Comparing the City of Brotherly Love with Motown: Reflections on How to Effectively Transform Urban Economies

By Martin Lavelle

When I think of Philadelphia, the following subjects come to my mind: Benjamin Franklin, Betsy Ross, the Liberty Bell, Independence Hall, the Declaration of Independence, and the Constitution. Also, being a sports fan, I think of what a great sports city it is: There’s quite a passionate fan base for its professional teams, as well as Big 5 college basketball at the Palestra. Admittedly, as someone who works in and studies Detroit, it doesn’t naturally occur to me to compare Detroit and Philadelphia like I would Detroit and Pennsylvania’s other major city, Pittsburgh, with its historical reliance on one manufacturing sector, steel. However, as I looked more deeply into Philadelphia’s history, I found myself drawing multiple parallels between the Motor City and the City of Brotherly Love.

On September 21–23, 2016, the Federal Reserve Bank of Philadelphia, other Federal Reserve Banks, and additional sponsors and supporters convened the Seventh Biennial Reinventing Our Communities Conference. The theme of this year’s conference was how to transform our economies. The conference’s sessions covered topics such as how to increase access to capital, how to supply a greater stock of affordable housing and address workforce needs, and how to make philanthropic foundations play a more effective role in communities’ economic transformations. This conference provided an opportunity for me to learn about initiatives in other communities and compare them with developments in Detroit. This will be the first of two blog entries in which I discuss the conference and some of my own analysis inspired by it. Here I will draw some historical and current comparisons between Detroit and Philadelphia. In my follow-up blog post, I will recap the conference and compare Detroit’s efforts to transform its economy with ongoing efforts occurring across the country.

Background

As part of my usual preparation for a conference (especially when a city tour is included), I did a statistical comparison of Detroit and Philadelphia. The table below shows the statistical similarities and differences I found most interesting between the two cities.

portland-chart-1

Note: MSA means metropolitan statistical area.
Source: QuickFacts Beta, U.S. Census Bureau.

The population figures stand out for many reasons. First, it’s easy to forget that back in 1950, when their populations peaked, Detroit and Philadelphia were similarly sized cities. Nowadays, just six and a half decades later, Philadelphia has almost two and a half times as many people as Detroit. Back in the middle of the twentieth century, the population of each city made up around 57% of its respective metropolitan area. But as of last year, Philadelphia’s population share of its metropolitan area (26%) was noticeably larger than Detroit’s population share (16%) of its metropolitan area. The fact that Philadelphia’s population increased over the past 15 years boosted the divergence in population trends. Over the period 2000–15, Philadelphia added almost 50,000 people, while Detroit lost 274,154 people. In terms of demographics, Philadelphia is much more diverse. Also, a higher percentage of Philadelphia’s population has attained a bachelor’s degree or higher—thanks in part to the University City neighborhood, anchored by the University of Pennsylvania and Drexel University, and the presence of many other institutions of higher learning within the city’s limits. Given the divergence in demographics, the difference in home values isn’t surprising, but it still jumps off the page.

Philadelphia’s Financial Challenges

Like Detroit, Philadelphia has encountered fiscal challenges. And like Detroit, Philadelphia’s financial problems simmered for many years before boiling over in the early 1990s. The City of Brotherly Love became the first U.S. city to impose an income tax when it did so in 1939. (1) Philadelphia’s income tax remained in a range of 1.0% to 1.5% until the 1960s, when it started to increase, eventually reaching 3.0% in 1970 and almost 5% in 1985. (2) The increase in the city’s income tax rate was one of the leading factors in city residents deciding to leave for suburban communities. Philadelphia’s fiscal crisis peaked in 1990–91 when a structural budget deficit of $154 million was revealed, with expectations of deeper budget deficits in future years. (3) The city received financial assistance in the form of the Pennsylvania Intergovernmental Cooperation Authority (PICA). PICA sold bonds on Philadelphia’s behalf. It also required the city to adopt a five-year financial plan that had to be approved in order to gain access to capital markets and state funding. (4) Led by Mayor Ed Rendell, the city followed its five-year plan while privatizing selected services, introducing more competitive bidding for city projects, and freezing wages for city employees, all of which helped lead to Philadelphia’s recovery in the late-1990s. (5) Philadelphia also began lowering its commuter tax in 1995, converging city and suburban residents’ respective tax burdens. (6) It has been estimated that increases in Philadelphia’s city wage tax cost the city 207,000 jobs from 1973 to 2003. (7) Two separate tax commissions created in the 2000s concluded Philadelphia’s tax system was outdated and needed to be reformed. (8) In 2014, the Greater Philadelphia Chamber of Commerce released a public/private collaborative plan with the aim of organizing growth-based activity in and around Philadelphia. The chamber’s plan called for improving the city’s competitiveness, producing a well-educated workforce, creating an environment for business growth, and enhancing Philadelphia’s infrastructure. Such efforts will have a familiar ring to Detroiters too.

