Facing Down the Headwinds That Block Michigan Progress

The man at the helm of the Michigan Department of Labor & Economic Opportunity shared half a dozen key headwinds that are blocking the state’s progress in our bid to return to Top 10 status on multiple fronts as he delivered the keynote address at Thursday’s 2020 Business Recognition Breakfast hosted jointly by Cornerstone Alliance and the Southwest Michigan Chamber of Commerce.

Jeff Donafrio, who was appointed to the organization created by Gov Whitmer last summer to bring together some critical state functions that look at the future of our state and our competitiveness.

Donafrio says that the mission of his organization is to expand economic prosperity for all, “To make sure that everyone has the opportunity to succeed within our state. If we’ve achieved our mission, the vision is that Michigan is a place where people, places, communities and businesses all have the economic opportunity and the resources they need.”

Unfortunately there are key headwinds that are stunting that progress on multiple fronts, and Donafrio gave the Southwest Michigan business community a peek behind the curtain at what’s hampering our progress.

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His organization includes housing functions, economic development functions, workforce development functions, and the labor functions of state government. It’s about 16 different agencies and 2,500 individuals who work as his colleagues throughout the state.

Donofrio argues that “The things that we do are really important, and they are important here as well. Next door to Houndstooth where I had dinner last night in Benton Harbor, is a project that we worked with and helped with incentives. The Benton Harbor Flats. We’re hopeful they’ll be breaking ground soon here, as the state put $1.5-million into that project, and it will be great for the Arts District in Benton Harbor.”

He notes, “There are a number of other things we’ve done as a state. We’ve helped with apprenticeships, with worker training, with affordable housing, and most recently we awarded $2-million last year to the Going Pro Talent fund to Kinexus Group in Benton Harbor.”

Donofrio adds, The importance here is that we’re trying to be your partner from the state, trying to help make the ecosystem here in Southwest Michigan successful. So that you have the resources necessary to meet the business needs and the talent needs locally. So, what is facing our state?”

Here is more of his story from the keynote address:

“I came from the city of Detroit, and was there for about 5 years as workforce development director. We did something where we started an endeavor with JP Morgan Chase and Jamie Diamond to pay for a study that told us where the workforce system in Detroit is today in relation to other communities and in relation to success and opportunity.

We did that same thing with the state. Economists from the University of Michigan, MSU, the Center for Automotive Research, IHS, and others and said ‘we don’t want to assume we know what’s happening, so tell us what the headwinds we’re facing are going to be.’ They gave us six.

  • Economic mobility is a bit stalled here both nationally and in Michigan.
  • Skills and credential gaps persist despite a whole bunch of available jobs.
  • Too many Michiganders still face non-skilled barriers to opportunity to keep moving along a career pathway.
  • The talent pool is just not growing fast enough. The 2010 Census showed we were one of the few states to lose population. But, we’ve grown and we’re still potentially going to lose population again in the near future.
  • The future of the economy poses some risks to us, because of automation and the exposure that we have as a state to recession.
  • Our ecosystem is just not generating enough economic growth.

For most of the 20th century here in Michigan, we’ve kept pretty much in line with the average per capita income of the U.S. as a whole. That started changing in 2001. Many will remember in 2001 we had a single state recession. Michigan really felt it when no other state was feeling it. By 2009 we had not recovered from that single state recession where we fell below household income, average per capita income, of the U.S. So, we fell even further. Though we’ve grown for the last ten years, that growth has not gotten us back to average. So at this point we’re a below average state when it comes to income.

The income growth has happened, because there has been a lot of growth in the last ten years, but it has not gone to everyone here in the state. For 60-percent of Michiganders, they are either treading water or they’re going backwards in income. That’s a concern for us when we try to have an economy that includes everyone.

We know that there’s a skills gap. We know that education in particular is highly correlated to income. So if we want to change that trajectory, we have to make sure that education is going to be a key component of that.

If we want to make gains, education is going to be really critical. Also, 70-percent of jobs are going to require some sort of post-secondary education by the year 2030 or 2040.

For most folks if you were in poverty growing up, you’re likely going to be in poverty as an adult. We have to attack the systematic roots of poverty, and attack the systematic roots of why folks aren’t getting the opportunity they need, and we have to do it across the board. It can’t be just one silver bullet saying if we just do something different with housing, or did something different with childcare, we would solve this problem. There has to be a systematic analysis of how we change the trajectory here.

For the first time in 20 years there are more jobs posted, than there are individuals saying they are looking for work. That’s a different place Michigan is in today than it has been really for most of my professional working career. Making sure we have enough Michiganders who are ready to go is going to be important.

