Biz group: Michigan’s ranking falls to 31st in business competitiveness

• Michigan’s rank in economic competitiveness fell from 29th to 31st in the latest survey by Business Leaders for Michigan
• While the state made some gains, other states gained far more  
• Michigan must sustain an economic development policy that focuses on workforce, the business group said

Sluggish economic growth over the past four years has left Michigan losing ground to other states and slipping further behind in its goal to become a Top 10 state for business competitiveness, according to a report released Monday.

The annual benchmarking study by Business Leaders for Michigan weighs the state’s performance on key economic drivers, like business creation, talent migration, educational attainment and how CEOs rate the business climate. Combined, the report measures a state’s economic health and prosperity for residents.

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However, this year’s mixed bag of small gains and losses leaves the state in a worse position than a year earlier: 31st nationally, down from 29th. That’s because, even amid small glimpses of growth in Michigan, other states grew faster, said Jeff Donofrio, president and CEO of Business Leaders for Michigan, a nonprofit business roundtable of industry and university executives.

Tennessee, Idaho and New Hampshire all moved into the Top 10 under the group’s business metrics, for example, and Ohio — which landed a massive, $20 billion Intel chip factory, among other job wins —  leapt 10 positions in the rankings, going from 33rd to 23rd in a single year. 

Michigan, Donofrio said, “has to outpace them” to improve its ranking. 

This year’s report “should be a wake-up call that … what we’re looking at is a highly competitive environment, where states are making strategic investments in talent and economic competitiveness and development.”

The benchmarking by Business Leaders for Michigan started in 2009, when the state ranked 49th during the Great Recession that hit as Michigan still was reeling from home foreclosures and massive job losses in the auto industry and other sectors that had started years earlier. 

Rebuilding over a decade got Michigan “10 years worth of economic growth,” Donofrio said. By 2019, those gains “got us to average,” he said.

But this year’s ranking saw the state slip out of the mid-pack states into the lowest 40 percent.

Ranked from highest to lowest, here are Michigan’s scores at year-end 2022 on each business metric compared to other states, and how this year’s ranking compared with 2021: 

• Business climate perception, 18th (-3 change from 2021)
• Net talent migration, 20th (-1)
• Net business creation, 21st (-1)
• Median household income, 34th (+1)
• Poverty rate, 33rd (+1)
• Educational attainment, N/A (35th)
• GDP per capita, 35th (+1)
• Labor force participation, 39th (+2)

Talent is fueling other states into the Top 10, Donofrio said, since an educated workforce — including the percentage of people with college degrees or other post-high school credentials — is a key driver for business attraction and income growth.

Labor force participation was a key concern in 2021, and even with improvements over the year, that remains an issue in Michigan, Donofrio said. In October, the rate of eligible workers who held a job was 60 percent, compared to 62.2 percent nationally.

Michigan’s labor force participation rate was a full percentage point closer to the nation’s 63.2 percent in October 2019, before the pandemic. 

“We’re still going to struggle if we don’t change that,” he said of the slide.

Improvements will have to come amid demographic changes in the state that affect the workforce, he said, such as the aging population —which in turn leads to retirement for many workers — and declining population growth. 

Other studies done by Business Leaders for Michigan show that 80 percent of the group’s CEOs — representing many of the largest companies in the state — say they’re struggling to find workers. 

“(Talent) is the number-one factor when they’re looking to invest and create jobs,” Donofrio said.

That’s a struggle for a state that loses 8,000 people a year to other states while relying on births and international migration for new residents. By 2030, the state will have 100,000 fewer residents than this year in the workforce, he said. 

“If we’re not attracting more people into Michigan (and) if we’re not keeping more of our college graduates, we’re going to find ourselves in a pretty difficult position in the coming decades,” Donofrio added.

Donald Grimes, an economist at the University of Michigan, also cited workforce concerns when he spoke Thursday in Grand Rapids at an economic forecasting event by The Right Place, a regional economic development group.

While the nation as a whole has replaced all jobs lost during the pandemic, Michigan still hasn’t yet done that, and it may not until 2024. 

Meanwhile, Grimes said, by 2050 the situation in Michigan will become more acute: “We're going to be struggling in terms of trying to find workers. We're going to have population growth problems. We're going to be aging.”

Donofrio offered some optimism for the state, including recognizing that BLM’s the benchmarking is made up of lagging indicators that in many cases don’t reflect newer policy — such as the Michigan Reconnect free college tuition program — that doesn’t yet have a track record.

Some of the state’s economic development wins over the past year are still in construction phases, too, leaving them out of many data points. They include the new Ultium Cells battery plant for General Motors vehicles that is planned near Lansing and a $2 billion effort by Ford Motor Co., expected to add 3,200 manufacturing jobs while the automaker also progresses on its Michigan Central innovation district in Detroit’s Corktown.

Business Leaders for Michigan has said for years that Michigan needs a long-term and sustained economic development policy, and Donofrio said that’s the case now, too. Programs like the large-scale incentive program for new electric vehicle battery projects will help if they’re sustained over time, as will expansions of daycare assistance to remove barriers to working.

A strong focus on K-12 education also will have paybacks for the state over many years, too. Data for 2022 was not available yet on higher education, and could indicate progress when it’s received in early 2023, Donofrio said.

Gov. Gretchen Whitmer’s win of a second term in November offers the state a chance to continue the economic development policy that started under her first administration. In many cases, such as incentives, Whitmer’s economic policy already showed bipartisan support, Donofrio said, and followed the “Compete to Win” plan from Business Leaders for Michigan that calls for diversifying the economy, among other measures.

“With the Legislature now being in the same party as the governor, you can have some consistency,” Donofrio said, “... in all of the things that really are going to matter for our future. 

“But,” he said, “they’re going to have to be very laser-focused … to be strategic with what we invest in and make sure that we’re improving.”