A knowledge-based economic development strategy

A year ago, Rivian, who is often described as the Tesla of trucks, announced it was moving its headquarters from suburban Detroit to Irvine, California. The ad received virtually no media coverage from Michigan. And, more worryingly, it has elicited no reaction from Michigan’s political and business elites.

Two years earlier, Amazon had announced that despite offers of large grants from Detroit and Grand Rapids, no Michigan community had done the last 20 for its Amazon HQ2 and 50,000 well-paying jobs. It received a lot of attention from the Michigan press for about a week. And statements of concern from Michigan’s political and business elites. But that also lasted a little while, and then everyone resumed their activities as usual.

Compare that to Ford’s reaction to news of three battery factories and an electric vehicle assembly plant in Tennessee and Kentucky. The announcement generated media coverage across the state. And Michigan’s political and business elites have sounded the alarm bells.

That the loss of the Rivian and Amazon HQ2 headquarters received little to no attention and the loss of Ford’s battery factories sparked calls from across the political spectrum for the state to spend much more in subsidies to automakers shouldn’t come as a surprise. For decades Michigan’s economic development plan has been primarily to compete with the southern states for auto-related factories.

There’s a big problem: This factory playbook has been decades old. Michigan’s factory-based economic development strategy makes Michigan a low prosperity state.

The reality is that production jobs (factory blue collar workers) represent a decreasing proportion of the labor market, and these jobs now have median wages below the median for all workers. This is true not only in the Grand Rapids subway and throughout Michigan, but also in states like Tennessee, which we are told is the model Michigan needs to follow.

The high-growth, high-wage segment of today’s US economy is represented by Rivian’s corporate headquarters and Amazon HQ2. America’s middle class is now dominated by professionals and executives, not factory workers. Michigan can only become a very prosperous state again, a status it enjoyed for most of the 20th century, if it adopts a knowledge-based economic development strategy.

The factory-based economic development playbook is dominated by low taxes, especially low business taxes, and large business grants for every factory located or expanded in your state. The knowledge-based economic development playbook is anchored in public investment in education from birth through college and in creating places where mobile talents want to live and work.

Minnesota, the most prosperous state in the Great Lakes region, has been at the forefront of developing and deploying a knowledge-based economic development manual for decades. When you examine the economic well-being of workers in Tennessee and Minnesota, you can clearly see that the path to prosperity is to retain and attract companies like Amazon HQ2 and Rivian HQ.

Minnesota has a much higher median hourly wage than Tennessee: $ 22.41 versus $ 18. This goes hand in hand with a significantly higher employment-to-population ratio: 65% of Minnesotans aged 16 and over were working in 2020, compared to 56% of Tennessiens. Thus, the Minnesotans work more and earn more than the Tennesseans. This translates to per capita employment income of $ 38,133 in Minnesota, compared to $ 31,751 in Tennessee. This differential is the main contributor to the fact that Minnesota ranks 12th in per capita income while Tennessee is at 38th.

Production jobs in Minnesota and Tennessee have median wages below the statewide median: in Minnesota, it’s $ 19.30 versus $ 22.41; in Tennessee, it’s $ 17.17 versus $ 18. Production jobs in both states represent a declining share of the workforce. It went from 13% in 2001 to 8.6% in 2020 in Tennessee, and from 9.6% in 2001 to 7.6% in 2020 in Minnesota.

The exact opposite is true for core trades in companies like Amazon HQ2 and Rivian HQ: management, IT and math, architects and engineers, and scientists are all valued. Median hourly wages in these occupations in Minnesota range from $ 53.61 for management to $ 34.77 for scientists, and from $ 42.79 for management to $ 29.89 for scientists in Tennessee. And the share of jobs in these combined occupational groups has increased in both states: from 9.5% in 2001 to 10.7% in 2020 in Tennessee, and from 9.8% in 2001 to 11.9. % in 2020 in Minnesota.

Michigan’s path to prosperity is to be more like Minnesota, not Tennessee. To do this, we must prepare, retain and attract talent as a top priority for economic development. The path to high prosperity is anchored in Michigan moving from a state with low cost / high business subsidies to a state that develops, retains and attracts human capital as a basic strategy for economic success.

Lou Glazer is President of Michigan Future Inc.