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.

The post Explaining Michigan’s economic well-being decline appeared first on Michigan Future Inc..

Terrific op ed in Crain’s Detroit Business by Glenn Stevens Jr., executive director of MICHauto and Britany Affolter-Caine, executive director of Michigan’s University Research Corridor. They write:

The most successful strategy to ensure Michigan’s long-term competitiveness and economic prosperity is to increase the number of workers with college degrees and with digital skills in professions at all levels and across all industries in Michigan, while making our communities attractive places to live and work.

… Michigan won’t be the prosperous state we envision together without these deeper and more long-term investments. Short-term incentives, while important in the moment, are not going to be enough to get us to where we need to be. Pursuing manufacturing jobs is important, but Michigan also must compete for knowledge-based jobs, which are the ones that are growing in today’s economy. To win knowledge-based jobs, we need to re-invest in higher education, move more university discoveries to market, increase people trained in high-tech at all levels, retain them, and invest in our communities so they are attractive places to live, work and play.

Exactly! As we have detailed, incentives to retain and attract manufacturing jobs cannot be the core strategy to return Michigan to high-prosperity. Big incentives are the icing on the cake, not the foundation of recreating a Michigan economy with a broad middle class. That is because, as Glenn and Britany note, knowledge-based occupations are now the growing, high-wage occupations.

As we have documented Michigan has a two-tier labor market: one tier of occupations where fewer than 10 percent of the jobs require a B.A. and a preponderance of jobs pay below what it takes to be middle class; and a second tier for occupations where more than 65 percent of the jobs require a B.A. and a preponderance of jobs pay more than what is required to be middle class.

The high-wage occupations are: • Architecture and Engineering • Arts, Design, Entertainment, Sports, and Media • Business and Financial Operations • Community and Social Service • Computer and Mathematical • Educational Instruction and Library • Healthcare Practitioners and Technical • Legal; • Life, Physical, and Social Science and • Management.

Combined these knowledge-based occupations account for 33.7 percent of the nation’s payroll jobs in 2020. Up from 28.1 percent in 2000. By contrast production (blue collar factory) jobs have declined from 9.6 percent of the nation’s payroll jobs in 2000 to 6.1 percent in 2020.

The high education attainment/high-wage occupations are 32.8 percent of Michigan’s payroll jobs. By comparison they are 42.3 percent of Massachusetts’ payroll jobs. Massachusetts is the prototypical high-prosperity/high knowledge-based economy state: second in per capita income and first in the proportion of adults with a B.A. or more.

The table at the bottom of this post details the annual average wage for the ten high education attainment major occupations plus production for the U.S., Michigan and Massachusetts. And the location quotient for those occupations for Michigan and Massachusetts.

(The location quotient is the ratio of the area concentration of occupational employment to the national average concentration. A location quotient greater than one indicates the occupation has a higher share of employment than average, and a location quotient less than one indicates the occupation is less prevalent in the area than average.)

Nationally the ten knowledge-based major occupations, with the exception of Community and Social Services, have average wages above the average for all jobs. Most substantially above. Production has an average wage 25.9 percent below the average for all jobs.

As you can see in the table, the knowledge-based occupations are also high-wage in Michigan, although lower than the nation and even farther behind Massachusetts. That is particularly true for Computer and Mathematical jobs where the average wage in Michigan is $15,000 lower than the nation and more than $24,000 lower than in Massachusetts.

Just like the nation, production jobs in Michigan are below average wage jobs: more than $10,000 lower than the state average for all jobs and more than $13,000 below the national average for all jobs.

Michigan is under concentrated in employment compared to the nation in all the knowledge-base occupations except for Architecture and Engineering and Healthcare Practitioners and Technical. By contrast, Massachusetts is over concentrated in employment compared to the nation in all the knowledge-base occupations.

Michigan’s under concentration and lower average wage in these knowledge-base major occupations are a major reason why Michigan’s employment earnings (wages and employer paid benefits) per capita are 16.8 percent below the nation. In 2000 Michigan’s employment earnings per capita were one percent above the nation’s. By contrast Massachusetts’s employment earnings per capita are 37.8 percent above the nation’s.

As Glenn and Britany wrote, the data are clear: the path to recreating a high-prosperity Michigan is an economic development strategy focused on competing for high-wage/high-growth knowledge-based jobs.

The post Michigan’s lack of jobs in high-wage occupations appeared first on Michigan Future Inc..

