In Search of Michigan Education 3.0 (Michigan Futures / Lou Glaser on Three Legs of the Proverbial 3,0 Stool)

Choosing a shrinking Michigan middle class

By Lou Glazer • on December 20, 2012

After the 2010 election I was asked by several publications to write about what I expected to happen to state economic policy. My basic answer was that Governor Snyder campaigned on creating Michigan 3.0 (more knowledge-based), but almost all the legislature was elected on making Michigan 2.0 work again (primarily factories but also farms and tourism). And the choice they made on which vision of Michigan’s future to pursue would have a big impact on the future economic well being and standard of living of Michiganders.

In a post on what 2011 might bring I wrote:

… If 2011 is to be a start of a long term Michigan economic recovery it will be because Governor-elect Snyder gets us on the path to the Michigan 3.0 he promised in his campaign. The challenge is that most of the legislature that got elected with him campaigned on restoring Michigan 2.0. The decision we make on which direction to go is what matters most in 2011. It will go a long ways towards defining our economic future. Move towards Michigan 3.0 and we can once again be one of the most prosperous places on the planet. Stay as Michigan 2.0 and we will continue to lag the nation.

What appears to be the preeminent vision of a successful future Michigan is an economy still anchored by factories, farms and tourism. And a policy agenda to get us back to our past success largely through smaller government and weaker unions. If I had to predict where we will go in 2011 it is towards that vision and agenda.

But if we go in that direction I also predict it won’t work. There are some hard truths that Michiganders needs to confront:

Michigan’s prosperity in the last century was built primarily on good-paying, lower-education attainment jobs. Those jobs are gone forever.

• The auto industry will never again be the major engine of prosperity in Michigan. It will be substantially smaller, employ far fewer and will pay its workers less with fewer benefits.
• The decline in autos is part of an irreversible new reality that manufacturing (work done in factories) is no longer a sustainable source of high-paid jobs. Nor is it a source of future job growth. Manufacturing makes up less than 10 percent of the American workforce today and is declining.
• The other industries that are widely believed to be drivers of the Michigan economy – farming and tourism – are also not a source of lots of good-paying jobs. Less than 2 percent of Michiganians work on a farm and, on average, it is not a high paying industry. And tourism, although a likely source of job growth, is also a low-wage industry.

If the Michigan economy of the future is built on a base of factories, farms and tourism we will be a low-prosperity state. The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.

The alternative – Michigan 3.0 – is a Michigan concentrated in the knowledge-based sectors of the economy: health care, education, finance and insurance, professional and technical service and information. These are the fast growing and high wage sectors of the American economy today and tomorrow.

To get there requires first and foremost that Michiganders get better educated. Nearly all the states and regions with the highest incomes will be those with the highest proportion of adults with a four-year degree or more. The policy agenda to create Michigan 3.0 is focused on public investments in education and quality of place. With a particular emphasis on higher education and central cities. The first to prepare Michiganders for the economy of the future, the second to retain and attract mobile talent which increasing is choosing big metros anchored by vibrant central cities.

The Michigan turnaround, compared to the nation, will start only when we focus on improving our ranking of thirty fourth in college attainment. That is our fundamental challenge! Low education attainment regions and states will be low prosperity regions and states. We can do better! But it will require us letting go of what made us prosperous in the past and getting on a new path: one that is aligned with new realities.

Unfortunately the prediction that policy makers (Administration and legislature) would choose 2.0 and a policy agenda “to get us back to our past success largely through smaller government and weaker unions” turned out to be true. And by choosing that vision and agenda they have chosen to take us in the direction of a shrinking, rather than expanding, middle class.

The capstone to positioning Michigan to compete in the 2.0 economy came in the recently completed lame duck session. By passing right to work legislation and another round of business tax cuts, Michigan policy makers gave up on recreating Michigan as a place with a broad middle class. Instead choosing to position the state to compete for low wage jobs with states like Indiana (explicitly) and Mississippi.

As Rick Haglund writes in a terrific MLive column entitled “Gov. Snyder, look to Minnesota, not Indiana, for economic inspiration”:

Snyder cited Indiana’s decision earlier this year to become a right-to-work state as playing a major role in his own decision to support the divisive legislation in Michigan. … in most measures of economic health, including per capita income, poverty rates and educational attainment, Indiana is worse off than Michigan. So it seems awfully strange that Snyder, a data geek, would pick Indiana as his economic model. Indiana is the antithesis of what Snyder says he wants for Michigan—better jobs, higher incomes and a more highly educated work force. Minnesota offers a smarter path for achieving those goals. Yet Minnesota, a non-right-to-work state, is rarely mentioned in Lansing’s policy debates. We are left to believe that Snyder and his fellow Republicans who control the Legislature have a different agenda that includes weakened labor unions, more corporate power and lower-wage jobs.(emphasis added)

