Back in 2000, Michigan’s economy was churning along. Fueled by the auto industry and well-paying manufacturing jobs, the state’s per capita income ranked 18th in the nation.

In many ways, the period marked the end of an era when one could obtain a high-paying job without a college degree. The state’s blue collar jobs in unionized factory shops gradually began to disappear, and 367,000 manufacturing jobs have since been eliminated. Coupled with the employment losses, wages also plummeted. By 2010, the state’s per capita income had fallen all the way to 39th – a drop of 21 places over the decade.

Michigan Future, Inc., a nonprofit focusing on economic issues, is set to release a report with a prescription to reverse the state’s downward trend. The answer, the group says, is for the state and others like it to build a knowledge-based economy rather than resist new realities of globalization.

Lou Glazer, the group’s president who formerly served as deputy director of the state Department of Commerce, shared a preview of the report assessing Michigan’s economy and relevant data with Governing this week. While the analysis highlights challenges for Michigan, much of the findings are applicable to other states seeking to transition their economies.

Michigan could simply attempt to revive its dwindling manufacturing sector. Instead, Glazer argues the state should better align itself with global economic forces by growing its knowledge-based industries.

“You can’t have a broad middle class unless you have a concentrated knowledge economy,” he said.

But what does a “knowledge-based economy” look like? Glazer and researcher Don Grimes define it as one made up of high-education driven industries, or those where at least 33.6 percent of the workforce hold at least a bachelor’s degree. Some of the larger such industries include health, education, professional/business services and financial accounting.

Data shows a steady shift in more jobs demanding well-educated employees. The group found U.S. employment for the high-education industries rose 34 percent from January 1990 up through July, compared to just 14 percent for low-education industries. It’s also no surprise that the gap in average wages for high and low-education attainment is widening, increasing from $23,469 in 2001 to $27,320, according to the analysis.

By looking at other states’ prosperity, Glazer illustrates the important role these high-education industries play in regional economies. Glazer’s measures economic prosperity with non-natural resources private sector employment earnings per capita, a key component to growing economies that lack the oil reserves of North Dakota and Alaska.

The table below illustrates the relationship between high-education industry jobs and earnings, with 2010 data researchers compiled from the U.S. Bureau of Economic Analysis.

Some states and regions harness their efforts to create high tech jobs. This typically doesn’t pan out, Glazer said, because most of the job growth isn’t concentrated in technology. Furthermore, he argues it’s difficult to predict which technologies will take off next.
Last fall, Florida Gov. Rick Scott floated the idea of steering higher education funding to degrees with the best job prospects. Glazer said such a strategy would also prove ineffective because college degrees do more to prepare students for 40-year careers than land their first job.
“Government is not any better at picking occupations of the future than we are at picking industries,” he said.
Instead, Glazer suggests the state should invest in education and work to retain talent after students have graduated. He points to Minnesota as a potential model for Michigan, saying it has managed to weather the recession better than other Great Lakes states because its economy is more diversified in the knowledge-based sectors. High-education industry jobs accounted for 61 percent of Minnesota's wages in 2010, while the state's private sector earnings per capita ranked fifth in the country.
This story will be updated with a link to the report once it is published.