Lessons from Metro Pittsburgh

Many in Michigan seem to believe that the decline of the domestic auto industry and more generally the loss of so many high-wage factory jobs, means that the state will never again be prosperous. We disagree!

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.

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