From 2000 to 2010 as the domestic auto industry collapsed Michigan fell from 18th to 39th in per capita income. This unprecedented decline in the standard of living of Michiganders occurred because the 2.0/factory-based economy is no longer high wage or fast employment growth. Of the eleven states (including Indiana) with lower per capita income than Michigan eight are right to work states, all are small government/low tax states. Except for Utah, they not only have the lowest personal income, but also high poverty rates and, most importantly, low college attainment rates. Choosing to compete with them for 2.0 jobs by replicating their so-called business friendly small government /weak union policies  almost certainly means Michigan will remain one of the nation’s poorest states.

Michigan growing the Chicago economy

By Lou Glazer • on December 17, 2012

Three interesting recent articles on young professionals leaving Michigan for vibrant central cities, particularly Chicago. All worth checking out.

The first in the Detroit News entitled  ”Michigan tries to lure best, brightest back“. The article provides a good overview of why where young talent chooses to live and work matters a lot to the Michigan economy, the importance of both job/career opportunity and quality of place in choosing a place to live, the importance of central cites to retaining and attracting young talent and why mobility goes way down once you have kids.

The second a terrific Brian Dickerson column in the Free Press on the impact of legislation passed in the legislative lame duck session on  the state’s ability to retain and attract talent entitled “Scaring away the grads Michigan needs to woo”. Dickerson writes:

Post your job openings, he (Governor Snyder) promises, and the young graduates who worked Up North in their high school and college summers will swarm back to buy houses, start families and pay property taxes. Except they haven’t been doing that — not even in sufficient numbers to fill the high-skill jobs Michigan already has. Business Leaders for Michigan (BLM), a consortium of the state’s largest employers, warns that the supply of workers with two- and four-year degrees could fall a million short of the number needed to meet existing employers’ needs by 2025. That’s right — a million fewer college graduates than Michigan needs to fill the jobs Snyder expects to create. Dwindling government support for higher education in Michigan is a major contributor to the shortfall. “At a time when we need to grow our number of college-educated workers, Michigan’s policy on higher education discourages enrollment by making it too costly for many to attend college,” J. Patrick Doyle, President & CEO of Domino’s Pizza, told fellow CEOs at a BLM summit on higher education last May.  Doyle and his peers have urged Snyder to reverse spending priorities in Michigan, which lavishes 76% more taxpayer dollars on prisons than it spends on public universities. Yet even many of those who manage to obtain degrees here quickly take them elsewhere — especially to states that haven’t muddled their messages of opportunity with official hostility to reproductive rights, same-sex marriage, immigrants and organized labor. (Emphasis added)

The third in Slate by Edward McClelland, who grew up in Michigan and now lives in Chicago, is much more pointed and quite pessimistic about Michigan’s future. Its entitled  Right-to-work bill: Michigan just gives up. An anti-union bill is the wrong response to a brain drain, and ensures the state will only create low-paying jobs. McClelland writes:

Fifty percent of Michigan State students now leave the state immediately after graduation. That ratio doubled in the 2000s, which is known in Michigan as “The Lost Decade.” In those 10 years, Michigan dropped from 30th to 35th in the percentage of college graduates, and from 18th to 37th in per capita income. (Michigan was also the only state to lose population in the last census.) The university system’s main function is giving Michigan’s brightest students a credential to get the hell off that jobless peninsula. … What does this have to do with the right-to-work law? Michigan has lost so many educated workers that the state’s leadership seems to feel it has no choice but to become a low-wage haven. …  The kind of place that attracts chicken processors, not software engineers.  Unable to adjust to the 21st century, Michigan is going back to the 19th. … Now, Michigan has decided to become the kind of state that Michiganders’ grandparents escaped. When it does, even more of their grandchildren will make the trek along their own Wolverine Highway, to Chicago, to New York or to Silicon Valley.Welcome to Michissippi. (Emphasis added.)

We don’t share McClelland’s pessimism. We do believe that Michigan can be a place where mobile talent wants to live and work. And if we become a talent magnet that we can become a high prosperity state again. A place with a broad middle class. But we do agree we are not going to get there––either a talent magnet or a high prosperity state––if our policies are designed to compete in the low wage, old economy. And the kind of unwelcoming policies Dickerson writes about.

