Michigan’s economy is too quick
for any state government to keep up with, as highlighted by the jobs data in
the latest release from the Bureau of
Labor Statistics. Despite the poor economic news coming out of the state in the
past decade, Michigan
is a job-creating dynamo. But it’s also a job-shedding one as well. The
interplay between job creation and destruction, not the state’s
headline-grabbing business favors, should guide policy.
There are always some
businesses adding jobs and other businesses losing jobs in any given period. We
can call them gross job gains and
losses, with the difference between the two being net jobs gains and losses. So while GM’s decision
to hire 2,000 workers in the metro Detroit area will raise net employment in
Michigan (all else being equal), it is only a small piece of the state’s gross job
Most news stories focus on the
net job gains or losses because these are good indicators of whether an economy
is improving or falling. There is a substantial lag to the release of gross job
figures, however, making them less important to the day’s news. The monthly net
job reports tend to show a state that is fairly stagnant — rarely adding or
losing more than 2 percent of jobs in any year.
But the gross job creation and
loss figures show the incredible amount of turnover in Michigan. In a given
year, the state can add and lose 1 million jobs in gross, leaving no net gain.
This means around one out of every four jobs is created and lost in the state every
The latest release from the
Bureau of Labor Statistics showed that there were 216,561 private-sector jobs
created in the third quarter of 2010, a gain of 6.8 percent of total jobs, or
an increase of one job for every 15 existing jobs. The state also lost 191,483 private-sector
jobs, a loss of 6.0 percent of total jobs, or a loss of one job for every 17
The BLS further breaks down the
jobs data to jobs gained at new
facilities and businesses, and new jobs at existing
businesses and facilities. The latest release from the third quarter of 2010 showed
83 percent of the gains came from expansions. In any given period dating back
to 1992, about three-quarters of new jobs in Michigan came from existing businesses
expanding their operations.
Likewise, company contractions
are the largest contributor to job loss in any given period. These also accounted
for about three-quarters of the state's gross job losses.
The last two quarters showed
the fewest job contractions in the series history that dates back to 1992. In
fact, the state's job losses during the recession can largely be explained by
the spike in contractions beginning in the fourth quarter of 2008 as compared
to a smaller amount of job expansions as seen in the graphic below.
The large volume of gross job
creation and loss, most of which come from expansions and contractions of
existing businesses, has major policy implications. The state’s economic development
programs are targeted at select industries and specific companies. The key
areas of job growth and loss, however, are deep and broad and across
industries. Incentive programs that look to assist with hundreds and sometimes
thousands of jobs simply cannot keep pace with an economy that turns over
hundreds of thousands of jobs every quarter.
A better approach is to fix the
rules that guide all businesses. Gov. Rick Snyder’s latest tax plan would improve
Michigan’s corporate taxes from 48th place among the states to 22nd, according to the Tax Foundation, and
would be a structural improvement to the rules facing all businesses.
Likewise, the state’s regulatory
environment could use reforming,
since every business is required to be compliant in a myriad of administrative rules.
Michigan’s economy is showing
signs of good news. The state’s return has little to do with the favors it has
bestowed on businesses but on a broad-based economic recovery affecting
thousands of businesses, and hundreds of thousands of independent decisions to expand
or retract. To continue on this path, the state should reject selective
incentives and focus exclusively on broad-based improvements.
James M. Hohman is a fiscal
policy analyst 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