Recently the Detroit News ran a series on Michigan’s extraordinary net out-migration problem.
Net migration is the difference between the number of people moving into a place from other equivalent places, and the number of people moving out. In this case, it refers to movement from state to state within the US.
109,000 more people left Michigan for other states last year than came in from other states. What’s more, the people who left tended to be better educated and have higher incomes than the people who came in. In fact, 39 percent of Michigan emigrants have a college degree; only 25 percent of those who stay do. The average income of emigrants is nearly $50,000; the average income of people coming in, just $40,000.
Essentially, hard-working and educated people are leaving for better opportunities elsewhere. They are being replaced by people who are not as hard working or educated. In many cases the new residents have come to take advantage of Michigan’s generous social network. They have not come primarily to work.
Net migration is a far better indication of a state’s success than population growth, because population growth contains two other factors; natural population growth (the difference between the birth and death rates) and immigration from or emigration to other countries.
The scariest thing is that the net out-migration would be a lot higher if many Michigan residents weren’t underwater in their houses. The Detroit News profiled one woman who had to give up a job out of state because she couldn’t afford to sell her Michigan home – there are many like her.
Is it all because of the carmakers?
The auto industry is typically cited as the reason why Michigan is in trouble. Of course we all know about the auto industry’s long, sad decline. Hundreds of thousands of jobs have been lost in Michigan as a result of layoffs and plant closings at GM, Ford, Chrysler and their partners. As Michigan’s unemployment rises about 12 percent, however, two points are almost never heard.
First, there are 11 other car and truck manufacturers in the United States. Almost all of these have chosen to build their plants in other states, even though Michigan has several advantages for a car maker building a new plant. Those advantages included proximity of suppliers and availability of skilled workers. Second, other “rust belt” states have been able to replace declining industries with new ones. Why not Michigan?
What to do about it?
That’s an easy question for those of us reading this blog: don’t invest in Michigan. (If you are currently invested in Michigan, I sympathize.)
The rest of this prescription is written for the Michigan state government, starting with Governor Jennifer Granholm.
First, stop obsesssing about the auto industry.
Many Michiganders are convinced that the auto industry will come back to Michigan, and are concentrating on ways to make that happen. Michigan residents really do have a wealth of knowledge about building cars. But that isn’t nearly enough to attract auto jobs by itself. Foreign automakers want non-UAW plants in right-to-work states.
Michigan did score a “win” with the GM announcement that it would build its next-generation small car at a plant in Orion Township. The state government is putting up more than $900 million to make this happen, however. This amounts to about $750,000 per new job, over 20 years. Essentially, Michigan will be providing sharply discounted labor. But who’s going to pay for the subsidy?
States can have great success in areas they might not expect. Who would have expected Utah to become a leader in software development?
Second, get to the root causes.
Smart people are leaving Michigan because they can’t get jobs in your state. Smart entrepreneurial people are leaving because they find it easier to start businesses elsewhere.
Turning to my old friend, the Economic Freedom Index, I see that Michigan is ranked 43rd out of 50 states. All seven below it (with the possible exception of Alaska, which has unique challenges and opportunities) are also dealing with declining industries and relatively high unemployment. The only difference: they don’t have the auto industry to blame for their troubles.
A state with a low score on the EFI is really in trouble if its neighboring states score higher, because it’s so easy for a business to just move across the border. Every state that borders Michigan scores higher except for Ohio.
Michigan ranks 40th out of all states for size of government (1 being the state with the smallest government) and 45th for welfare spending (1 being the state that spends the least.) Huge government chokes innovation and opportunity. Overly generous welfare benefits attract unproductive people.
Herbert Stein’s Law says “If something cannot go on forever, it will stop.” Michigan’s state government has a $1.3 billion budget deficit. This is the result of bad government choices, which encourage productive people to leave the state and unproductive people to come in. The good news is that eventually it will stop, and maybe at that time the state will learn some valuable, if hard-earned, lessons.
Image by Musée McCord Museum via Flickr