West Mount Airy: A Gift to Philadelphia from Detroit

The conference began with a tour of Philadelphia’s West Mount Airy neighborhood, one of the nation’s first intentionally racially integrated neighborhoods. The effort to preserve racial diversity within West Mount Airy was led by West Mount Airy Neighbors (WMAN). WMAN was founded in 1959 to deal specifically with the issue of racial integration. (9) One of the founders of WMAN was George Schermer, who tried to organize a similar effort in Detroit before coming to Philadelphia.

After Detroit’s 1943 Belle Isle uprising, Mayor Edward Jeffries formed an Interracial Commission and appointed Schermer as its director. (10) In the early 1950s, Schermer lobbied for an integrated housing development in Detroit’s west side. The development was to be called Schoolcraft Gardens. The Schoolcraft Gardens development attracted private funding and the United Auto Workers (UAW) as a partner. (11) Unfortunately, multiple forces prevented the integrated development from taking shape. First, the neighboring, all-white Tel-Craft homeowners association opposed the Schoolcraft Gardens development. Also, later on, a different Detroit mayor, Mayor Alfred Cobo, vetoed the approval of the development project. Soon afterward, the Interracial Commission was dissolved and replaced by the Commission on Community Relations, whose members would be appointed and could be removed without cause by the mayor. (12) Not surprisingly, when the City of Philadelphia offered Schermer the opportunity to head its newly created Commission on Human Relations, Schermer left Detroit. (13)

Under Schermer’s leadership, WMAN fought housing and education policies that advocated for segregation. WMAN and the neighborhood itself consisted of high-achieving, well-educated, progressively minded people, who were the demographic they looked to attract to the neighborhood. One might argue this allowed integration to work, whereas Detroit saw comparatively less educated groups across different races compete for similar jobs and economic standing, putting the groups at odds with each other.

Impressively, the commitment to diversity in West Mount Airy remains strong. Since 1980, at least 40% of West Mount Airy’s residents have been African Americans. (14) According to Sarah Zelner, who presented background information about West Mount Airy during the conference tour, the neighborhood has a strong LGBTQ presence, in addition to being diverse in terms of race and education. Efforts to maintain the neighborhood’s diversity and affirm its commitment to open dialogue include the long-running Mt. Airy youth baseball league and, more recently, monthly conversations about racial issues. In the evening of the day of the tour, the neighborhood’s main thoroughfare shut down and turned into a street fair that showcased West Mount Airy’s diverse restaurant community.

All that said, the neighborhood isn’t without its challenges. Between 1950 and 2010, West Mount Airy lost around half of its population. This loss in population has impacted the dynamics of the neighborhood in many ways, especially in terms of its educational offerings. The high school located in West Mount Airy closed in 2013—a direct result of the population loss, as well as more-affluent students enrolling in private schools in other neighborhoods. In addition, while the overall racial diversity of West Mount Airy has been maintained, African Americans have been clustering closer to the East Mount Airy and East Germantown neighborhoods, which are both predominantly black. (15) While traveling through the area, I noticed a contrast between West Mount Airy with its homes constructed of stone native to the area and East Mount Airy with housing stock of relatively poorer quality. To combat population loss and preserve the neighborhood’s identity, West Mount Airy is trying to attract more immigrants, highlighting the neighborhood’s cultural history and mixed small business community as selling points.

Gifts in Return from Philadelphia? Possible Lessons for Detroit

The background material I read on Philadelphia’s West Mount Airy neighborhood discussed housing density (as measured, for example, by homes per city block) and its correlation with racial integration. The material cited multiple studies that suggested lower housing density is more amenable to achieving greater racial diversity. (16) This might be one lesson from Philadelphia’s experiences that Detroit might want to apply as it remakes itself. The Motor City is seeking to create dense and diverse population centers within its borders, as it once had decades ago. Part of this goal is being achieved by removing blight. But as neighborhoods are reorganized, city officials may want to keep in mind how racial integration was achieved in Philadelphia and not make the housing density of newly configured neighborhoods too high. Striking the right balance between population and housing density to achieve better racial integration and higher-level services for all citizens than at present will be a challenge, but Detroit can look to some of Philadelphia’s neighborhoods for some examples to follow.

