Michigan targeting declining sectors

MiBiz asked Governor Snyder in a year end interview “Looking ahead to the next legislative session, what’s on your agenda to further improve the state’s business climate?”

The Governor’s response: “Number one would be career tech education for the skilled trades. If you look at it, people know about (becoming a) welder, plumber and electrician. Those are great careers. But now the skilled trades really define most people in manufacturing and agriculture in terms of needing additional training. We have tens of thousands of open jobs that are critically important for business to be successful.”

Lets leave aside whether or not there really are labor shortages in those skilled trades and if there is whether its primarily up to employers or government/education to solve the problem. (You can explore our thinking about those topics here and here.) What I want to focus on here is the sectors that the Governor has identified in his answer above as his number one priority: construction (“welder, plumber and electrician”), manufacturing, and agriculture.

These industries are the goods producing sectors (along with mining, forestry and commercial fishing) of the economy. Everything else is classified as service providing sectors. In our last report––THE NEW PATH TO PROSPERITY: LESSONS FOR MICHIGAN FROM TWO DECADES OF ECONOMIC CHANGE––Don Grimes and I detail the change in employment and employment earnings in those sectors since 1991.

The bottom line is clear: goods producing industries declining, service providing industries growing. The data in the report is from 1991 through 2011. (The basic trends have not changed during the last three years.) Over those two decades the good producing sectors of the U.S. economy lost 4.3 million job and fell from 21.9 percent of employment to 14.8 percent. In contrast employment growth in private (non government) services accounted for all the job growth in the country and then some, growing by 38.7 million out of total employment growth of 37.5 million. Private services grew from 62.8 percent of U.S. employment to 71.4 percent.

When it comes to employment earnings (wages and employer paid benefits) per capita the trend away from the goods producing sectors of the economy is even clearer. Goods producing sectors accounted for 31.0 percent of private sector employment earnings in 1991 and 21.6 percent in 2011. Declining in 2011 dollars by more than $1,000 (16 percent) over the two decades. In contrast private services employment earnings per capita grew in 2011 dollars by more than $5,000 (37 percent) and now account for 78.5 percent of private employment earnings per capita.

In the report we distinguish between knowledge-based private services and other private services. Because knowledge-based services are both growing and where high paid jobs are increasingly concentrated. If Michigan wants to realize the more and better jobs that Governor Snyder has identified as the state’s economic goal knowledge-based services are the sectors that matter most.

We define private knowledge-based services to include private health care and social services; finance and insurance; information; professional services; and management of companies. (If you include government education would be included as a knowledge-based service.)

Private knowledge-based services employment over the two decades grew by 55 percent (compared to 39 percent in other private services). Employment earnings per capita in 2011 dollars grew by 52 percent (compared to 23 percent in other private services).

In the report Don and I write: “Notwithstanding the current auto-recovery-driven factory jobs rebound here in Michigan, the long term trends are clear: The defining characteristic of those places with the most prosperous economies today—and almost certainly even more so in the future—is their concentration in the knowledgebased sectors of the economy.”

Growing these sectors should be the state’s top economic priority. It is, by far, the most reliable path back to a prosperous Michigan.



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