Michigan has two basic economic problems: not enough working adults to fill plentiful jobs, and wide swaths of distressed urban and rural neighborhoods where good jobs are out of reach for their residents.
Tim Bartik says Michigan needs a radical new economic development approach that will connect more people to jobs, strengthen neighborhoods and promote economic equity.
Bartik, senior economist at the Upjohn Institute for Employment Research in Kalamazoo, has long argued for a more place- and people-based approach to economic development.
His latest research calls for states to largely end their practice of luring jobs though costly business attraction incentives. Bartik, an expert on tax incentives, has argued that 75% of the time businesses would have made the same location or expansion decisions without incentives.
And many of those businesses locate and expand in already strong labor markets, he said, including Grand Rapids, Ann Arbor and suburban Detroit.
Michigan’s business-centric approach to economic development is lacking.
A new CNBC study, “America’s Top States for Business,” for example, found that Michigan has among the lowest business costs in the country, but is average or below average in such crucial areas as workforce availability and quality of life.
The study emphasized workforce over all other factors. Michigan fell five spots in this year’s study to 16th.
Bartik is calling for states to repackage their billions of dollars in business incentives into block grants that would be used to boost weak local labor markets, consisting of one or more counties, and invest in distressed neighborhoods through a variety of business, job training and social services.
“I’ve pulled together a lot of stuff I’ve done to make an argument for state governments to take a step toward doing this,” Bartik told me.
State governments are best positioned in implementing this new approach because they are more flexible and can act faster than the federal government, he said.
A more local service-based approach to economic development would require states to collectively spend $30 billion annually for 10 years to have a positive impact. But that cost is less than 3% of state taxes and could be paid for by eliminating business tax incentives, Bartik said.
Finding and keeping workers is the biggest problem many Michigan businesses face. But the state also has one of the lowest percentages of working adults in the country.
In June, Michigan ranked 39th in the employment-to-population ratio with just 57.4% of adults 16 years and older holding jobs. That’s mainly a result of the state’s aging population, lack of child care, and jobs being out of reach for people living in distressed areas.
Bartik’s research focuses on the core labor market, people between the ages of 25 and 54. He considers a labor market to be at full employment when 82.8% of those prime working-age adults hold jobs.
Moderately to severely distressed labor markets range from 5 to 10 percentage points below full employment, according to Bartik’s measure. By that definition, nearly the entire Upper Peninsula, and most of eastern and central Michigan are distressed.
Many rural and urban neighborhoods are similarly depressed. Nearly half of Detroit’s neighborhoods fit Bartik’s definition of being distressed.
“And some of the most severe distress is in rural communities,” he said.
The problems of distressed communities, “including increases in substance abuse, crime and family breakups spill over their borders,” Bartik said. “Distressed communities undermine the community and tax base, and welfare and crime costs strain local and state budgets.”
But improving neighborhoods and boosting labor markets require separate approaches, Bartik said.
Trying to create more jobs in neighborhoods won’t do much to help people living there because most of the new jobs go to outsiders, he said. What’s needed is job training, more child are and greater access to transportation that give neighborhood residents access to jobs in the larger labor market.
Those labor markets would become closer to full employment by more state spending on infrastructure, and customized job training and business services such as manufacturing extension services.
“Such customized services have less than one-third the cost-per-job-created of business tax incentives,” Bartik said.
Under his plan, most areas of the state would receive funding. But distressed areas would get higher per-capita allocations.
He acknowledges that turning away from the business incentive approach to economic development is politically difficult. There’s not much governors and local officials love more than presiding over a ribbon-cutting for a shiny new factory they’ve subsidized with tax dollars.
There’s also no current model of where providing services over tax incentives has worked. But Bartik points to the creation of the New Deal-era Tennessee Valley Authority (TVA) electric utility that helped turn the Southeast region of the country into an economic powerhouse.
In its early years, TVA also built highways, provided job training and conducted public health programs.
“It contributed to an enormous growth of manufacturing jobs in the region,” Bartik said.
Economic development shouldn’t be just about helping businesses create jobs. It also needs to enact policies that connect more people to employment.
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