Widening the focus back to the entire city, I think the topic of city residents’ tax burdens should be explored in greater depth. As mentioned previously during my review of background material on Philadelphia and as discussed somewhat during the conference, Philadelphia has reformed its tax system in order to have the tax burden of its citizens be more similar to that of residents in the surrounding suburbs. This is yet another lesson Detroit officials might learn from Philadelphia in order to draw more people to reside within its borders. Indeed, Detroit may want to look to reform its tax system as well. When studying the tax burdens of the largest city in each state and Washington, DC, (17) the total tax payments expected from Detroiters as a percentage of their income rank in the top five. (18) When breaking down tax payments by category, Detroiters’ income tax burden ranks near the top for families making $50,000 or more, and their property tax burden is the highest among the states’ largest cities and Washington, DC. (19) While Detroiters’ sales, use, and gasoline tax burdens rank relatively low, significantly high auto insurance premiums more than make up for it. Detroiters pay more than twice as much as the next city (New Orleans) and over three and a half times more than Philadelphia, which ranks tenth. (20) Current Detroit Mayor Mike Duggan has proposed legislation that would create an auto insurance product specific to Detroit, though this proposal has its critics. (21)

Following what initiatives are and aren’t working in other cities and informing city officials and stakeholders about the results of those different initiatives is important to Detroit’s rebound. This is one of the main reasons why I attended this year’s Reinventing Our Communities Conference. The Detroit Branch of the Federal Reserve Bank of Chicago serves the function as information gatherer for the mayor’s Post-Bankruptcy Working Group, as well as the city’s group that works on affordable housing efforts. Efforts to strengthen communities in Detroit and elsewhere through philanthropic, private, and public partnerships have become more widespread in recent years. The Federal Reserve—especially the Detroit Branch of the Federal Reserve Bank of Chicago—has played a major role in bringing different types of organizations together generate solutions that will benefit those communities for years to come.

Read my next blog entry to get more details on the conference panels that I participated in.

References
(1) See p. 3 of http://economyleague.org/uploads/files/783716581668902685-the-sterling-act-a-brief-history.pdf
(2) Ibid.
(3) See p. 5 of https://www.philadelphiafed.org/-/media/research-and-data/publications/business-review/1992/brso92rl.pdf?la=en.
(4) See p. 1 of http://www.picapa.org/docs/SRFYP/SRFYP_FY16FY20.pdf.
(5) See http://www.nytimes.com/1994/05/22/magazine/mayor-on-a-roll-ed-rendell.html.
(6) See p. 31 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(7) See p. 27 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(8) See p. 15 of http://www.centercityphila.org/docs/CCR14_employment.pdf.
(9) See p. 42 of Barbara Ferma, Theresa Singleton, and Don DeMarco, 1998, “Chapter 3: West Mount Airy,” Cityscape: A Journal of Policy Development and Research, Vol. 4, No. 2, pp. 29–59, https://www.huduser.gov/Periodicals/CITYSCPE/VOL4NUM2/ch3.pdf
(10) See p. 1 of https://libdigital.temple.edu/pdfa1/Oral%20Histories/AOHWMPJZ2015030001Q01.pdf.
(11) See p. 76 of Lloyd D. Buss, 2008, “Chapter 2: City Influences Religion’s Response,” The Church and The City: Detroit’s Open Housing Movement, University of Michigan, PhD dissertation, https://deepblue.lib.umich.edu/bitstream/handle/2027.42/61748/ldbuss_1.pdf?sequence=1&isAllowed=y.
(12) See Buss (2008, p. 77).
(13) See Ferma, Singleton, and DeMarco (1998, p. 42).
(14) The share of African Americans residing in West Mount Airy was 41% as of the 2010 U.S. Census.
(15) See http://philadelphiaencyclopedia.org/archive/mount-airy-west/.
(16) See Ferma, Singleton, and DeMarco (1998, p. 41).
(17) See pp. 12-21, 24 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(18) This ranking does not apply when examining families making less than $50,000 per year. A family is assumed to be made up of two income earners and one school-age child. See p. 13 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(19) See pp. 16, 31 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(20) See https://www.nerdwallet.com/blog/studies/expensive-cities-car-insurance/.
(21) See http://www.detroitnews.com/story/opinion/2016/03/23/detroit-insurance-cut-rate-policy/82194396/.

How Tight is Michigan’s Labor Market?

By Martin Lavelle

Michigan’s labor market continues to recover from the Great Recession that ran from December 2007 through June 2009 and its own recession that started four years prior to that. Michigan’s unemployment rate peaked at 14.9% in June 2009, coinciding with the end of the Great Recession. Since that time, Michigan’s unemployment rate has dropped steadily, reaching 4.5% in August 2016. The last time Michigan’s unemployment rate was this low was in January 2001, just before the much shorter and milder 2001 recession. (1)

While Michigan’s current labor market expansion isn’t the longest in its history, (2) the fact that the state’s unemployment rate is now lower than that of the nation makes one wonder how much longer it can last. The superior performance of Michigan’s Southeast and Western Michigan Purchasing Managers indexes relative to the U.S. measures and recent indications that auto sales may have plateaued also imply that Michigan’s labor market expansion may be near a turning point. This blog examines some of Michigan’s labor market indicators to assess whether Michigan’s labor market is at or near “full employment.”

