Michigan has been in trouble for a long while now. The state is going on 37 months at the top of the unemployment charts. But there's been no clear theory as to why we're in trouble. That's important because it tells us how we're going to fix the problems.
So it's disheartening to hear Michigan Gov. Jennifer Granholm state, "We've lost over 600,000 jobs as a result of the restructuring in the auto industry." In other words, it's all the auto industry. Michigan just needs to ride it out and we'll grow again. According to this view, policy reforms are unnecessary.
For one, the 600,000 jobs is not a direct result of the recent collapse in auto sales that prompted the Detroit Three to ask for a bailout. It's been a trend since 2000. And actually, it's 750,900 jobs — or about 16 percent of the total jobs in the state. If you include only job losses since the auto companies started asking for bail-outs, it's 194,100 jobs.
But those include an awful lot of non-auto jobs. Yes, to an extent all industries are connected and some are more connected than others. But auto and parts manufacturing lost only 31,400 jobs since September. That leaves 84 percent of the current job losses unaccounted.
By definition, if all employment in Michigan is tied to the auto industry, then the percentage of employment in the auto industry would stay the same. If you lose auto jobs, then you should lose jobs proportionally in the rest of the economy. But that hasn't happened. In 2000, auto and auto parts manufacturing accounted for 6.9 percent of all employment in Michigan. It's just 3 percent today.
Indeed, over a longer term and using a different metric, auto manufacturing accounted for 24 percent of state GDP in 1963. In 2006, it was 6 percent. Clearly, we're a much more economically diverse state than we were in the 60s. But in recent days, we've only become diversified by default.
Looking beyond those net job figures shows that there is an awful lot of job creation and destruction in a year. Over just one year, every industry in Michigan had a turnover of around 10 percent. Businesses were created and businesses closed. People were hired and people were let go. Certainly, only a minority of the 602,913 jobs lost in a year were because of auto issues and that's likely the case for the 502,990 jobs that were created.
To an extent, though, the governor is right. There is going to be a point where Michigan will grow again, even with the burdens that state government has placed on the economy. We still have a large degree of economic freedom and there's likely going to be a point where we grow again. To help speed that process, the Legislature needs to consider serious structural reforms in its business environment and tax policies. A good start would be passing a right-to-work law, eliminating the Michigan Business Tax, returning wetland permitting functions to the federal government and the rest of our "101 Recommendations to Revitalize Michigan."
James M. Hohman is a fiscal policy research assistant at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.