One figure that has alluded many is the actual underemployment figure in Michigan. We have even dedicated a previous post to this topic. While the Bureau of Labor Statistics reports these figures at the State level, no agency reports the figures at the city level. We have heard recent figures being tossed around that put Detroit underemployment at roughly 40%. Therefore, the Center for Urban Studies has decided to create a proxy which can be used as a conservative estimate. To this end, we took the ratio of underemployment to unemployment at the State level and then multiplied those ratios to Detroit unemployment. This assumes that the proportion of unemployed to underemployed holds for Michigan and Detroit. It is likely higher in Detroit and therefore is also likely a conservative estimate. Nonetheless, we have estimated the underemployment rate for Detroit to be at least at 40.4%.
One can see the trends in underemployment back to 2005 using BLS data for the state level and applying the ratio to Michigan Labor Market Information data for Detroit. It seems to be leveling off around 40%, but again this is likely a conservative estimate.
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This blog post is structured differently than former posts. First, we give a brief synopsis of two articles that assess the economic impact of the MEGA tax credit program. We then explain those differences between the Upjohn Institute report, which shows a positive gain, and the Mackinac Policy Center report, which shows no benefit or slight negative impact. A third conducted by the Anderson Economic Group is also addressed though not abstracted. Finally, we explain the fundamental role of these credits in relation to Michigan’s long term survival and indicate why these incentives are so attractive to policy makers.
Citation: Bartik, Timothy and George Erickcek (2010). “The Employment and Fiscal Effects of Michigan’s MEGA Tax Credit Program.” W.E. Upjohn Institute for Employment Research
Abstract: This paper examines the employment and fiscal effects of the Michigan Economic Growth Authority (MEGA) tax credit program, while contesting previous analyses regarding MEGA’s ineffectiveness. The authors obtained data from the Michigan Economic Development Corporation (MEDC) on the paid MEGA tax credits, and the job creation and retention numbers from the tax credits for the years, 1996 – 2007. Bartik and Erickcek used the Upjohn Institute’s version of the REMI model to compute the economic impacts from the program employing a lower-bound. Using the lower bound, they found that the average MEGA job cost was less than $4,000 per year. They note that the benefit to cost ratio of the MEGA program is about 5:1 and that while it only accounts for .03% of Michigan’s Gross State Product (GSP), it yields .033-.066% of Michigan’s GSP. However, they determine that if MEGA selects the right business 8.2% of the time then it will essentially be revenue neutral, taking into account the multiplier effects. However, if MEGA can increase its batting average to .168 then it would yield a $33 million fiscal surplus. Bartick and Erickeck suggested choosing export base activities with strong local linkages. This suggests that scaling up the program would make fiscal sense and efforts to increase the probability of business success have the potential to make dramatic improvements on Michigan’s economy.
Citation: Lafaive, Michael and Michael Hicks (2005). “MEGA: A Retrospective Assessment.” Mackinac Center for Public Policy
Abstract: Lafaive and Hicks test whether MEGA credits were responsible for economic gain (employment or income) at the county, state, and sector levels in Michigan. Using a fixed-effects instrumental variable model with spatial and time autocorrelation functions, they found no employment or per-capita income gains. They used an OLS and 2SLS (two-stage least squares) to test all of these relationships and allowed for time lags of up to 7 years from approval. They found a decline in construction and manufacturing as a result of these credits. While the MEGA credits had no statistically significant effect on the construction industry according to the OLS model, the 2SLS model indicated that “for each $1,000,000 MEGA credit, the average construction worker will see his total annual wages drop by less than a quarter.” They account for their results being different from previous studies, because they do not factor in indirect economic impacts while most other studies include these impacts. Therefore, the authors only take into account those jobs directly created by the MEGA credits and exclude any potential spin-off effects. They do so, because they note that economic multipliers are subjectively employed. More...
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See the latest on money being directed to entrepreneurs in Michigan, some of which is through business incubators (for more on business incubators, visit our abstracts-see business assistance)http://www.crainsdetroit.com/article/20100611/FREE/100619959.
For an evaluation of the impact of business incubators, see our preliminary slides: http://www.econdev.cus.wayne.edu/blog/post/PRELIMINARY-FINDINGS-Testing-the-Differential-Effect-of-Business-Incubators-using-Control-Measures.aspx
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Recently, the Center for Urban Studies conducted a nationwide study of businesses. Our sample was divided between incubated firms (35.4%) and non-incubated firms (64.6%). Roughly 900 new businesses between incubated and non-incubated firms (average= 15 years; median =8 years) responded to our survey which asked them, among other questions, which factors were the biggest limit and support to the “survival and/or growth of your organization” as well as what factors “would be the most helpful thing for your business currently?” This entry highlights our preliminary findings in this regard.
BIGGEST LIMITING FACTOR:The top 10 limiting factors may come as little surprise to most businesses and economic developers with few exceptions. The most frequently cited (179) limit was none other than the economy or economic factors. This was closely followed by the lack of capital/financing (177). Other financial concerns included Revenue/Sales (44) as well as the business/market environment (59) and other businesses/competitors (35).The government at the federal, state, and local levels also played a multifaceted role as a big limiter in some business start-ups eyes. This included the lack of general support or involvement in their business (46) which posed a greater challenge for them than problems with regulation or taxes (30).Other honorable mentions included factors systemic to the business such as their business development (marketing, networking, and planning; 55) and the management/personnel and organizational structure of the firm (34).
