Thursday, June 17, 2010

More on jobs and people in Michigan

Olivier Blanchard and Lawrence Katz did an important empirical study of regional adjustment to employment shock in 1992 (link). Here is their central conclusion:

"We have shown that most of the adjustment of states to shocks is through movements of labor, rather than through job creation or job migration." (54)

In other words, they find that the US labor market is fairly well integrated, and an extended period of unemployment and low wages leads workers to seek new opportunities in other regions. (Here is a recent book by Katz and a collaborator; The Race between Education and Technology.)

What implications does this have for Michigan? Let's say that Michigan's unemployment rate will adjust to approximately the national rate by 2020, and that the national rate will recover to 6% by then. This implies 6% unemployment for Michigan, compared to 14% today. Let's assume that less than half of the recovery comes from new and imported jobs. What does this imply for out-migration and population loss for the state?

The arithmetic is straightforward. There are currently about 4.2 million jobs in Michigan and 681,000 unemployed workers, for a labor force of about 4.9 million. (Here is a page of data from the Bureau of Labor Statistics for Michigan; link.) What would it take to bring Michigan's unemployment rate down to 6% by 2020? Here is one solution: 150,000 new jobs and 250,000 out-migrants from the labor force. And assuming that each worker has one dependent on average, this means a loss of about 500,000 people from Michigan's current population of about 9.9 million--for a total population of 9.4 million in ten years.

This is a significant but not overwhelming loss of population -- about 5%. And the number of jobs required on this scenario is moderate and achievable -- 150,000 new jobs in ten years. This amounts to about 4% jobs growth per year.  We can make some educated guesses about the demographics of the population that leaves the state -- they are likely to be young, they are likely to have children, and they are likely to be better educated than the general population. So the economic and social impact of this exodus is likely to be greater than their 5% share of the general population. But all of that conceded, it would appear that there is a reasonably achievable pathway for Michigan to dig itself out of its current crisis.

So let's get serious about preparing the ground for a healthy recovery; let's enhance K-12 education, extend the reach of university attainment, improve the quality of life in our cities, and get serious about redesigning our state's fiscal system.