But the notion that states such as Ohio are dependent on manufacturing jobs returning is one with which he vehemently disagrees.

“Manufacturing is still very important to us, but we are much more diversified state,” he said. “And furthermore, anybody that says the steel mills are coming back to Youngstown is not telling the truth. They’re not coming back. You could have some aspects of advanced manufacturing appear. But if you look even at Pittsburgh, where I grew up, you’ve now replaced steel jobs with technology jobs, and they pay better.”

“So, I know that, you know, leaders have to lead,” Kasich continued. “I don’t read polls to decide what I’m going to do. But for the best interest of the people of our state, having a big mix of technology, healthcare, IT, financial services, and manufacturing is the ticket. To put all of your eggs in one basket is silly. We did that for a long time and I don’t think it’s very smart.”

Exactly! Yes it would be better for lots of workers if we could recreate the high paid factory-based economy of decades ago. But we can’t. In part because of globalization, but increasingly due to smart machines doing the work that workers used to. And smarter and smarter machines are going to continuously do more and more of the work required to make products.

So as Kasich states the middle class jobs of today, and even more so tomorrow, are going to be in knowledge-based industries. One can add education and professional services to his list of technology, healthcare, IT, and financial services.

The lesson we need to  learn, and align with, is that what made us prosperous in the past, won’t in the future. But learning and acting on that lesson is made harder when politicians, of both parties, campaign on bringing back the old factory-based economy. No matter what they promise and no matter what their agenda is manufacturing as a proportion of the American workforce will continue to structurally decline as it has for a half century.

Michigan needs politicians from both parties to have the courage to deliver a message similar to Kasich. Clearly denying the reality that lots of high-paid factory jobs that anchored Michigan’s 20th Century prosperity are not coming back is what many want to hear. But its what we need to hear. So that Michiganders and the state can get on with the difficult transition to a knowledge-driven economy. Its the only path back to a high-prosperity Michigan.

The post Kasich on economic realities appeared first on Michigan Future Inc..

Lets look at data to see if that conventional wisdom aligns with today’s Michigan labor market. Using the American Community Survey we looked at employment and median wages by occupational cluster in Michigan in 2014. They break occupations down into five broad categories:

• Management, business, science and arts occupations
• Service occupations
• Sales and office occupations
• Natural resources, construction and maintenance occupations
• Production, transportation and material moving occupations

The first category being predominantly professionals and managers. The occupations where those with a bachelors degree or more are heavily concentrated. Although technical occupations in fields like health and IT are included in this cluster as well. The services occupations includes police and fire protection which most would think of as more like the professional and manager cluster rather than the low wage, low skill service fields––healthcare support; food prep and serving; cleaning and maintenance; and personal care and services––they are included with.

Lets look at employment first. Below are the total employment and full time year round employment for each of the five occupational clusters. There are 4,448,000 employed Michiganders. 2,914,000 (65 percent) of them working full time year round.

• Management, business, science and arts occupations: 1,568,000 total employment; 1,175,000 full time year round
• Service occupations: 798,000 total employment; 350,000 full time year round
• Sales and office occupations: 1,024,000 total employment; 628,000 full time year round
• Natural resources, construction and maintenance occupations: 349,000 total employment; 247,000 full time year round
• Production, transportation and material moving occupations: 708,000 total employment; 513,000 full time year round

The proportion of full time year round workers is as follows:

• Management, business, science and arts occupations: 40.3%
• Service occupations: 12.0%
• Sales and office occupations: 21.6%
• Natural resources, construction and maintenance occupations: 8.5%
• Production, transportation and material moving occupations: 17.6%

Now lets look at pay. The median wage for all Michigan full time year round workers is $43,685. Median wages for year round full time workers by occupational cluster are:

• Management, business, science and arts occupations: $61,674
• Service occupations: $25,920
• Sales and office occupations: $36,559
• Natural resources, construction and maintenance occupations: $43,386
• Production, transportation and material moving occupations: $36,598

The last two clusters best capture the blue collar occupations that historically were the core of Michigan’s middle class. They now account for 26.1 percent of Michigan full time year round jobs. (23.8 percent of all jobs). Median wages are below the median for all full time year round Michigan workers. Around $20,000 a year lower than those in management, business, science and arts occupations.

