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  • Why Unemployment is High in Parts of Michigan

    Clarence Tabb, Jr./Rapport Press/Newscom

    Clarence Tabb, Jr./Rapport Press/Newscom

    Bruce Los, vice president of Gentex Corp., a $1.2 billion manufacturing company located in tiny Zeeland, Mich. (population 5,508), often hosts executives from foreign auto companies like BMW, Nissan and Toyota  With 4,000 employees and a state-of-the-art facility, Gentex makes some of the world’s most advanced rearview mirrors, with camera-based driver assistance. After touring the plant, the foreign executives’ reaction is always one of amazement: “They say, ‘this isn’t at all like the Detroit we’ve read about and see on TV,’ ” Mr. Los says, laughing.

    No, not even close. But the image of bankrupt Detroit is a daunting public-relations challenge here in western Michigan—a region of about one million people that curls around the eastern shore of Lake Michigan. When I met recently with business leaders in Grand Rapids, the unofficial capital of western Michigan, I heard the same refrain again and again: “Detroit is not Michigan. And Michigan isn’t Detroit.”

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    The Motor City’s meltdown has overshadowed the muscular economic recovery in this region, whose success reflects a manufacturing and technology renaissance. Congress’s Joint Economic Committee reports that manufacturers created 600,000 new jobs in 2013, and western Michigan is one of the places where they’re sprouting the fastest.

    The state overall is in the midst of a broad-based economic recovery. According to a 2013 study of Bureau of Labor Statistics data by the state’s Mackinac Center for Public Policy, Michigan has created more than a quarter-million jobs since the official start of the U.S. economic recovery in June 2009—a 7% increase that ranks fifth best in the nation.

    Outsiders might attribute the state’s turnaround to the federal auto bailouts—President Obama does—but that’s a small part of the story. This is a healthy, diversified recovery. According to Mackinac’s study, only about 4% of Michigan’s four million jobs are auto-related. Even those jobs are at least as dependent on sales to Honda, Toyota and Mercedes as they are on the sales to GM and Chrysler. International trade is now a big net plus for Michigan. Light manufacturing, information technology and health care have all seen strong job growth.

    Some of the credit goes to Republican Gov. Rick Snyder, a low-key, no-nonsense leader who has cut business taxes and shaved spending to balance the highly indebted state budget he inherited. Just over a year ago he signed a right-to-work law that sent a signal to the world that the state was no longer politically captive to unions.

    While the unemployment rate at the end of 2013 in Detroit was a sky-high 15.1%, in the Grand Rapids metro area it was just under 6%. Jerry Zandstra, president of Inno-Versity LLC, a Lowell, Mich.-based firm that produces manufacturing training films, says the region needs “more trained engineers, technicians and tradesmen” to meet the demand from thriving local companies.

    He adds that Michigan has benefited enormously from America’s energy drilling boom that has lowered power costs. Cheap natural gas drilled from the nearby Marcellus Shale is also used as a production feed stock for chemicals and other manufactured products.

    This area has long been known for its productive agriculture, landmark companies like Amway, Steelcase and Herman Miller, and world-class medical facilities such as the Van Andel Research Institute along the “Medical Miracle Mile” off I-96 in Grand Rapids.

    Still, the region is not fully independent of the boom-and-bust cycles of the domestic auto industry. Many of the local business owners I met grimace when recalling the 30%-50% crash in factory orders during the crisis years of 2008-10.

    Fred Keller, president of Cascade Engineering, which employs more than 1,000 workers assembling truck and auto parts, recalls how the more senior factory workers volunteered to take lower pay and a cut in hours during the depths of the recession to avoid the misery of layoffs of younger workers with families to support. Others logged extra hours without pay to help pull their employers through the darkest hours of the crisis.

    This workers-united attitude would rarely be seen in a United Auto Workers plant. But unions are scarce in this part of the state, and that may be a key to its success. Collecting unemployment benefits and welfare is still frowned upon—and the notion in Washington that handouts for doing nothing are an economic “stimulus” draws hearty laughs.

    Gentex, with its 4,000 employees, is a corporate anchor in the region. The company’s skilled workers operate tens of millions of dollars in state-of-the art machinery. The brain center of the facility is a lab with physicists, chemists and designers who are constantly developing new technologies, such as high-tech dimming windows for airplanes, a new Gentex product line. The company owns more than 600 patents.

    But Gentex, like most of the state’s biggest employers, has had its share of struggles. Fred Bauer, the company’s founder and CEO, remembers that when he opened for business in 1974 the office was across the street from a graveyard. “Believe me, there were many times we thought we would end up buried in that cemetery,” he says.

    The tenacity of Gentex to survive the hard times and find a way to flourish is symbolic of the never-say-die spirit of this region. Those who complain that “Americans don’t make anything anymore” haven’t been to western Michigan, where some of the highest-quality manufactured products in the world are shipped world-wide. That’s the big unheralded recovery story in Michigan, and it’s happening nearly everywhere in the state—outside of Detroit.

    Mr. Moore, a former member of the Journal’s editorial board, is chief economist at the Heritage Foundation.

    Posted in Economics, Front Page [slideshow_deploy]

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