From factories to knowledge-based III
Lets complete our exploration of the changing structure of the American economy with a look at the Great Lakes State which is doing best on the “more and better jobs” goal that Governor Snyder has set: Minnesota. The different path it and Michigan have traveled the last two decades clearly demonstrates the path to prosperity in a flattening world: one driven by the mega forces of globalization and technology.
From 1990-2011 employment grew in Minnesota by 29 percent compared to 7 percent in Michigan. Minnesota today has a far lower unemployment rate: 5.3 percent compared to 8.4 percent in the latest monthly statistics. More importantly, also a far higher employment to population ratio. In 2011 79 percent of Minnesotans between the ages of 25-64 year old were working compared to 67 percent in Michigan.
In 1990 per capita income in Minnesota and Michigan were close. $33,223 in Minnesota compared to $31,552 in Michigan. No more! Per capita income corrected for inflation grew by $11,337 compared to $4,712 in Michigan. Real private sector employment earnings per capita grew over those two decades in Minnesota by $7,352 accounting for 65 percent of the state’s per capita income growth. Compared to real private sector employment earnings per capita growth in Michigan of $982, 21 percent of the state’s per capita income growth.
Clearly Michiganders would be far better off today if the state had traveled the same path as Minnesota the past two decades. To some degree Michigan couldn’t have traveled that same path. For a century we enjoyed the benefits of being the center of the auto industry. And its near collapse the past decade is something no other state suffered through. Its a major part of what mired Michigan –– and no other state –– in a decade long recession.
But beyond the severe downturn in the domestic auto industry there are some clear lessons we can learn from states like Minnesota on how to return to prosperity. The question for Michigan is “how do we become, once again, one of America’s most prosperous states –– a place with a broad middle class?”
The answer lies in growing private sector employment earnings. Its the only sustainable driver of long term improvement in economic well being. The metric reflects both the number of folks working in the private sector (more jobs) and their compensation –– both wages and benefits (better jobs).
In the table below we detail the changes in private sector employment earnings per capita corrected for inflation in Minnesota and Michigan between 1990 and 2011. The basic trend that we have been exploring in this series is the decline of a factory-based economy. Manufacturing nationally becoming a smaller and smaller percentage of the American workforce and experiencing steep declines in real employment earnings per capita. While knowledge-based services (health care and social assistance; information; finance and insurance; professional services; and management of companies) grows –– both in employment and real employment earnings. That basic story clearly holds true in Michigan and Minnesota the past two decades.
Manufacturing employment earnings held up much better in Minnesota than the nation (down $298 compared to -$1248 for the country). But it still is the only sector that saw a real employment earnings decline. Clearly the driver of Minnesota’s outperformance compared to Michigan (and the country) in real private sector employment earnings per capita came from knowledge-based services. Growing $5,260 compared to $2,007 in Michigan (and $3,557 nationally). Knowledge-based services account for 72 percent of Minnesota’s real private sector employment earnings growth and nearly half (46 percent) the state’s per capita income growth from 1990-2011.
The data are clear: the absolute and relative increase in employment earnings per capita in knowledge-based services is a combination of strong job growth and those sectors are now the high wage sectors of the American economy. Knowledge-based services now are the center of mass middle class American jobs. The lesson Michigan needs to learn is also clear: 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, not factories or any other sectors of the economy (except those benefitting from high energy prices.)