Chart: Unemployment Rates, Annual Averages: U.S., Michigan
Analysis
1011-chart-1
Source: Author’s calculations using data from the Bureau of Labor Statistics.

The chart above shows the annual averages of the U.S. and Michigan unemployment rates, respectively. Since 1976, Michigan’s unemployment rate has generally been higher than that of the U.S., especially during the Great Recession and the severe 1981–82 recession. The two instances in which Michigan’s unemployment rate fell below that of the U.S. came during the mid to late 1990s and in recent months. The fluctuation in Michigan’s unemployment rate helps to show the cyclical nature of the state’s economy, driven by the manufacturing sector, specifically the automotive industry. The lows in Michigan’s unemployment rate came during boom times for the automotive industry and the highs came during rough times. Light vehicle sales volumes hit all-time highs last year and are just below those levels year-to-date in 2016. The majority of auto analysts feel that light vehicle sales will continue to slightly fall off of their 2015 highs in the next couple of years. With the automotive industry having peaked, does that mean Michigan’s labor market has peaked as well?

Historically, another sign of a tightening labor market are increasing wages and salaries. The chart below plots the unemployment rate versus workers’ total wage and salary income in the state.

Chart: Annual Wage & Salary Growth vs. Annual Average Unemployment Rate: Michigan
1011-chart-2
Sources: Author’s calculations using data from the Bureau of Economic Analysis and Bureau of Labor Statistics.

Over the past 40 years, changes in wage and salary income have led changes in the unemployment rate. Michigan’s unemployment rate reached its previous low in 2000, a few years after the rate of growth in wage and salary income peaked. Wage and salary income growth in Michigan bottomed out in 2008, the year before Michigan’s unemployment rate peaked. As Michigan’s unemployment rate decreased after the Great Recession, wage and salary income consistently increased, accelerating in the last two years following some slowing in 2012–13. The pace of wage and salary growth edged higher in 2015 versus 2014, signaling further tightening in Michigan’s labor market. Despite the increase in wages and salaries, however, data from the Bureau of Economic Analysis show that per capita income in Michigan remains about 12% below the national average. Since 1980, per capita income in Michigan has typically been lower than in the U.S. as a whole.

When looking at wage pressures by sector, the story becomes more muddled. The chart below examines the year-over-year percentage change in wage pressures in select employment sectors in Michigan.

Chart: Average Hourly Earnings of Michigan Production Employees by Employment Sector, Year/Year Percentage Change, Not Seasonally Adjusted
1011-chart-3
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Michigan’s manufacturing sector, especially the automotive sector, led the state into the recovery it currently enjoys. However, after increasing in 2010, wages started to fall during 2011 and into 2012 as the new labor contract with the United Auto Workers (UAW) that created a lower, 2nd tier of wage ranges took effect. (3) After rebounding in 2013–15, wages are lower thus far in 2016 than in 2015, possibly because of the 2015 UAW contract that created a lower starting point for entry-level full-time workers. (4) Plateauing production volumes as light vehicle sales level off may also be a reason for lower wages in 2016.

Some sectors do support the full employment argument with their accelerations in recent months. Since the latter half of 2015, wages have moved higher in the construction and professional and business sectors, respectively. Labor shortages in building construction and within the engineering and information technology fields of the professional and business services sector have helped to create conditions for higher, more competitive wages. Wage increases have persisted in the retail trade sector since 2013. Competitive pressures from McDonalds and Walmart, as well as legislatively mandated increases in Michigan’s minimum wage, have contributed to higher wages in the retail sector. (5)

When a labor market tightens, it also means workers are increasingly hard to find. One unique characteristic of the current labor market recovery is the elevated level of those working part-time for economic reasons or involuntary part-time workers. The chart below shows what percentage of the labor force is comprised of involuntary part-time workers.

Chart: Part-Time Employment as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-4
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

As labor markets expand, the percentage of the labor force that is working part-time falls. In Michigan and the U.S., the percentage of the labor force that is working part-time continues to be higher than during the previous labor market expansion. Interestingly, the difference between the part-time segments of the labor force in Michigan and the U.S. has shrunk after widening in the months leading up to and the year after the conclusion of the Great Recession. Another interesting point is that the gap between Michigan’s current percentage of the labor force that is working part-time and the percentage working part-time in the 2000s is narrower relative to the U.S. This could mean one of two things. One possibility is part-time workers in Michigan are finding increasing success in gaining full-time employment. An alternative possibility is part-time employment was elevated during the 2000s and Michigan’s one-state recession. Therefore, part-time employment as a percentage of the labor force would have been expected to fall since the mid-2000s.