We are potentially going to see a population decline in Michigan, so by 2030 if you take a more balanced forecast of both in-migration and out-migration from the state being about neutral, we start declining. We have more deaths than births in this state. That’s why immigration has been such an important factor in Michigan. One of the key reasons why we’ve grown as a state in the last ten years has been the number of immigrants coming to our state. We have gotten a little bit of migration from the Midwest particularly, but it has been that immigration that’s critical. It has fallen by 56-percent in the state of Michigan in the last three years, largely because of changing federal laws. It’s even worse for those high-skilled immigrants that employers are looking for as well, to help them grow, particularly in the STEM fields.

We need to look at ways that are both going to attract people from Midwest states to Michigan, and attract people from the coasts. In the Silicon Valley, on average, it costs $1.6-million to buy a house, and it’s $163,000 in Michigan. You can buy a lot for what you make, and have a great quality of life here, and that is beginning to resonate. One company told us they felt more welcomed here in Michigan than in any other state they’ve been in, and that’s because our people say we want them to come and to be successful, and grow here.

The economic shift continues to pose threats to Michigan families. Despite the fact that we’ve made some progress here, in the last few years on diversifying our economy, we’re still the second most exposed to a recession of any state in the country. So that means that when the U.S. economy gets a cold, we get the flu, because it just hits us that much harder.

We really have to focus on what are the techniques and ecosystem that we can create locally. What are the things that Cornerstone and others are doing locally that we can help enhance from the state level that make sure we have diverse jobs that are going to be there for all individuals to access and be successful.

In the next few years, virtual technology, artificial intelligence, and automation will transform the landscape of our economy. The question is, how are we going to be prepared to tackle that? Are we going to be able to make sure that Michiganders are successful in that transformation?About 42-percent of Michigan jobs have some portion of that job that could go away due to automation. Because of some computer learning or software program that’s written. So we have to make sure that there are tools in place that can give us the ability to pivot, that give our people the ability to gain new skills, and shift with the economy. We have to make sure that businesses are able to navigate that shift as well, and become more competitive at the end.

Finally, while we’re really great at researching development in this state — in fact we’re in the Top 10 both for R&D in Academic and corporate throughout the state, particularly in the auto industry and manufacturing — that R&D doesn’t always translate to actual business start-ups. So, a lot of times we have R&D that is done at an academic level that is taken to a point where it’s great to publish a paper, but you can’t commercialize it. You can’t get a new company that starts up and creates the next Amazon or Google or something like that. So we have to figure out ways to help work with our university partners to make sure that we’re commercializing that activity. We have to make sure that we work with our business partners, too, to see what are the gaps that exist, to take that R&D that’s done at let’s say Whirlpool or Dupont, and move that into a commercialized product that could be either produced in Michigan or create a value for our state.

We need to become the scale-up state. We need to be able to take start-up companies wherever they exist throughout the world, bring them to Michigan, have them create jobs in Michigan, locate that second headquarters or that manufacturing facility so that they, and we, can succeed together.

What does the state collectively have to do? We have to bend the curve. If we’re not satisfied with where we’re forecast to be in 10 or 20 years, we have to look at the interventions that we’re trying to make — the activity that the state actually is engaged in — and ask is it placed right and does it actually gets us a better outcome in that 10-20 year time horizon?

We have to make sure there are more people migrating to the state, both nationally and internationally. We have to make sure there’s more enrollment and completion at both 2 year and 4 year institutions. We have to make sure that we aren’t leaving those skilled trades jobs behind, because the apprenticeships that exist out there are really valuable tools to get people into good paying jobs really at a debt-free rate, so you come out of your apprenticeship, having earned money while you were an apprentice and you have zero debt at the end of it. Those jobs pay, many times, over $100,000 a year and sometimes well more than that.

So, how can you help? What is the clarion call you can take from this room? We can’t be complacent. We have to do more. If you like the idea of a Reconnect type program talk to your Legislators and do some research and find out how you can get involved.

This is going to take all of us pushing collectively at the wheel. It’s going to take individuals that say I’m going to become a community mentor, I’m going to work with an individual who is maybe struggling in their first year in college. I’m going to make sure that that middle school student in First Robotics has a pathway that’s very clear to an engineering job. I’m going to make sure that my business helps individuals to go back to school if they don’t have a degree today. We can all do some part here. I would challenge us all to articulate what it is individually, as a business, as a community, as an institution that we can do together.