State’s knowledge economy lagging, study shows

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Twenty years after issuing their first report on the future of Michigan’s economy, researchers at the University of Michigan and Michigan Future Inc. say the state is headed down the wrong path.

“When we first compiled the data in 2004, we feared that without a recognition of the new drivers of prosperity, we risked falling behind. Nothing really changed and Michigan is now one of the nation’s poorest states,” said economist Donald Grimes of U-M’s Research Seminar in Quantitative Economics.

The first edition of the U-M/Michigan Future report, “A New Path to Prosperity? Manufacturing and Knowledge-Based Industries as Drivers of Economic Growth,” found that manufacturing — although still an important and valuable component of the Michigan labor market — was no longer a driver of growth or prosperity.

The path to prosperity had become the knowledge economy. Michigan needed to concentrate more on knowledge-based industries, and to do that it needed to attract and retain more young, college-educated adults.

But Grimes and Lou Glazer, president of Michigan Future, say that shift has not occurred 20 years later. Instead, Michigan’s economic standing has plummeted with the Great Lakes state now ranking 39th in personal income per capita among the 50 states.

If each state’s personal income per capita grew over the next 23 years at the same rate that it did between 1999 and 2022, Michigan would end up 48th, when ranking U.S. states from richest to poorest, by 2045. That’s just ahead of Alabama and Mississippi.

“With Michigan’s new focus on becoming a more prosperous state, one that attracts and retains young talent, we looked to the report we issued in 2004 to see how our analysis held up over time, which we found it did — and with severe implications,” Glazer said. “Michigan needs to change how it approaches economic development if it wants to be a prosperous state again.”

Michigan’s per capita income in 2022 was 13% below the national average, the lowest Michigan has been, compared with the nation, since the data was first compiled in 1929. This is the opposite of where Michigan was in the 20th century when the state was structurally a relatively high-prosperity state. In 1999, Michigan ranked 16th in per capita income, slightly below the national average.

Both editions of the report compare low-education-attainment 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.

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 likely to be most prosperous.

“I said this when the report was issued in 2004 and I’ll say it again: The best use of policymakers’ time and attention, with respect to the economy, would come from developing a new agenda on how best to grow a knowledge-based economy in Michigan,” Glazer said. “If Michigan doesn’t become competitive in the knowledge economy, it will be one of the poorest states.”

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