Creating a Michigan with a broad middle class can only happen if the focus of policy makers is on competing in the growing high wage knowledge-based sectors of the economy. That requires a laser focus on preparing, retaining and attracting talent as economic growth priority  #1. Specifically:

• Building a culture aligned with (rather than resisting) the realities of a flattening world. We need to place far higher value on learning, an entrepreneurial spirit, and being welcoming to all.
• Ensuring the long-term success of a vibrant and agile higher education system. This means increasing public investments in higher education. Our higher education institutions—particularly the major research institutions—are the most important assets we have to develop the concentration of talent needed in a knowledge-based economy.
• Creating places where talent—particularly mobile young talent—wants to live. This means expanded public investments in quality of place, with an emphasis on vibrant central-city neighborhoods.
• Transforming teaching and learning so that it is aligned with the realities of a flattening world. Which requires an emphasis on insuring that every child attends a quality school.
• Developing new public and, most important, private sector leadership that has moved beyond a desire to recreate the old economy as well as the old fights.

Low pay driving job vacancies

By Lou Glazer • on December 13, 2012

Conventional wisdom is that there are plenty of  jobs available that are vacant because too few Americans have the skills employers need in an increasingly knowledge-based economy. Not just the STEM professions, but also  technical jobs in manufacturing, construction, health care, etc. President Obama and Governor Snyder are among many business and political leaders pushing for a re-emphasis of vocational training in high schools and/or community colleges as the key to dealing with labor shortages, particularly in the skilled trades in manufacturing and construction.

A terrific New York Times Magazine article by Adam Davidson entitled Skills don’t pay the bills argues that low pay is the main cause of those unfilled jobs, not a skills shortage. Highly recommended. As Davidson writes:

The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.(Emphasis added.)

In a recent study, the Boston Consulting Group noted that, outside a few small cities that rely on the oil industry, there weren’t many places where manufacturing wages were going up and employers still couldn’t find enough workers. “Trying to hire high-skilled workers at rock-bottom rates,” the Boston Group study asserted, “is not a skills gap.” The study’s conclusion, however, was scarier. Many skilled workers have simply chosen to apply their skills elsewhere rather than work for less, and few young people choose to invest in training for jobs that pay fast-food wages.

The article features a manufacturer that pays its plant floor technicians from $10-18 per hour. No where near the $28 an hour that unskilled factory workers were earning at the Detroit Three a few years ago. And what are the skills that employers are seeking at up to $18 an hour? As the Times describes: “Running these machines requires a basic understanding of metallurgy, physics, chemistry, pneumatics, electrical wiring and computer code. It also requires a worker with the ability to figure out what’s going on when the machine isn’t working properly.” Hardly anyone with those skills is going to be satisfied with a $10-18 an hour job.

Add to lower wages jobs the fact that manufacturing (and construction) skilled trade have seen mass layoffs for years. There may be more demand for workers today than jobs, but this comes after a long period of far more supply than demand. Hard to attract workers to occupations when fathers and older brothers in those occupations have been laid off repeatedly or have lost a job and never for another in the occupation.

The article reports on a manufacturing CEO who has machining jobs that he can’t fill:  ”He was deeply frustrated when his company participated in a recent high-school career fair. Any time a student expressed interest in manufacturing, he said, “the parents came over and asked: ‘Are you going to outsource? Move the jobs to China?’ ” While Isbister says he thinks that his industry suffers from a reputation problem, he also admitted that his answer to a nervous parent’s question is not reassuring. The industry is inevitably going to move some of these jobs to China, or it’s going to replace them with machines. If it doesn’t, it can’t compete on a global level.”

The article continues: “In earlier decades, Wial (from the Brookings Institution) says, manufacturing workers could expect decent-paying jobs that would last a long time, and it was easy to match worker supply and demand. Since then, with the confluence of computers, increased trade and weakened unions, the social contract has collapsed, and worker-employer matches have become harder to make. Now workers and manufacturers “need to recreate a system” — a new social contract — in which their incentives are aligned.”

So what is the answer? A Yahoo Finance article, on the same topic, portrays how employers can effectively deal with labor shortages. In some part it is about training, but it is far about employers offering higher paying and more attractive jobs. Yahoo writes about a trucking company that is dealing with chronic shortages of truck drivers by  making the job more attractive to job seekers. The article and accompanying video are worth checking out.

Yahoo writes: “Our team traveled to Omaha, Neb., to meet with the president of Werner Enterprises (WERN) to see how one of the biggest players in the business is addressing this shortage of drivers. Not only are they training more, paying better and putting their people in an almost brand new fleet of trucks, they’re also reinventing themselves in a way that allows their drivers to get home to their families a lot more often.” Yahoo says the average wage for truck drivers is $55,000.

This is how markets should deal with supply and demand mismatches.  Not government picking occupations or moving P-20 education away from providing students with the broad skills they will need for a forty year career rather than pushing educators toward emphasizing the narrow skills needed for whatever jobs where there might be a shortage of workers today.