Since manufacturing is so emphasized in our conversations about the economy and politics, its worth highlighting that there are now 337,000 full time year round production workers with a median wage of $36,598. Nearly $7,000 below the median wage for all Michigan full time year round workers. Production workers are 11.6 percent of Michigan’s full time year round workers and 9.6 percent of all workers.

Finally, what about STEM occupations? There are 258,000 computer, engineering and science workers; 219,000 working full time year round. The median wage for those full time year round workers is $72,442. Healthcare practitioner and technical occupations have 187,000 workers; 131,000 full time year round. The median wage for those full time year round workers is $67,089.

Combined these two sub clusters are a good proxy for STEM workers in the Michigan economy. They are high wage occupations. Combined they account for 12.0 percent of Michigan’s full time year round workers. (Ten percent of all Michigan workers.) And 28.3 percent of full time year round workers in all management, business, science and arts occupations.

The non STEM management, business, science and arts occupations employ 825,00 full time year round workers. With median wages by sub cluster of:

• Management, business and financial occupations: $64,292
• Education, legal, community service, arts, and media occupations: $51,921

The data are clear: Yes STEM occupations have the highest wages and employ lots of Michiganders. But there are far more jobs in non STEM professional and managerial occupations and they are high wage too.

Although it is masked in this data, of course, there are good paying occupations that don’t require a four year degree. But far fewer and at lower median wages than conventional wisdom would have it. The new reality is that the mass middle class in Michigan and America today and, almost certainly, more so in the future, are professionals and managers in all fields. And that getting a four year degree is the most reliable path––no guarantees––to those good paying jobs.

The post Michigan jobs and pay by occupation appeared first on Michigan Future Inc..

Over those three years, California’s job growth has exceed the U.S. average by a substantial amount. California employment growth in the past three years: 2.5%, 2.9% and 2.3%; U.S. growth during same periods: 1.6%, 1.7%, and 1.9%.

What might be even more interesting and important for Michigan is the breakdown of the job growth by sector. California achieved this faster than the nation job growth even though its manufacturing sector was substantially lagging the growth in the U.S. and was actually losing jobs the past two years: California manufacturing employment growth for the three years: 0.5%, -0.3%, -0.3%; compared to U.S. manufacturing growth of 1.9%, 0.4%, 1.1%.

California’s recent out performance can be traced to a stronger rebound in construction, but mostly to much stronger job growth in professional and technical services, corporate headquarters and health care services. In the two big job-growth, knowledge-based sectors California increased professional and technical service employment by 5.8%, 3.7%, 3.6% ; compared to 2.7%, 3.0%, 2.9% for the nation. In private health service California employment grew 3.5%, 7.2%, 4.1%; compared to 2.1%, 2.4%, 1.9% for the U.S.

The strong job gains in these highly paid, highly educated sectors seem to also support stronger job growth in retail trade and restaurants and bars than in the U.S. overall.

This is consistent with the trends we have been reporting on in our annual reports and detailed in our recent The New Path to Prosperity report. Growth is occurring in knowledge-based services which tend to be higher wage which drives employment increases in retail and hospitality which are low wage. The lesson is clear, if states and region are going to grow and be prosperous, unless they have major oil and gas deposits, this is what it will look like. Manufacturing isn’t a sustainable growth option and the rest of the goods producing sector on a structural basis is not going to grow much either.

Two lessons from California seem important for Michigan to learn:

1. You don’t need job growth in manufacturing to thrive.
2.  It’s not all about taxes. You can be a prosperous state even if you have relatively high taxes, or more generally business costs, if you can grow the knowledge economy. If Michigan can grow its knowledge economy, as we have been advocating, then it doesn’t matter if manufacturing and other cost sensitive sectors move to lower cost states – Michigan will still thrive

The post California’s growth explained appeared first on Michigan Future Inc..

The new stamping plant will join another GM stamping plant and two assembly plants in the region. Lansing is among the national leaders in auto manufacturing. So the region becomes a good test case for whether being a manufacturing center is still a path to prosperity.

It clearly was the case in the 20th Century, particularly in Michigan. Michigan was one of the most prosperous places on the planet last century largely because we were where high-paid factory work was concentrated. Those workers were the core of America’s mass middle class.

But that is no longer the case. Why? Lets start with the new stamping plant announcement.  Big investment in capital ($162 million) but few jobs (65). Manufacturing is increasingly a capital, not labor, intensive activity. Manufacturing is now primarily done by machines, not humans. Add to that, as we explored in a recent post, auto manufacturing jobs are no longer high paid work.

