Michigan's strong economic performance indicates that general tax and regulatory reforms are already working, and that specific incentives are unnecessary for continued economic growth. Furthermore, MEGA would provide no incentive for many of Michigan's leading employers.
A review of Michigan business activity in the last several years demonstrates that MEGA ignores some of the fundamental characteristics of job growth in Michigan.
Thanks to a robust national economy and Governor Engler's economic policies, Michigan has done well on the employment front. Michigan's 1994 total employment of 4,491,000 and a labor force of 4,773,000 yielded an average unemployment rate of 5.9%, lower than the national average. Today the unemployment rate is 4.1 %, the lowest rate in at least 25 years, and a level that most economists would consider full employment.
Table 1 shows Michigan's top ten private employers, with health care as the leading industry statewide. Michigan's employment exhibits greater diversity, and depends less on the automotive industry than it once did, although the transportation equipment industry remains an important employer. A glance at industry classifications shows that many of the largest employer groups would be ineligible for MEGA incentives, such as health care providers, eating and drinking places, general merchandise stores, and food and dairy stores. As discussed below, these employers would be left to carry an ever-increasing share of the single business tax as a few large manufacturers receive MEGA exemptions and further across-the-board tax reduction is stifled.
Michigan's economy generated 127,900 new jobs between 1993 and 1994. Table 2 shows that between 1988 and 1991 (the latest years for which disaggregated data is available) service industries created the most new employment. Eight of ten industries with the biggest employment growth were in retail or services, not manufacturing.
Employment has shifted from big firms to small firms as well as from manufacturing to service industries. As Table 3 demonstrates, over the past decade, most jobs grew within firms with less than 500 workers rather than in the industrial behemoths of the past. Even in manufacturing, the share of employment concentrated in large firms fell from 59% in 1980 to 46% in 1994.6 Michigan's envious employment performance has been accompanied by a diversification of the state's employment structure and a transfer of employment to smaller, more numerous firms. And this has been accomplished without state subsidies for employment expansion.
In short, Michigan has performed extremely well in the last several years, and further employment growth can be expected without MEGA incentives. More high-paying manufacturing jobs would certainly be desirable, but the current employment structure poses no threat to Michigan's economic vitality. As mentioned previously, sustained growth in the manufacturing sector will result only from further reduction in such costs of production as labor, unemployment insurance, workers' compensation, overall tax levels and the cost of bureaucratic compliance.