Minnesota and Michigan II

Don Grimes and I are putting the finishing touches on our new report. The topic is the transformation of the American economy over two decades: from 1990 to 2011. Taking that long term view reveals patterns clearly. And the differences that Minnesota and Michigan have traveled is both stark and revealing of what we have to do to return to prosperity.

Minnesota has out performed Michigan in employment, personal income and private sector employment earnings per capita over the two decades. Its not close

  • From 1990-2011 employment grew in Minnesota by 29 percent compared to 7 percent in Michigan.
  • Minnesota today has a far lower unemployment rate: 5.1 percent compared to 9.0 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! Minnesota’s 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 $7,400 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 $1,000, 21 percent of the state’s per capita income growth.

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).

From 1990 – 2011 the basic trend is the decline of a factory-based economy. Manufacturing nationally becoming a smaller and smaller proportion of the American workforce and experiencing steep declines in real employment earnings per capita. While knowledge-based services 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. But it still is the only sector that saw a real employment earnings decline.

Clearly the driver of Minnesota’s out performance compared to Michigan (and the country) in real private sector employment earnings per capita came from knowledge-based services (health care and social assistance; information; finance and insurance; professional services; and management of companies). 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 benefiting from high energy prices.)

Manufacturing is experiencing a long term structural decline that almost certainly is irreversible. The sector no longer is the source of mass middle class jobs––both because wages and benefits no longer carry the premium they did decades ago compared to the rest of the economy and the sector employs a far smaller proportion of the American economy.

As work done in factories has declined what has grown are services. Both in absolute and relative terms. Particularly knowledge-based services. It is almost certain that––predominantly because of globalization and technology––that the path back to a prosperous Michigan depends on growth in knowledge-based services. Those sectors are now, and are likely to be even more so in the future, the core of realizing the more and better jobs Governor Snyder has identified as the state’s economic goal.

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