Today, and almost certainly more so in the future, good-paying job growth is coming in the American economy in knowledge-based work. This trend holds true in the auto industry. Ford recently announced its largest capital investments in decades. Of the 5,000 new job that go with those investments, 3,300 are in salaried positions. As Crain’s Detroit Business reported:  “More than 80 percent of the new salaried jobs will be technical professionals who work in product development, manufacturing, quality and IT, a company statement said.”

Metro Lansing has been and continues to be a successful auto manufacturing center. But the results in terms of regional prosperity is very different today than in past. In 1970 metro Lansing had a per capita income one percent above the nation’s. In 1990 it had fallen to 10 percent below the nation. In 2000 it had fallen to 12 percent below. And in 2012 it is 17 percent below the nation. Clearly the 65 new stamping plant jobs won’t change that trend.

Contrast metro Lansing with metro Madison, Wisconsin. Also a state capital and home to a major research university. It historically has been more prosperous than metro Lansing. But what is stark is how much better it has done since the turn of the century. In 2000 it had a per capita income nine percent about the nation’s (compared to metro Lansing at 12 below). Today it is 35 percent above the national average (metro Lansing have fallen further to 17 percent below.) Per capita income in Madison since 2000 has risen about $15,000 compared to about $12,000 nationally and nearly $9,000 in Lansing.

The reason for Madison’s superior performance is its economy is a leader (particularly for a smaller metropolitan area) in the growing knowledge-based economy. Its knowledge-based concentration leads to far greater prosperity than metro Lansing’s auto factory concentration.

This is the lesson metro Lansing and the state of Michigan need to learn. Of course, Michigan should continue to seek to be a global center of auto manufacturing. But the economic development priority for the region and state, if we want to be prosperous, is in the knowledge-based economy,  including the knowledge-based portions of the auto industry.

The post Lansing and General Motors appeared first on Michigan Future Inc..

But, as she writes, auto factory jobs can never again drive a prosperous Michigan economy: “But automotive investments still are front of mind, even though the new jobs that the auto industry is going to create now are a fraction of the 500,000 lost to the recession. Their economic value to these communities is far less than the jobs that were lost, given lower starting wages and fewer (if any) benefits.” Rather she continues:

As the economy recovers, there’s a very narrow window for these cities and states to shake the impression that ‘all we are’ is autos, or steel, or mining. I’ve been hearing my entire life about the need for this region of the country to diversify, and now the opportunity is finally here. Rather than seizing the moment, I fear my state is poised to wake up five years from now and somehow be surprised to find that auto sales haven’t rebounded to the levels of the 2000s. Or for that matter, that crucial infrastructure repairs still aren’t funded because of continued of budget cuts. Then, perhaps, someone will say, “Maybe we should have tried” this or that, instead of re-embracing the same old, same old. My advice to these industrial cities and states: don’t give in to the temptation to build your future based on your past. Keep focusing on what you can create anew, not recreating what was once there.

This, of course, has been the central theme of our work since our founding in 1991. That what made us prosperous in the past, won’t in the future. Not because of misguided federal and/or state policy, but because globalization and technology are reducing the need for American factory workers and lowering  wages for those who remain on the assembly line.  Just like technology at the dawn of the 20th Century dramatically and permanently reduced the need for American farm workers. No matter how much policy makers –– of both parties –– have tried to support agriculture, it has not brought farm jobs back. The same is true for factory jobs. As I wrote in an earlier post factory work in America is going the way of American agriculture: highly productive, with far fewer, mainly higher skilled, workers.

In a terrific New York Times article Eduardo Porter explains: Much of the anxiety about factory jobs is based on the misconception that job losses have been due to a sclerotic manufacturing sector, unable to compete against cheap imports. Until the Great Recession clobbered the world economy, manufacturing production was actually holding its own. Real value added in manufacturing, the most precise measure of its contribution to the economy, has grown by more than two thirds since its heyday in 1979, when manufacturing employed almost 20 million Americans — eight million more than today. American companies make a smaller share of the world’s stuff, of course. But what else could one expect? Thirty years ago China made very little of anything. Today its factory output is almost 20 percent of world production and about 15 percent of manufacturing value added. What’s surprising is how little the United States lost in that time. American manufacturers contribute more than a fifth to global value added. Manufacturers are shedding jobs around the industrial world. Germany lost more than a fifth of its factory jobs from 1991 to 2007, according to the United Nations Industrial Development Organization, about the same share as the United States. Japan — the manufacturing behemoth of the 1980s — lost a third. This was partly because of China’s arrival on the world scene after it joined the World Trade Organization in 2001. Since then, China has gained nearly 40 million factory jobs. But something else happened too: companies across the developed world invested in labor-saving technology.