In a tightening labor market, those who found themselves unemployed for a long period of time should find their way back into the workforce. The chart below looks at the percentage of the labor force that was unemployed longer than 15 weeks.

Chart: Unemployed Civilians for longer than 15 weeks as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-5
Sources: Author’s calculations using data from the Bureau of Labor Statistics.

Mirroring the previous chart, Michigan had a greater percentage of its labor force unemployed for more than 15 weeks than the U.S., most likely a result of Michigan’s recession in the previous decade. After peaking in the 2nd quarter of 2010, the percentage of Michigan’s labor force unemployed for more than 15 weeks fell and now equals that of the U.S. Are more previously long-term unemployed workers finding work or are they dropping out of the labor force altogether? Looking at the next chart, which shows the labor force participation rates of the U.S. and Michigan, respectively, we see that Michigan has seen a higher net increase off its lows than the U.S.

Chart: Labor Force Participation Rates: U.S., Michigan
1011-chart-6
Source: Haver Analytics/Bureau of Labor Statistics.

Finally, what about discouraged workers? If a labor market is tightening, the number of discouraged workers should be decreasing. The chart below shows discouraged workers as a percentage of the labor force in the U.S. and Michigan, respectively.

Chart: Discouraged Workers as a Percentage of Labor Force, 4-quarter moving average: U.S., Michigan
1011-chart-7
Source: Author’s calculations using data from the Bureau of Labor Statistics.

Again, the same dynamics are in play from 2003 through the end of the Great Recession, with Michigan’s labor market relatively worse off because of its one-state recession. As shown in the previous chart, the gap between Michigan and the U.S. converged and is now all but eliminated. The current percentage of Michigan’s labor force that consists of discouraged workers equals that seen during the mid-2000s, whereas the U.S. hasn’t reached mid-2000s levels yet.

Conclusion
A strong argument can be made that Michigan’s labor market is at full employment. The unemployment rate is currently below that of the U.S. and nearing historical lows. Also, wage and salary growth is at its highest in almost 20 years, labor force participation is off its post-recession lows, and data focused on the marginally attached to the labor force in different ways indicate those numbers are near or at trend. Some anecdotal reports support the argument as well. Multiple firms have instituted significant wage and salary increases in order to keep their most talented employees, while others are giving prospective employees a second look after rejecting their original job inquiry. Finally, with the auto industry operating at peak production levels and historically high sales levels and the state still significantly dependent on the auto industry, Michigan’s robust labor demand growth may be coming to an end.

Footnotes
(1) We are addressing labor market tightness here, not growth rates, not restoration of past levels of labor force size. Out-sized outmigration of working age population in response to the state’s prolonged downturn in the last decade is being held in the background.
(2) Based on BLS data going back to 1976.
(3) See https://www.chicagofed.org/~/media/others/region/midwest-economy/dziczek-dabe-january-2012-pdf.pdf.
(4) See http://www.freep.com/story/money/cars/chrysler/2015/10/22/done-deal-uaw-confirms-ratification-fca-contract/74380230/.
(5) See http://www.mlive.com/lansing-news/index.ssf/2015/12/michigan_minimum_wage_to_incre.html.

Are Businesses Returning to Detroit?

by Martin Lavelle, business economist

Introduction

Detroit’s population fell by almost 50% from its peak of 1.85 million in 1950 (1) to around 950,000 in 2000. Since 2000 (2), Detroit’s population has declined at a faster rate. The U.S. Census Bureau reports that Detroit’s population stood at 680,250 as of 2014 (3). As Detroit’s population migrated elsewhere, so did many of its businesses. How many businesses have left the Motor City since around the turn of the twenty-first century? And are new businesses replacing them in the aftermath of the Great Recession (which ended in mid-2009)?

In this blog entry, I will address these questions by using the County Business Patterns (CBP) data series from the U.S. Census Bureau. The CBP data series provide the number of business establishments (4) by county and zip code. The business establishments reported in the data are sorted by employment size classes. In addition, CBP data sets provide employment and payroll data. CBP data are collected on an annual basis, but with a two-year lag. Here I will analyze business patterns by geography and industry among Detroit zip codes (and elsewhere) between 1998 and 2013.

Analysis

Figure 1 shows a map of Detroit by zip code. The zip codes shown below were used to analyze the change in the number of business establishments in Detroit over the period 1998–2013 (5).

2016 0208 figure 1

Figure 1. Map of Detroit zip codes
Source: Lowell Boileau, available at http://www.atdetroit.net/forum/messages/107211/106465.jpg.

Table 1. Percent change in number of Detroit business establishments, by zip code, 1998–2013
2016 0208 table 1

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

For each Detroit zip code area listed in table 1, I include the prominent neighborhoods and/or landmarks found within it.

