Manufacturing a liability?

Michigan political leaders, on a bi-partisan basis, have made manufacturing the lynchpin of their plans for restoring Michigan to prosperity.

No question manufacturing––high paid factory jobs––was the key ingredient to Michigan being one of the most prosperous places on the planet for most of the Twentieth Century. The question is “can it be the driver of Michigan prosperity in the 21st Century?” The evidence is compelling that the answer is no!

(To be clear manufacturing means work done in factories. Workers in management as well as pre- and post-production occupations in such important Michigan industries as motor vehicles, office furniture, and chemicals are no longer considered part of the manufacturing industry. They are now accounted for in the knowledge-based industries, primarily in management of companies and professional and technical services.)

University of Michigan economist Don Grimes and I are working on our latest report on the Michigan economy. This time looking at the changes in the American economy over the past two decades. From 1990 – 2011.

In 1990 Michigan had the second highest concentration of per capita income coming from manufacturing employment earnings (wages and benefits). 20.6% compared to 12.8% for the U.S. The state’s per capita income was close to the national average: $31,552 compared to $33,309 (in $2011).

Fast forward to 2011. Michigan is still one of the nation’s leaders in manufacturing, ranking third in the concentration of per capita income coming from manufacturing employment earnings. But now it accounts for only 11.7% of the state’s per capita income compared to 7.3% nationally. And the state’s per capita income has fallen from $1,757 below the national average to $5,296 below. Manufacturing employment earnings per capita accounting for $2,264 of the $3,539 under performance compared to the nation.

So being over concentrated in manufacturing was not the path to prosperity for Michigan the past two decades. In fact, it was the opposite. Michigan was second to last in per capita income growth from 1990 – 2011. (Only Nevada was worse.)

The new reality is that manufacturing is no longer a source of lots of high paid jobs. Nor is it a source of future job growth. Manufacturing accounted for nine percent of the American workforce in 2011. It accounted for 32 percent of the nation’s jobs in 1953 and 14 percent in 1998. Manufacturing’s share of American jobs has been declining for a long-time. In Michigan, manufacturing employment fell from 852,000 in 1990 to 534,000 in 2011. Factory jobs are now 12 percent of the Michigan workforce. At the same time, the collapse of the domestic auto industry brought an end to high-paid unionized assembly jobs that had been the back bone of Michigan’s 20th Century middle class.

Conventional wisdom seems to be that Michigan is entering another golden age of manufacturing. The collapse of the last decade a thing of the past. Don’t believe it! From 2011 through August 2013––latest available data––Michigan has added 31,000 factory jobs. Still 52,000 below 2007––the year before the start of the Great Recession. Good news, but not the foundation of a Michigan characterized by more and better jobs.

Michigan’s slow growth in knowledge-based industries –– the growing and high wage part of the economy –– is the main reason the state has fallen to 36th in per capita income. The path to 21st Century prosperity is clearly knowledge-based (including pre and post production work in industries like autos and office furniture.) The lesson we most need to learn is: what made us prosperous in the past, won’t in the future.

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