Michigan’s competitive advantage among nation’s best

December 6, 2012

ANN ARBOR—Nearly a third of private-sector job gains in Michigan last year were due to the state’s competitive advantage, not because of a larger national trend, says a University of Michigan economist.

What’s more, compared to other states, Michigan ranked second in terms of its competitive gain in percentage terms in 2011, behind only North Dakota.

According to data from the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages, Michigan gained 103,395 private-sector jobs between 2010 and 2011. About 31 percent (32,528) of those job gains were due directly to the state’s competitive position, says Don Grimes of the U-M Institute for Research on Labor, Employment, and the Economy.

“The competitive position could be the result of public policy or a firm-specific competitive position, or even something as uncontrollable as the climate,” he said. “The sum of the competitive change across all states for any particular year is zero.”

The other job gains in the state, Grimes says, reflect the rebound in employment growth nationally and the relatively strong job gains in industries like motor vehicle manufacturing, which are disproportionately located in Michigan.

Grimes looked at year-to-year changes in private-sector employment in Michigan and the U.S. from 2001 to 2011. He examined the difference between the industry mix effect (the employment change if all of the individual industries in the state had performed exactly the same as those industries did nationally) and local competitive factors.

He found that in every year before 2010, Michigan lost jobs due to its relatively poor competitive position. During 2010, the state would have lost nearly 23,000 private-sector jobs if it had performed like the nation, but local competitive factors put Michigan in the black with gains of nearly 5,000 jobs overall.

The private-sector wage in Michigan remained about 5 percent below the national average in 2011, a slight improvement from 2010. Slightly more than half the wage gap between Michigan and the U.S. reflects the type of industries located in the state.

“Despite the large presence of the motor vehicle manufacturing in the state, most of our industries are now relatively low wage, undoubtedly reflecting our relatively low educational attainment,” said Grimes, who noted that only a decade earlier, the average private sector wage in Michigan was about 4 percent above the national average. “It is unlikely wages in Michigan will ever get back above the national average again, unless we are able to attract a larger share of industries that employ better educated workers.”