting out-of the-box ideas on providing incentives to developers to pay for rail transit. Worth thinking about.

But so is a change in state transportation policy. Away from either letting our transportation system crumble (our current path) or more and more funding for new roads (the current proposals) and towards transit along with walking and biking. With an emphasis on rail. Hard to imagine our regrowing a prosperous Michigan without these kind of public investments.

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Their own report shows how untrue that is. They only provide data for ten states that they designate as comparison states for Michigan. The ten (in the order they list them) are: North Carolina, Massachusetts, California, Texas, Illinois, Alabama, Tennessee, Georgia, Indiana and Ohio.

Of the comparison states the one with the lowest business cost score is North Carolina, 14% below the national average. The two comparison states with the highest business cost scores – far higher than Michigan – are California and Massachusetts (18% and 17% above the national average). If they are right that Michigan’s moderately high business costs are the chief cause of Michigan’s economic decline, then Massachusetts and California should be in ever worse shape and North Carolina should have one of the nation’s best economies.

The exact opposite is the case! Their two highest business costs states are the only comparison states in the top ten nationally in per capita income and North Carolina is thirty fifth. The differences: per capita income in Massachusetts $16,000 higher than North Carolina, California $8,000 higher.

So what about per capita income growth rates? (Some – including Business Leaders for Michigan – argue that Michigan should benchmark itself against high growth states.) From 2001-2008 Massachusetts ranks 24th, California 33rd and North Carolina 44th.

How about the metric that most of the public uses to measure economic success – the unemployment rate? In February 2010 Massachusetts 9.5%, North Carolina 11.2%, California 12.5%.

Lets look at all ten comparison states. North Carolina is one of seven below the national average in their business cost scores. Of the seven all are below the national average in per capita income. Six – Texas at 26th being the exception – are in the bottom twenty.  The tenth state is Illinois whose business cost score is at the national average. It is 14th in per capita income.

The three comparison states with the highest business costs scores are the three states with the highest incomes – by far.  So much for low business costs being the key to Michigan’s economic revitalization!

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