Build It And The Jobs Will Come
September 21, 2012
Mark Twain famously quipped, “There are lies, damned lies, and statistics.” Office-seekers today, no less than in Twain’s era, cherry-pick and de-contexualize statistics to support their cases for election. Yet statistics, when analyzed by more objective eyes, can still be powerful evidence upon which to base public policy.
I wanted to know what professionals who study the Michigan economy see in the recent economic statistics. What’s the best measure of how we are really doing? What government actions, if any, could affect economic growth? What role will manufacturing play?
I called Dr. Charles Ballard, a professor of economics at Michigan State University, whose scholarly output includes three books on Michigan’s economy and over 70 research papers and journal articles, many on the economic effects of government policies.
Ballard, whose credentials include economics degrees from Princeton (B.A.) and Stanford (Ph.D.), may be Michigan’s most approachable economist. He is on a mission to educate the public and policy makers to the realities of our current economy.
Some of those realities might surprise you.
We look back at the golden age of the 1950s and ’60s, when the Michigan-based Big 3 auto companies had a lock on the national market for motor vehicles. But Ballard says that even if the Big 3 had the same market share today, Michigan would have problems. In Michigan’s heyday, motor vehicles constituted over 2 percent of the national economy. Today that share is less than 1 percent. Also, it takes a lot fewer line workers to produce a vehicle today.
Ballard believes the single best measure of economic performance is per capita income. And Michigan’s is not doing well: “Back in the ’50s and ’60s, in a typical year we were more than 10 percent above the national average. In the last several years we’ve been more than 10 percent below the national average. We are now 36th among the 50 states in per capita income. Back in the ’70s we were … numbers like 12th or 8th.”
I ask Ballard what are the major factors in attracting well-paying jobs to Michigan. Tax breaks? Cool cities? Workforce training? Transportation infrastructure?
“Number one is having skilled workers to do the work. And number two is having skilled workers to do the work. And number three is having skilled workers to do the work.”
Ballard finds it instructive to compare Michigan with Massachusetts. From the 1950s to the 1970s per capita income for the two states was a dead heat. But they began to diverge in the ’80s. Today Massachusetts’s per capita income is 50 percent higher than Michigan’s. “What does Massachusetts have that we don’t have? They have the most highly educated workforce in the country. Back in the ’50s and ’60s they had higher education levels than we had, but it didn’t buy them much.” It does now.
Ballard points out that in the mid-1960s manufacturing accounted for 49 percent of Michigan’s gross domestic product. Today it is 16 percent.
In Michigan’s golden age, nearly anyone with a high school education could make enough income to buy a home, send their kids to college and retire to a cottage Up North. Not any more.
Ballard is not alone in linking a region’s economic success with its people’s education.
A recent study by the Brookings Institution, “Rothwell, Education, Job Openings and Unemployment in Metropolitan America”, found that over the past few years metropolitan areas with higher portions of post-high school educated people had higher rates of job creation, including creation of jobs for less educated people. And the unemployment rate in areas with a shortage of educated workforce was two percentage points higher than in areas where the supply of educated workers met the demand.
As Lou Glazer, president of the non-profit think tank Michigan Future, Inc., recently pointed out,
“The data are clear and overwhelming. … Education pays. The more education, the lower the unemployment rate and the higher the wages. Why is there lower unemployment and higher wages the higher a person’s education attainment? Supply and demand. Employers increasingly want and need workers with four year degrees or more. And the supply is too small to meet those demands. And all the evidence is that this supply/demand mismatch which has been growing over time will grow even larger in the future.”
Glazer notes that in percentage of adults with four-year degrees Michigan ranks 34th among the states. He argues,”If we care about preparing our children for the economy of the future and for middle class and above jobs and careers we need to emphasize far more –certainly not less– the importance of obtaining a four year degree.”
And yet in recent years with tax revenues shrinking, the state has disinvested in our educational system. Ballard calls this “just crazy”. In the 1970s, over 60 percent of Michigan State University’s costs were paid by state appropriations and less than 30% by tuition and fees. As of 2010, it was exactly the opposite.
As for other government policies, Ballard says that the emphasis has been on tax breaks, but as to whether they work, “the evidence has been very mixed.” On the other hand, Gov. Snyder’s push for more money for roads and a new bridge to Canada is “absolutely in the right direction.”
Nobody would dispute that strengthening our education system will cost more. Given our slow economy, where will we get the money? Ballard presents a graph showing the percentage of personal income paid in state and local taxes. In the ’70s, Michigan residents paid about 13 percent of their income in state and local taxes. As of 2010 the figure had dropped to under 11 percent. Some of this decline is a result of conscious local and state political decisions. But some of it is unintended erosion; state sales tax does not apply to services, which are the growing segment of the economy. If we taxed ourselves at the rates of 40 years ago, Ballard says, we would have $8 billion more revenue a year.
Statistics are, of course, subject to interpretation, but if the conclusions quoted above are valid (and they seem pretty clear), then our challenge in Michigan is simple: either muster the political will to strengthen and promote our education system, or watch as the American dream recedes into the distance.