TABLE 1: Top 10 Biggest Limiting Factors
BIGGEST SUPPORT: On the other hand, businesses said the largest supporting factor was their own business development activities (marketing, networking, and planning; 140). The next four supporting factors included business from clients (80), revenue or sales (78), economy and other economic factors (74) and capital and funding (74). This list included business characteristics (leadership, durability, perseverance, and professionalism; 62) as well as respondents who thought the business was doing well because of his or herself (32) or customer responsiveness to their products (36). While 46 firms thought Federal/State/Local government support/involvement was a limiting factor, 35 thought it was the biggest supporting factor. More...
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The Center for Urban Studies Economic Development Unit recently pulled together some of the key economic indicators that are important to Detroit. Our main focus was on employment, housing, and education. We detail each of these indicators below.
The unemployment rate for Detroit as of March 2010 was 25.3% while it was 10.2% in the US and 14.9% in Michigan (not seasonally adjusted). While the underemployment rate was likely considerably higher, the data is hard or impossible to find at the sub-state level. The chart below was constructed using Michigan Labor Market Information data for the last twenty years. July 2009 represented the peak for the unemployment rate in Detroit within the last two decades, at 27.6%. It has continuously dropped through December (24.5%) and has briefly leveled off between 24.8% and 25.3%.
While it seems that the unemployment rate has dropped briefly in the first three months of this year, taking into account the twenty year average for those months indicate another story. This second graph takes the ratio of unemployment in each month over the last twenty years as a ratio of the average by month. Therefore, one can see the deviations by month compared to the average for that month over the 20 year period (1990-2010).
The months where the deviations above normal were the highest were in May 2009 and June 2009. The unemployment rate for these months was double the 20 year average for each month respectively. More...
The Center for Urban Studies abstracts all the articles we can find on local economic development incentives (See other abstracts). This article is featured because it highlights the way that several economic development incentives are distributed in Ohio and the role of targeting. Given similar manufacturing sectors, it is certainly relevant to Michigan.
“Measuring the Distribution of Economic Development Tax Incentive Intensity”- Greenbaum, Russell, and Petras (2010)
This article looks at the characteristics which affect the distribution of the economic development incentive programs (CRA, EZ, and JTCT) in Ohio. It focuses on whether these programs tend to meet one of the two goals of economic development incentives generally: (1) addressing efficiency concerns or (2) addressing equity concerns. Among these, the authors focus on the issue of equity and the role that these policies play in targeting distressed areas and industries. Using a spatial OLS model, Greenbaum et al. find that incentives are more likely to be targeted at industries as opposed to distressed areas generally. The correlation between manufacturing’s share of employment and the distribution of economic development incentives for those programs in Ohio was .82. However, once one controls for the number of employees, the relationship tends to show little evidence of targeting the industry. Furthermore, controlling for the number of employees in a county, they determine that rural areas received, on average, 1.8 times as many incentives and roughly 2.4 times the value of those incentives per establishment.
For the full link, please visit (http://edq.sagepub.com/cgi/reprint/24/2/154)
It is no surprise that Michigan has lost manufacturing jobs in the last 10 years, but we have been losing those jobs 10 years before that, and 10 years before that, and 10 years before that, and roughly 10 years before that. While many, according to Dr. Charles Ballard, Professor of Economics at Michigan State University, point at the current gubernatorial administration for the loss of manufacturing jobs, he notes that the trend has existed since 1963.
Speaking at Wayne State University’s Economics’ Department on April 16, 2010, Dr. Charles Ballard presented an overview of Michigan’s economy. He highlighted some of the central concerns which have been noted elsewhere in the blog including the loss of our manufacturing sector, the heavily subsidized Michigan film industry, the role of entrepreneurship (see also our preliminary findings from our business incubator research), as well as the growing differential in income between those who have and have-not, our underinvestment in education (k-Ph.D.) for a 20th century economy, and what industries will position Michigan for growth. More...
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We are the Center for Urban Studies Economic Development Unit. We have several authors who contribute directly and indirectly to this blog.
Lyke Thompson, Ph.D.
Director of the Center for Urban Studies and Professor in Wayne State University's Political Science Department, has specialized his research on the urban political and economic environment. A primary focus has been centered on municipal economic development, urban policy, and the determinants of economic growth.
Eric Stokan, MA.
Research assistant at the Center for Urban Studies Economic Development Unit. Mr. Stokan serves as the lead researcher of the Unit, analyzing economic data using various statistical techniques. Mr. Stokan is interested in questions concerning municipal economic growth and industry mix as well as determinants of local economic incentive adoption.
Research technician at the Center for Urban Studies Economic Development Unit. Ms. Hennessey researches the effectiveness of local economic development incentives. Specifically, she has conducted a thorough investigation of brownfields and is currently working on public transit.