Lets hope this isn’t “back”: wages

We ended our previous post on whether Michigan is back with the conclusion that the fundamental challenge Michigan is facing is too few good paying jobs. As the ALICE report authors put it we need: ” … a significant increase in the wages of current jobs or in the number of medium-and high skilled jobs in both the public and private sectors in Michigan.” Both would be even better.

As we have explored previously Michigan is now a low wage state. And until that changes Michigan will not be back to where we were for most of the 20th Century: one of America’s (and the planet’s) places with the broadest middle class.

Two new reports highlight how far and how fast we have gone from a high wage to a low wage state. The first is from the Michigan League for Public Policy, using data primarily from the Economic Policy Institute. Its entitled: Labor Day in Michigan Report: Pay Falls for Low-Wage Men yet Women Still Far Behind. Its main focus is on the gender gap, but it does provide a good overview of wages for all workers from 1979-2013 for Michigan and other Midwest states.

Real median wages in Michigan from 1979-2013 declined 12.7 percent. By far the worse of their seven midwest states. The next worse was Illinois at minus 4.7 percent. (Indiana, the state we are constantly told should be our model, was the third worst at -0.9 percent.) The best, not surprisingly, was Minnesota which saw median real wages since 1979 grow by 11.0 percent. A 23.7 percentage point difference between us and Minnesota in 34 years. In 1979, corrected for inflation, Michigan average median wage was $20.66 compared to $18.17 in Minnesota. In 2013 Michigan is now at $18.03 compared to $20.17 in Minnesota.

The other analysis comes from Paul Traub, business economist at the Detroit Branch of the Federal Reserve Bank of Chicago, entitled The impact of the changing structure of employment on wages in Michigan. Traub looks at employment and wage changes in Michigan from 2000-2013. Traub reports Michigan’s annual weekly wage in 2000 was five percent above the national average. In 2013 its five percent below.

Traub analyzes Michigan wages by sector compared to the country to try to figure out the causes of Michigan going from an above average wage state to below average from 2000-2013. What he finds is that the prime cause of Michigan becoming a low wage state is the changing structure of the Michigan economy.

Michigan’s 20th Century prosperity was built primarily on lots of high paid factory jobs. But since 2000 Traub found that manufacturing jobs in Michigan have declined by  37 percent and the sector’s wage premium compared to the country declined from 16 to 4 percent. (The story is the same in construction with job losses of 35 percent and a wage premiums decline from 15 to one percent.)

The big declines in manufacturing and construction jobs, has meant that Michigan’s economy is now more concentrated in services. And except for education and health services (where Michigan still enjoys a two percent wage premium), Michigan is really a low wage state: Information: wages 71 percent of the nation’s average; Financial Activities: 75 percent, Professional and Business Services: 89 percent; Leisure and Hospitality: 84 percent and other services: 86 percent.

In an economy that is increasingly services based, Michigan faces two challenges that must be addressed if we are to be a place––as was true for most of the 20th Century––where if you are willing to work hard you can earn enough to raise a family and pass on a better opportunity to your children. We need higher wages across all service industries. And, as we detailed in our New Path to Prosperity report, we need far more growth in the higher paying knowledge-based services. Too much of Michigan’s job growth for more than two decades has been in the lowest paying service industries.




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