For generations the broad swath of America along the Great Lakes has been regarded as something of a backwater. Educated workers and sophisticated industries have tended to gather in the Northeast and on the West Coast, bringing with them strong economic growth.
Yet increasingly these perceptions are outdated. The energy hotbeds of Texas, Oklahoma and North Dakota may have posted the strongest employment growth since 2007, and were among the first states to gain back all the jobs lost in the recession. But a group of less heralded places from Minnesota to western Pennsylvania have also enjoyed a considerable revival, as energy, manufacturing, logistics and other basic industries have rebounded.
Every Great Lakes state except for Illinois now has an unemployment rate below the national average, a stunning reversal from previous decades.
Ironically the state most popularly associated with long-term economic decline, Michigan, has been lauded in a Pew study as perhaps the ”biggest success story.” From the state’s nadir of household employment in November 2009 through this July, the Wolverine State has added 302,543 jobs, a 7.2% increase.
An Industrial Comeback
One clear key to improving conditions in Michigan and elsewhere is the revival of America’s industrial economy. Following a generation of falling employment, the sector has been on something of a rebound since 2010, adding some 855,000 jobs. Although many of these new jobs are in the Southeast and Texas, Great Lakes states have been at the center of the turnaround. The fastest growth in industrial employment over the past five years has been in three Michiganmetro areas -- Detroit, Warren and Grand Rapids – and Toledo, Ohio.
Structural and political factors are behind the Midwestern recovery. Rising wages in China and the North American energy boom have helped make U.S. companies more cost competitive. German electricity prices, for example, are almost three times the average for the United States. Energy production has been a major driver in large swaths of the heartland, notably Pennsylvania, Ohio, and Oklahoma, where fracking has sparked new development.
This growing competitiveness can be seen in a surge of capital investment. Four of the top 10 statesfor new plant and equipment investment in 2014 are in the Great Lakes region, according to Site Selection Magazine: Ohio, Illinois, Michigan, and Pennsylvania.
Changing Geography Of Human Capital
For generations the Great Lakes has been hemorrhaging people to the rest of the country, mainly the South and West. But that outflow has recently slowed, and in some cases reversed. According to demographer Wendell Cox, the rate of outmigration from Cleveland and Detroit has been cut by half or more while some metro areas, including Indianapolis and Columbus, Ohio, are firmly in positive territory. In contrast, Los Angeles, New York and even the Silicon Valley hub of San Jose continue to lose people to other regions.
More surprising is the movement of younger college-educated people. American Community Survey numbers show some of the fastest growth in the population of educated workers between 2005 and 2013 occurred in places such as Pittsburgh, Columbus, Indianapolis and, yes, Cleveland, which, according to Cleveland State’s Richey Piiparinen, are attractive due to lower costs and a more family-friendly environment.
Another analysis of the changes in the population of educated workers since 2005, by Mark Schill at the Praxis Strategy Group, reflects this shift. The rate of increase in the population of people 25 to 35 with graduate degrees was slightly higher in Pittsburgh than in San Francisco. Grand Rapids, Buffalo, Indianapolis, Columbus and Louisville did even better (albeit off low bases). These citiesare even considered something of new “hipster havens,” as young people look to these old industrial cities as better bargains for life and work.
This brain gain parallels another important shift — the growing relevance of the Great Lakes workforce to companies here and around the world. The region already possesses the nation’s largest store of engineers in the country. STEM employment in a host of fields from manufacturing and medicine to business services is surging fast in many of these areas. Between 2004 and 2014, according to an analysis by Schill, several Midwestern states — Iowa, Michigan, Oklahoma, the Dakotas — added STEM jobs at double digit rates, equaling the percentage increases enjoyed by California and easily outpacing New York.
It turns out that much STEM growth takes place out of the high-profile world of search engines, social media and “disruptive” business service firms. In many cases technical innovations, in the words of the French sociologist Marcel Mauss, constitute “a traditional action made effective,” often in manufacturing, medicine and other fields not always associated with “tech.” The social media and search explosion, so prominent in the Bay Area, home to a remarkable 40% of such jobs, often obscures the serious innovation taking place in the Midwest. For example, much of the earliest advances in self-driving vehicles came not from Google but tractor maker John Deere.
As it looks to develop auto software for cars, Google looks to, in the words of the autonomous car project’s director, “a lot of amazing companies in the Detroit area and international than know how to make cars.”
The Great Lakes position as an innovation center is based on a unique combination of engineeringschools and a high concentration of engineers. Dayton and Detroit rank among the top 12 metro areas in the country in terms of engineers per capita, with a higher concentration than Boston, San Francisco, New York, Los Angeles and Chicago.
One particular hot spot is the area around Warren and Troy, Mich., sometimes referred to “automation alley.” This is where software meets heavy metal, with a plethora of companies focusing on factory software and new computer-controlled systems for automobiles. It is home to engineering software firms like Altair, which has been expanding rapidly, and also where General Motors recently announced plans for a $1 billion tech center, employing 2,600 salaried workers.
Other tech development has been tied to the health care industry, including such regional standouts as the Cleveland Clinic and Mayo Clinic. Madison, Wisc., has a strong government and education employment base but also is home to growing number of technology firms, with information employment since 2009 up an impressive 36.1%. But much of the growth is related to health care, with the leading local company being medical software maker Epic, which employs 6,800 at its sprawling campus in nearby Verona.
Qmed ranks California as the best state for medical device makers, but also ranking highly are Minnesota, Indiana, Pennsylvania and Wisconsin.
In the coming years, more talent should be heading to these area. Housing prices in the San Francisco Bay Area, Los Angeles and New York are at least two to three times higher than most Great Lake metro areas. This is a boon to those who bought far in the past, but a barrier to entry to young aspirational families. To live in San Francisco, particularly for those who hope to raise a family, is increasingly impossible.
It has also led some companies to locate elsewhere, particularly to the Pacific Northwest. In 2011, 1 in 7 people in the Bay Area searched Redfin.com for homes outside of the Bay Area. Now it’s 1 in 4. Adam Wiener, Redfin’s chief growth officer, announced to other executives last month: “The dam has broken.”
Potential Threats
Ultimately the durability of the Great Lakes recovery depends on building off its natural strengths in engineering, its central location along water routes, ample natural resources and low living costs. Pro-business policies have enhanced these advantages and made several Midwestern governors intoserious national political figures, namely Snyder in Michigan, Walker in Wisconsin, and Ohio’s Kasich.
Yet there are serious clouds on the horizon, perhaps the biggest of which is looming EPA greenhouse gas regulations, which could shut down many coal-fired power plants in the region and raise electric rates.
International forces – notably the devaluation of the Chinese yuan – threaten the industrialresurgence. A strong dollar tends to make exports pricier and imports more competitive. Such changes may not matter too much on the coasts, but Midwestern states are far more dependent on manufacturing. According to the U.S. Bureau of Economic Analysis, many of the states with the highest percentage of their GDP tied to manufacturing are in the region, led by Indiana, where 25%of GDP is tied to industry, followed closely by Iowa, Ohio, Wisconsin, and Michigan.
Ultimately the Great Lakes cannot recover fully unless it continues the revival of its core industries, while expanding in other fields based on the movement of skilled labor coming to the region. If the region can continue its progress, it will be a major boon not only to the people who live there, but to the country that needs an infusion of economic sanity, and down to earth production, to complement the growth of finance, media and communications that dominate so many business headlines.
This piece first appeared in Forbes.
Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.
Photo courtesy of BigStockPhoto.com.
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