Overall, the number of Detroit business establishments decreased 22.3% over the period 1998–2013, according to my calculations using CBP data. As of 2013, the city of Detroit was home to 8,817 business establishments. Approximately one-eighth of these establishments can be found in Downtown Detroit—which saw a similar share of its businesses depart as the city as a whole did over the sample period. Zip code areas that fared relatively better than the city in terms of business retention between 1998 and 2013 contain the Midtown/New Center area along Woodward Avenue, Eastern Market, some areas along East Jefferson Avenue parallel to the Detroit River, and southwest Detroit (including Corktown). These centers of commercial activity are now leading Detroit’s turnaround. Zip code areas that saw a larger percentage of their businesses leave relative to what the city as a whole experienced contain some of Detroit’s struggling neighborhoods—which include East English Village adjacent to Harper Woods and the Grosse Pointes, as well as areas near and around the old Packard plant in Detroit’s eastern industrial corridor (6).

Anyone familiar with Detroit’s narrative will likely be able to give several reasons why its business activity has declined over the past few decades. Besides the outward migration of the residential population, the downsizing and suburbanization of the local manufacturing industry, the deterioration of the city’s talent base as a result of the struggles of the Detroit Public Schools (DPS), government corruption, and the worsening condition of the city’s infrastructure are just some of the contributors to Detroit’s downward trend in business activity.

Given the narrative about Detroit, it is natural to wonder how its recent business losses compare with those of its surrounding areas. Table 2 shows the change in the number of establishments by selected areas in 1998 versus 2013. The national numbers are also given to provide another basis of comparison.

Table 2. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, by selected areas

2016 0208 table 2

Note: MSA stands for metropolitan statistical area; for further details on the Detroit MSA, see http://www.census.gov/population/estimates/metro-city/0312msa.txt.
Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

Table 2 shows that despite the 2001 and 2007–09 recessions, the number of business establishments in the nation as a whole increased over the period 1998–2013. However, the number of business establishments declined throughout most of Michigan during this time. Wayne County (including Detroit) and the Detroit metropolitan statistical area (MSA)—encompassing Macomb, Oakland, and Wayne counties—experienced less severe business losses than the city of Detroit. Nearby Washtenaw County, whose county seat is Ann Arbor (7), still saw a slight drop in the number of business establishments over the sample period, but fared much better relative to the city of Detroit.

When examining industry business patterns in the city of Detroit, it is not surprising to find that in percentage terms, manufacturing experienced the greatest loss of businesses over the period 1998–2013. Table 3 shows the change in the number of business establishments by industry during the sample period.

Table 3. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, in the city of Detroit, by industry

2016 0208 table 3

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

One may be somewhat surprised by which subsectors of manufacturing experienced the greatest losses of business establishments (not shown). When analyzing the business pattern data by NAICS (8) code, I found that transportation equipment manufacturing—which includes motor vehicle and parts manufacturing—experienced a sizable drop in the number of establishments (41.5%); but this decline wasn’t the largest one. The manufacturing subsector that experienced the largest decline in establishments in percentage terms was printing and related support activities (–75.3%), followed by machinery manufacturing (–69.9%) (9). When just looking at the raw numbers of business losses among the manufacturing subsectors, I found that fabricated metal product manufacturing experienced the greatest losses: this subsector lost 86 establishments from 1998 through 2013 (almost a 50% contraction). Of the 26 zip codes I analyzed, 17 of them saw greater-than-50-percent declines in the number of manufacturing establishments.

Conclusion

During the 1998–2013 period, the city of Detroit lost business establishments every year. Detroit lost a higher percentage of establishments than its surrounding areas, the state of Michigan, and the United States. The most significant sectorial losses of businesses were from the goods-based side of the economy—most notably, from manufacturing. While the most severe manufacturing losses weren’t from direct transportation equipment manufacturing, they were in complementary industries, such as fabricated metal manufacturing, machinery manufacturing, and printing activities. Geographically speaking, establishments close to Detroit’s border with the Grosse Pointes and those around the former Packard automobile assembly plant shut down in greater proportions than those in other parts of the city.

Because the most recent data available are 2013 data, I am unable to provide any definitive insight into any possible changes in the trend of establishments leaving Detroit since the city exited bankruptcy in late 2014. By many anecdotal accounts, numerous new establishments have settled in the Downtown, Midtown, Corktown, and other select neighborhoods where the most significant public and private investment has occurred of late. As we receive more and newer data, it will be interesting to see whether new business establishments are sprouting up elsewhere in Detroit. Will business (and public) investment in Detroit remain concentrated in its high-activity areas or begin to noticeably branch out to the city’s relatively less active neighborhoods?

