Knowledge workers, not factory jobs, are key to prosperity

Michigan's economic prosperity has long depended on a strong manufacturing sector, but that no longer is the case, say researchers at U-M and Michigan Future Inc.

"Manufacturing, historically a high-wage industry, is viewed as an irreplaceable mass pathway to the middle class, although it now accounts for less than 17 percent of all jobs in Michigan," says Donald Grimes, an economist at the Institute of Labor and Industrial Relations, part of the Business School and School of Social Work.

"Fears that the decline of manufacturing employment will lead to substantial decline of middle-class jobs or an overall slowdown of the economy appear to be exaggerated, if not unwarranted."

New research by Grimes and colleague Lou Glazer, president of Michigan Future Inc., strongly suggests that a concentration of high-paying, knowledge-based industries, rather than manufacturing, is now the most reliable pathway to prosperity for Michigan and other states.

In fact, the data show that Michigan has done much better than the nation in manufacturing since 1990—losing jobs at a slower rate—but total employment in the state grew much more slowly than the rest of the country because Michigan has lagged far behind in creating both high-and low-paying service sector jobs.

In their study, "A New Path to Prosperity? Manufacturing and Knowledge-Based Industries as Drivers of Economic Growth," Grimes and Glazer compare Michigan's economic performance with those of other states from 1969 to 2001. They also compare manufacturing as an engine of economic growth with high-paying, knowledge-based industries, such as information, financial activities, professional and technical services, and management of companies.

According to the study, Michigan's per capita income from 1969 to 2001 grew nearly 12 percent slower than the national average. Only four states had a worse performance. Its share of employment earnings from manufacturing—third-highest in the nation—was 10 percentage points greater than the national average, while its share from high-paying, knowledge-based industries was 3.5 percentage points below the national level (21st in the nation).

"Michigan's performance is consistent with that of other states," Glazer says. "States with higher shares of employment earnings from manufacturing, by and large, have per capita income below the national average, while states with higher shares of employment earnings from high-paying, knowledge-based industries almost always have incomes greater than the national average."

The study found that 12 of the 13 states with employment earnings shares from high-paying, knowledge-based industries greater than the national average had 2001 per capita income above the national level, and all of the 15 states where the share of employment earnings from manufacturing is greater than from high-paying, knowledge-based industries had 2001 per capita income below the national average (this includes Michigan).

The study is online at http://www.ilir.umich.edu/ilir/lmr/MichBoomYears/Prosperity.pdf.

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