University of Michigan economists George Fulton and Don Grimes have just completed for the Michigan Department of Transportation projections for the state through 2040. From 2010 through 2040 they project: “At the other end of the spectrum is manufacturing, which declines on average by 0.49 percent per year. This does not mean that the output of local manufacturing firms will decline; indeed, we are forecasting an increase in manufacturing output. But because productivity growth in manufacturing is relatively high, employment declines despite the expansion of output.” The worse job performance of the eight sectors they analyzed. The sector is projected to produce more, continue to be an important component of the Michigan economy, but with fewer and fewer workers.

As Maynard writes defining ourselves by what we did in the past is a recipe for decline. The path to growth and prosperity is to get aligned with where future growth will occur. And in an economy being reshaped by globalization and technology that is increasingly the knowledge-based sectors of the economy. Which includes pre and post production work of companies that make products. As Porter writes in his Times article:

More important, perhaps, manufacturing is not the nation’s only cutting-edge industry. Many of the most innovative firms are not manufacturers but service companies. Apple is very competitive. But so are the companies that design applications running on its iPhones and iPads. Hollywood studios and marketing companies are big exporters. These firms need highly trained workers and pay high wages. … Innovation — not manufacturing —has always propelled this country’s progress. A strategy to reward manufacturers who increase their payroll in the United States may not be as effective as one to support the firms whose creations — whether physical stuff or immaterial services — can conquer world markets and pay for the jobs of the rest of us.

The post Hanging on to the past: not smart! appeared first on Michigan Future Inc..

So anyone who hopes that a combination of less government and weaker unions the Rs are offering as a solution to the economy will get us back to the economy of the late 90s or whenever in the past we think things were good is going to be disappointed. That economy is gone forever. The mega forces that are altering the economy – globalization and technology – are far more powerful than politics/policy. The era – in large part invented here – of a broad American middle class anchored by high paid factory jobs is never coming back. The fact is that what made us prosperous in the past, won’t in the future!

At the turn of the last century something like half of Americans lived and worked on farms. For more than a century, on a bi-partisan basis, we have tried to prop up the agriculture economy. We are still trying. It is probably the most heavily subsidized sector of the economy. The result: fewer than 2% of Michiganians and Americans work on a farm. In good times and bad times, when the Ds and when the Rs were in charge of Lansing or Washington, farming declined as a share of the American economy. Pro-farm policy was trumped by larger forces. One of the most important of which was machines doing the work humans used to do.

The same is true for factory jobs. In the Fifties something like one third of Americans worked in a factory. Today it is around 10%. All the projections are that as a share of the American workforce factory jobs will continue to decline. Michigan, which has historically been far more concentrated in factory work, is now around the national average. Just like in agriculture, in good times and bad times, when the Ds  and when the Rs are in charge of Lansing or Washington, factory work has and will continue to decline as a share of the American economy. Elections cannot change that trend.  Globalization and technology are the cause, not bad policy!

The loss of factory jobs is part of a larger trend: the decline of good paying, low education attainment  jobs. A broad middle class built on high paid blue collar jobs is gone forever. Neither party, no matter what their platform, can reverse that new reality. The challenge for policy makers is do they spend their time and resources trying to reverse irreversible trends – which is what most voters want – or do they focus on better positioning their constituents for the economy that globalization and technology are creating.  Tough choice. But what is clear is that the first path has no chance of succeeding, the second might.

The post What the Election Can’t Change appeared first on Michigan Future Inc..

The best evidence of the possibilities of making the transition to a new economy and back to prosperity probably comes from the experience of metropolitan Pittsburgh. Its past successes were largely the result of its dominant 20th century industry – steel. Like autos here, steel provided lots of high-paid factory jobs.

In our latest progress report we looked at data for metro Pittsburgh from 1969-2008. Its per capita income peaked compared to the nation over that period in 1977 at 104 percent of the national average. That year primary metals manufacturing (the industry that includes steel) accounted for 14 percent of the employment earnings of the region. And all of manufacturing accounted for 34 percent of the region’s employment earnings, compared to 25 percent nationally.

