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B-School's ILIR Study: Labor Shortages in Michigan

1/16/2003 --

ANN ARBOR, Mich.—Although Michigan’s unemployment rate is now at its highest level in 10 years, the labor shortages of the late 1990s will be the rule, rather than the exception, in the next several decades, according to a study by the University of Michigan and Michigan Future Inc.

“Reports on employment don’t usually start with population, but demographic trends are shaping employment in Michigan,” said researcher Donald Grimes of the U-M Institute of Labor and Industrial Relations (ILIR). “Michigan’s population is both aging and growing slowly. If these trends continue—and they are likely to do so—this will almost inevitably mean that for several decades, new entrants into Michigan’s labor market will fall short of employers’ need for new workers.”

In their study, “Michigan Workers in the Boom Years: Employment and Employment Earnings, 1991-2000,” Grimes and Lou Glazer, president of Michigan Future Inc., identify five major forces that will drive the Michigan economy for years to come.

They say that despite widespread layoffs in the past two years, the pool of unemployed workers in the state is still considerably smaller than a decade ago and the labor force participation rate remains quite high. Therefore, the greatest number of new workers in the next several years will come from those aged 24 and younger.

Unfortunately, they add, the two slowest-growing age groups in Michigan in the 1990s were those 15 and younger (5 percent growth vs. 13 percent for this age group nationally) and 16-to-24-year-olds (a 4 percent decline vs. 5 percent growth nationally).

“This all adds up to the likelihood that Michigan will face structural labor shortages for the foreseeable future,” Glazer said. “We are leaving an era where labor markets were characterized by more workers looking for employment than there were available jobs to a period where, except during recessions, employers will have more jobs available than there are workers to fill them.”

In addition to labor shortages, Michigan workers can expect another significant trend from the 1990s to continue for years to come—high pay for high skills.

During the last decade, median earnings (corrected for inflation) among full-time, year-round workers with less than a high school education declined 15 percent—and this was during the boom times, Grimes and Glazer say. In contrast, employees with at least a master’s degree and those with a bachelor’s degree saw their incomes rise 14 percent and 9 percent, respectively.

“The dominant trend in employment earnings is the growing importance of educational attainment,” Glazer said. “The higher the educational level, the higher the pay. Only those with four-year college degrees or more saw their employment earnings substantially outpace inflation in the 1990s.”

According to the study, the high-skills, high-pay trend will continue to drive the economy as the number of “knowledge workers”—those in professional, managerial or technical occupations—continues to increase rapidly.

“Our economy increasingly is organized around those who work with their minds more than their muscles,” Grimes said. “The need for more learning is not restricted to high-skilled occupations—more and more frontline work requires higher skills as workers are asked to exercise independent judgment, provide customer service and be good problem-solvers.”

The study by Grimes and Glazer also predicts three other major trends for Michigan’s economy:

  • It will become increasingly centered on office work (finance, insurance, real estate, wholesale trade, health, education, professional services, government) and less on factories and stores. These industries today employ about two million (42 percent) Michigan workers.
  • It will continue to employ an abundance of low-wage workers (mainly in service industries). In 2000, with full employment, 1.7 million workers (34 percent of Michigan employees) earned $20,000 or less, including 15 percent of all full-time, year-round workers.
  • It will remain heavily dependent on motor vehicle manufacturing (Michigan is eight-and-a-half times more concentrated in auto industry employment than the rest of the nation), which will continue to be the primary engine that drives the Michigan economy. The study can be found on the Web at (under Labor Market Research, Michigan Boom Years Report).

    ILIR provides a vehicle for research on issues pertaining to employment and labor relations. It operates under the joint direction of the U-M Business School and School of Social Work.

    For more information, contact:
    Bernie DeGroat
    Phone: 734.647.1847 or 734.936.1015