(1) See http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html
(2) See http://censusviewer.com/city/MI/Detroit
(3) See http://www.freep.com/story/news/local/michigan/2015/05/21/census-estimates-michigan/27661485/
(4) See https://ask.census.gov/faq.php?id=5000&faqId=487 for what is considered a business establishment versus a business firm. In this blog entry, businesses refer to business establishments.
(5)Please note, however, that the 48203 zip code area also includes the city of Highland Park and the 48212 zip code area also includes the city of Hamtramck. The 48239 zip code area lies predominantly outside the city of Detroit, so it wasn’t included in the analysis.
(6) See http://archive.freep.com/interactive/article/20121202/NEWS01/120823062/The-Packard-Plant-Then-now-interactive-comparison-photos.
(7) See http://www.annarborusa.org/live-here/facts-rankings
(8) NAICS stands for North American Industry Classification System. For more details, see http://www.census.gov/eos/www/naics/ and http://www.bls.gov/bls/naics.htm.
(9) I only considered manufacturing subsectors with more than 50 establishments in 1998.

Is the buzz surrounding STEM justified?

By Martin Lavelle

STEM is an acronym that stands for science, technology, engineering, and math. It is associated with education and is often mentioned in tandem with policymakers’ desire to increase the number of graduates in STEM-related occupations and fields. In recent years, the campaign to increase the number of STEM graduates has become more aggressive—even the White House has shown deep interest in producing more of them /1.

STEM education has received such attention because many contend that the U.S. economy will need more STEM experts as time progresses and the economy evolves /2. Moreover, STEM has received greater notice of late because it is believed that the analytical and technical skills required to work in a STEM-related field provide opportunities for workers to merit higher wages and salaries than those who work in non-STEM-related fields.

In this blog entry, I will compare STEM-related versus non-STEM-related employment and wages in Michigan, the neighboring states of Indiana and Ohio, and the U.S. as a whole over the period 2003–13. This period was chosen because it captures Michigan’s one-state recession that lasted from 2003 through 2009, the nation’s Great Recession (which lasted from the end of 2007 through mid-2009), and the subsequent recovery from them /3. The data come from the U.S. the Bureau of Labor Statistics’ (BLS) Occupational Employment Statistics (OES) database /4. The criteria to define STEM- and non-STEM-related occupations were taken from the U.S. Census Bureau /5. All calculations were done using the annual May releases of the OES data by state /6.

Employment

Over the period 2003–13, Michigan’s total employment fell by 7.8%, according to the state’s OES data. After splitting up the period into recessionary (2003–09) and post-recessionary (2009–13) periods, one can see that employment decreased by 10.2% during Michigan’s one-state recession but rebounded afterward, going up by 2.7%. By separating STEM- and non-STEM-related employment growth, one will note that STEM employment grew at a faster pace. Figure 1 shows employment in STEM-related fields increased (on net) by 9.7% in Michigan during the 2003–13 period. In sharp contrast, employment in non-STEM-related fields decreased (on net) by 10.1% in Michigan over that span.

Figure 1: STEM- versus non-STEM-related employment growth in Michigan, 2003–13
Figure 1Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Michigan’s STEM employment growth is striking when compared with the STEM employment growth of its neighbors Indiana and Ohio, as well as the nation as a whole. Figure 2 compares STEM employment growth in these three Midwest states and the U.S. In 2003–09, STEM employment (on net) increased just under or moderately above 10% in Indiana, Ohio, and the U.S., while Michigan STEM employment decreased slightly. Since 2009, Michigan’s STEM employment growth increased at a faster rate than that of Ohio and the U.S., but at a slower rate than that of Indiana.

Figure 2: STEM employment growth in Michigan, Indiana, Ohio, and U.S., 2003–13
Figure 2Note: 2003=100.
Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

During 2003–13, the percentage of workers in STEM-related fields as a share of total Michigan employment increased from 11.4% to 13.6%. Remarkably, STEM-related employment grew as a share of total employment in Michigan during a period when the state’s overall employment decreased. Similar increases in the proportion of STEM employment were seen in Indiana, Ohio, and the U.S. The areas listed in table 1 experienced a 1.5 to 2 percentage point increase in their respective shares of STEM-related employment.

Table 1: STEM-related employment as a share of total nonfarm employment in U.S., Michigan, Indiana, and Ohio
Table 1Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Using 2013 data from the final column of table 1, I determine that Michigan’s total work force is 13% more concentrated in STEM occupations than the nation’s by calculating Michigan’s STEM location quotient (see third column, last row of table 2). Comparing the composition of Michigan’s STEM workers with that of the nation’s helps explain this difference in concentration. To a large degree, the higher concentration in STEM employment among Michigan’s work force is due to the state’s much higher concentration of jobs in architectural and engineering occupations relative to the nation’s: The state’s STEM work force is 48% more concentrated in this occupational category than that of the nation when calculating the category’s STEM location quotient /7. In contrast, Michigan’s concentrations of employment in life, physical, and social sciences occupations and computer and mathematical occupations are moderately lower than the nation’s.

