Manufacturing and the Future of the Industrial State: A Michigan Case Study

During the recent past, heavy loss of manufacturing jobs has created considerable economic upheaval in several states, particularly the industrial heartland of the country where manufacturing represents more of a state's private payrolls than the national average. Michigan, alone, lost 18 percent of its manufacturing-related jobs from 2000 to 2003, a staggering 163,000 mostly high-wage jobs. Still, the manufacturing sector comprises 17 percent of the total jobs in the Great Lakes state.

Stemming the loss of manufacturing operations across the U.S. through improved technological competitiveness and leaner production processes is a goal of many state and federal tax credits, policies and programs, such as the successful NIST Manufacturing Extension Partnership and its network of 400 state and regional affiliate centers.

A new research paper from the University of Michigan dares to ask whether manufacturing can be a driver for future U.S. economic growth and, if so, if it should be the focus of development policy, based on the economic performance of states with high manufacturing concentrations.

A New Path to Prosperity? Manufacturing and Knowledge-Based Industries As Drivers of Economic Growth 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.

Written by Donald Grimes, an economist at the University of Michigan Institute of Labor and Industrial Relations, and Lou Glazer, president of Michigan Future Inc., A New Path to Prosperity? compares 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. 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.
• 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.

The researchers say knowledge-based industries and young professionals will be the most important drivers of future economic growth, with communities having high concentrations of both 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," Glazer said.

The 18-page paper is available at: http://www.ilir.umich.edu/ilir/lmr/MichBoomYears/Prosperity.pdf

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