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Knowledge Workers, Not Factory Jobs, Are Key to Prosperity

8/11/2004 --

Michigan should retool its focus away from manufacturing and make the expansion of high-paying, knowledge-based industries its top economic priority.

ANN ARBOR, Mich. – Michigan's economic prosperity has long depended on a strong manufacturing sector, but that is no longer the case, says a University of Michigan researcher.

"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 Michigan Business School's Institute of Labor and Industrial Relations. "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 shows 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," Grimes 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."

Specifically, the study found that:

  • Twelve 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.
  • Of the 15 states with per capita income greater than the national average in 2001, all had a greater share of employment earnings from high-paying, knowledge-based industries than from manufacturing.
  • Of the 25 states with employment earnings shares from manufacturing greater than the national average, 21 had 2001 per capita income below the national average (this includes Michigan).
  • 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).

Grimes and Glazer also compare Michigan to the eight states and the District of Columbia that had 2001 per capita income and per capita income growth from 1969 to 2001 above the national average.

They found that Michigan's per capita income is significantly lower ($29,500, compared with a range of $32,300 to $45,300 for the eight states and Washington, D.C.) and its per capita income growth was much worse (11.8 percent below the national average, compared with a range of 6.4 percent to 31.2 percent above the national average).

Further, the proportion of 25-to-34-year-olds with at least a bachelor's degree is lower in Michigan (26 percent, compared with a range of 33 percent to 51 percent).

"There is a growing belief that where young professionals choose to locate helps drive the economy since high-pay, knowledge-based industries are more likely to locate in communities with lots of knowledge workers and young professionals are starters of new businesses," Grimes says. "Unfortunately, Michigan is below the national average, while all the more successful states are substantially above."

The researchers say that knowledge-based industries and young professionals will be the most important drivers of future economic growth and communities with high concentrations of both are quite likely to be more prosperous.

"It seems that the best use of policy-makers' time and attention with respect to the economy might come from developing a new agenda on how best to grow a knowledge-based economy in Michigan," Grimes says. "Knowledge-based industries are now the major source of employment growth, particularly of good-paying jobs. And they are the most powerful engine fueling overall economic growth."

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

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847
E-mail: bernied@umich.edu