(Edward McClelland explores this topic specifically about Michigan in a recent New York Times op ed. He cites our “The New Path to Prosperity: Lessons for Michigan From Two Decades of Economic Change” report as evidence that manufacturing jobs are not coming back to Michigan.)

This, of course, is the core finding of Michigan Future’s more than two decades research into how globalization and technology are changing the economy. The reality is that we have transitioned from a factory-based to a knowledge-based economy. There is no going back no matter which party is in control in either DC or Lansing. And no matter what the policy agenda.

The Times writes: Manufacturing retains its powerful hold on the American imagination for good reason. In the years after World War II, factory work created a broadly shared prosperity that helped make the American middle class. People without college degrees could buy a home, raise a family, buy a station wagon, take some nice vacations. It makes perfect sense that voters would want to return to those times.

From an economic perspective, however, there can be no revival of American manufacturing, because there has been no collapse. Because of automation, there are far fewer jobs in factories. But the value of stuff made in America reached a record high in the first quarter of 2016, even after adjusting for inflation. The present moment, in other words, is the most productive in the nation’s history.

Politicians of all persuasions have tried to turn back time through a wide range of programs best summarized as “throwing money at factory owners.” They offer tax credits and other incentives; some towns even build whole industrial parks, at taxpayer expense, so they can offer free space for manufacturers. By and large, those strategies haven’t helped. One of Trump’s keynote proposals is to encourage domestic production by taxing imports — an idea more likely to cause a recession than a manufacturing revival. Clinton is promising to basically extend the efforts of the Obama administration, which said it would create a million factory jobs. With just a few months left, the president is still more than 600,000 jobs short.

As we have write frequently it would be better if we could recreate a high wage, high employment manufacturing sector. Its what made Michigan one of the most prosperous places on the planet for most of the 20th Century. But those day are gone––largely because manufacturing is increasingly done by machines not workers.

This is the same path that agriculture followed a century earlier. And no matter how many promises candidates have made or how much public money policy makers have thrown at farming over that century farming now accounts for less than two percent of American jobs.

The Times article points us in the right policy direction. Working on raising the incomes of those who are in the jobs that people without college degrees actually hold in today’s and tomorrow’s economy. They ask:

According to the Bureau of Labor Statistics, there were 64,000 steelworkers in America last year, and 820,000 home health aides — more than double the population of Pittsburgh. Next year, there will be fewer steelworkers and still more home health aides, as baby boomers fade into old age. Soon, we will be living in the United States of Home Health Aides, yet the candidates keep talking about steelworkers. Many home health aides live close to the poverty line: Average annual wages were just $22,870 last year. If both parties are willing to meddle with the marketplace in order to help one sector, why not do the same for jobs that currently exist? 

Exactly! The American economy is now predominantly service providing. And will be even more so in the future. Knowledge-based services are high wage industries. But industries that predominantly employ those with low education attainment are low wage. If we are serious about raising the living standards of non college educated Americans we need policies that will raise employment earnings for those in those service occupations.

That means as the Times writes: “This myopic focus on factory jobs distracts from another, simpler way to help working Americans: Improve the conditions of the work they actually do. Fast-food servers scrape by on minimum wage; contract workers are denied benefits; child-care providers have no paid leave to spend with their own children.”

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Policy should be about what levers get you to where you are trying to go. And what the report says is that if your goal, as Governor Snyder has stated, is more and better jobs, the only realistic path to that goal is through being concentrated in knowledge-based services, not manufacturing. Or for that matter any other sectors. (Always with the oil and natural gas exception.)

The report doesn’t mention policy at all. It is exclusively about how the American economy has been transformed from 1990-2011–largely, we believe, due to globalization and technology. And how Michigan and Minnesota (the Great Lakes most prosperous state) have fared compared to the nation over those two decades. The facts are:

• Over the two decades manufacturing employment in the U.S. fell by nearly 5.8 million jobs, a decline of 32 percent. The share of workers in manufacturing fell from 13 to 7 percent.
• In contrast employment in knowledge-based services grew by nearly 16.5 million an increase of 55 percent. Knowledge-based services share of American employment grew from 21 to 26 percent.
• The change in employment earnings (wages and employer paid benefits) was even more pronounced. U.S. employment earnings per capita from manufacturing, adjusted for inflation, declined 29 percent over the two decades. The share of private sector employment earnings per capita from manufacturing fell from 21 percent to 12 percent.
• U.S. employment earnings per capita in knowledge-based service grew by 52 percent. The share of private sector employment earnings per capita from knowledge-based services grew from 33 percent to 41 percent, almost completely offsetting the decline in manufacturing’s share.

So the lesson we need to learn first and foremost is: The places that are doing best today and almost certainly will do the best in the future are those states and regions that are concentrated in knowledge-based services (private health care and social services; finance and insurance; information; professional services; and management of companies), not factories.

Minnesota has done substantially better than the country  since 1990 primarily because of their concentration in knowledge-based services. Michigan worse than the country because of our under concentration in those industries. Employment grew in knowledge-based services by 60 percent in Minnesota compared to 30 percent in Michigan. Private sector employment earnings corrected for inflation growth in the sector in Minnesota was 74 percent compared to 33 percent in Michigan.

Despite all the evidence to the contrary, on a bi-partisan basis, most Michigan political and economic leaders have made a revival of manufacturing the key to more and better jobs. We don’t think that is possible no matter what policy regime you implement. Bad policy is not the reason manufacturing employment and wages and benefits have fallen in both absolute and, even more, relative terms over the past two decades. No policy can overcome machines doing more and more of the work in factories or manufacturing jobs being done across the planet rather than primarily in the U.S.

The first lesson Michigan needs to learn is one about vision.Where do we want to go from here. If the goal is more and better jobs/a place with a broad middle class our vision needs to be becoming knowledge-based. Once we are on that path then it will be time to debate what are the policies that can help get us there.

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In an MLive article Rick Haglund reports on how far Michigan has fallen in terms of wages based on work by George Fulton and Don Grimes of the University of Michigan. Since 2000 Michigan has fallen in the private sector from a high to low wage state  Not the way you build a mass middle class.

Haglund writes: “Fulton and fellow U-M economist Don Grimes found that, in the first quarter of 2001, the average annualized private-sector wage in Michigan was $38,532 – almost $1,100 above the national average wage ($37,436). By the first quarter of 2012, however, the state’s average annualized wage of $47,465 had fallen $4,076 below the national average private-sector wage ($51,541).  Adjusted for inflation, annual private sector wages fell $2,488 in Michigan during the period, but rose $3,008 for all U.S. workers.”

Clearly the end of mass high wage auto factory work is a major reason for the collapse in private sector wages in Michigan. That is the old economy foundation that is over. But another reason for the state’s now low average private sector wages is Michigan’s industry mix. The state is under concentrated compared to the nation in the proportion of jobs in the knowledge-based sectors of the economy. Which are now the high wage sectors in the economy. (For details see our latest annual report on the Michigan economy.) As Haglund writes: ” … Michigan now has poorer mix of industries compared to the nation than it did a decade ago. “We have a disproportionately large share of relatively low-wage industries, probably mostly reflecting a relatively small share of the knowledge-economy industries,” Grimes said.”

Michigan will only be prosperous again if our economy moves from factory based to knowledge based.

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