Table 2: Distribution and concentration of STEM workers by occupational category in Michigan and U.S., 2013
Table 2Notes: For all but the last row, Michigan Location Quotient = ((MI STEM category employment/MI Total STEM employment)/(U.S. STEM category employment/U.S. Total STEM employment)). For the last row, Michigan Location Quotient = ((MI Total STEM employment/MI Total nonfarm employment)/(U.S. Total STEM employment/U.S. Total nonfarm employment)).
Sources: Author’s calculations based on data from Haver Analytics and the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Wages and income

In order to compare the wages of STEM- and non-STEM-related occupations, I divided each occupation’s STEM (or non-STEM) employment level by the total STEM (or non-STEM) employment level, calculating each occupational category’s weight. I took that weight, multiplied it by the occupation’s annual median income, and then deflated that with the Personal Consumption Expenditures Price Index from the U.S. Bureau of Economic Analysis /8. Using the weighted averages, I determine the average real annual median wage for a STEM-related occupation in Michigan barely increased during 2003–13. Meanwhile, the average annual median wage for a non-STEM-related occupation decreased 5.5% over that span. Figure 4 below depicts two noteworthy trends. First, the average annual median wage of a worker in a STEM-related field increased at a faster rate during Michigan’s one-state recession (2003 through 2009) than during the Great Recession (end of 2007 through mid-2009). After 2009, annual median wages of all workers, in STEM or non-STEM occupations, remained below 2009 levels.

Figure 3: STEM- versus non-STEM- related real average annual median wage growth in Michigan, 2003–13
Figure 3Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Annual median incomes for STEM-related occupations in Michigan increased at a slower rate relative to those for STEM-related occupations across the entire U.S. during 2003–13, as figure 4 shows. The nation’s STEM-related occupational incomes continued to grow through the end of the national recession, while Michigan’s STEM-related occupational incomes fell during 2007–12 but then rebounded slightly in 2013. Michigan’s STEM-related real income growth performed similarly to Ohio’s, especially from mid-2009 onward; however, it performed worse than Indiana’s STEM-related real income growth over the period of study.

Figure 4: STEM real annual median income growth in Michigan, Indiana, Ohio, and U.S., 2003–13
Figure 4Note: 2003=100.
Source: Author’s calculations based on data from the U.S. Bureau of Labor Statistics, Occupational Employment Statistics database, available at www.bls.gov/oes/tables.htm.

Conclusion

Most of Michigan’s employment gains since the end of the Great Recession have come in STEM-related occupations. However, real wage growth for STEM jobs has not rebounded very quickly since mid-2009. Meanwhile, non-STEM-related employment only started rebounding in 2012. Notable decreases in employment for specific occupations (chosen based on size) over the 2003–13 period include those in production (–20.0%), transportation and material moving (–21.8%), and construction and extraction (–38.6%), all of these being non-STEM-related fields.

The data on real wages by occupation, especially for those in STEM-related fields, are quite surprising when viewed more closely. Over the period 2003–13, annual real wages fell for computer and mathematical occupations, veterinarians, electrical engineers, and general pediatricians. But significant real wage gains were made in occupations such as chemical engineers, survey researchers, family and general medical practitioners, and physicists.

If forecasts for STEM job growth come to fruition, STEM-related fields will make up an increasingly larger percentage of total employment /9. Most likely this will not be the result of just higher employment levels for STEM-related occupations as currently defined. Rather, a greater number of occupations that are not presently regarded as being affiliated with STEM may adopt STEM-based applications over time, also boosting the share of STEM-related employment. Regardless of what may happen in the future, it’s clear that Michigan workers with expertise in a STEM-related field were well served by it during 2003–13—a period that saw great volatility in Michigan’s economy.

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1. See www.ed.gov/stem
2. See www.stemdcoalition.org/wp-content/uploads/2013/10/fact-Sheet-STEM-Education-Good-Jobs-and-American-Competitiveness-June-2013.pdf.
3. For more on the Great Recession, see www.cbpp.org/cms/index.cfm?fa=view&id=3252.
4. See www.bls.gov/oes/.
5. See www.census.gov/people/io/files/STEM-Census-2010-occ-code-list-xls.
6. See www.bls.gov/oes/tables.htm.
7. By inference, this sharp engineering concentration is not surprising given that much of the state’s research and development strengths can be found in the automotive industries (see http://michiganeconomy.chicagofedblogs.org/?p=561).
8. See www.stlouisfed.org/publications/re/articles/?id=2390.
9. See Posted in Employment, Michigan's Economy, Midwest Economy