It’s the prototypical 20th century economic success story. If you were over-concentrated in manufacturing – particularly high-wage factory work – you were more prosperous than the nation. But then steel collapsed in metro Pittsburgh. Its firms were no longer competitive.

By 1985 primary metals were only 6 percent of the region’s employment earnings – a nearly 60 percent decline in share of earnings in just eight years. And all of manufacturing had fallen to just about the national average, accounting for 24 percent of the region’s employment earnings. As you would expect per capita income tumbled along with the decline in steel, from 4 percent above the national average to 3 percent below.

Primary metals and all of manufacturing continued to decline as a share of metro Pittsburgh’s employment earnings. But it didn’t consign the region to permanent low- prosperity status. By the 1990s Pittsburgh was at or above the national average in per capita income even though primary metals accounted for only 4 to 5 percent of employment earnings and 17 to 19 percent for all of manufacturing. In 2008 Pittsburgh returned to its previous peak compared to the nation—104 percent of the national average. Of the 55 metropolitan areas with populations of a million or more, it ranked 16th and was more prosperous than Dallas, Raleigh/Durham, Austin, Portland and Atlanta.

Consistent with other prosperous regions, Pittsburgh is above the national average in the proportion of adults with a four-year degree and share of wages from knowledge-based industries. In the city of Pittsburgh 34 percent of its residents have a bachelor’s degree. And it is attracting talent. From 2007 to 2008 the region had a net increase of adults with a bachelor’s degree of more than 5,600.

The metro Pittsburgh story is not a fairy-tale success. It didn’t happen overnight and there was a lot of pain in the transition. It certainly took a long time for the region to regain its prosperity – more than 30 years. And obviously a lot of folks who had enjoyed a high standard of living working in the steel industry never again earned as much. The region also suffered a large population decline. Metropolitan Pittsburgh’s population fell from 2.79 million in 1977 – its peak income year in the steel heyday – to 2.45 million in 2008. That’s a decline of 340,000, or 12 percent.

But that said, it is a success story. By making the transition from a factory-based economy to a knowledge-based economy, Pittsburgh has regained its status as one of the nation’s most prosperous regions.

The Pittsburgh experience probably better than any offers hope for Michigan. Losing a dominant industry as well as a substantial reduction in high-paid manufacturing work does not consign a state or region to permanent low prosperity. There is a way back. But it involves aligning with – rather than resisting – the new realities of a flattening world.

The post Lessons from Metro Pittsburgh appeared first on Michigan Future Inc..

That the kind of factory jobs that are going overseas are not the kind of jobs Americans need– far too low wage – and even if they were there is little policy makers can do to keep them here. Enacting tariffs – which Grove recommends – to raise the cost of work done overseas would most likely lead to retaliation from the very countries we want our companies to sell to.

Wadhwa advocates instead policies that will help America create what’s next and prepare workers for those enterprises. His agenda includes expanded training, encouraging entrepreneurship, recruiting high skill immigrants, commercializing university research and matching incentives offered by other countries to keep company R&D here. Except for the last item, pretty consistent with what we and many others, who believe American prosperity is tied to making the transition to a knowledge-based economy, advocate.

We aren’t arguing that the loss of factory jobs – particularly those that are high paid – is a good thing. But rather that it is a new reality. America no longer has a competitive advantage in routine factory work and more advanced manufacturing is mainly done by machines so it needs far fewer workers. Grove doesn’t deal with how, even with tariffs, America can recreate a broad high paid manufacturing base.

What Wadhwa doesn’t deal with is Grove’s argument that without lots of factory jobs – particularly in high tech industries – America will not have enough jobs. Grove writes: You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?

This is the great unknown. Will a knowledge-based economy (particularly one that is less dependent on borrowing) create enough jobs so that we are not faced with chronic high unemployment? And will that economy  create enough high paid jobs to support a broad middle class? America’s history is that it has come through each economic transition more prosperous. Michigan became a high income state for most of the last century because it led the way in the transition from a farm based to a factory based economy.

Our core belief is that the same will be true in the current transition. We lose factory jobs, but gain both knowledge and service jobs and are prosperous again.That is not to say that some people won’t get hurt. They will. Major economic shifts not only make some companies obsolete but they also make the skills some bring to the labor market worth less. So they either have to get new skills (which is hard for many) or their standard of living declines. The task then for policymakers is a combination of aligning with new realities to grow the economy as Wadhwa recommends as well as help those hurt by the transition.

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