Detroit's economic recovery is expected to continue over the next several years, with encouraging employment numbers and rising wages, but hampered by the city's lower share of a living wage, University of Michigan experts found in a report released Thursday.
The Detroit Economic Outlook for 2022-28forecasts a jobless rate below 6% on a sustained basis in 2027 and 2028, and total inflation-adjusted income per capita to grow by nearly 6% during the forecast period, stronger than the state as a whole, economists said. Likewise, Detroit's payroll employment count surpasses its pre-pandemic level by the end of this year, and by 2028, stands at more than 11,000 jobs more than in 2019.
Disturbingly, economists noted, only 36% of Detroit's residents earn a living wage.
"However, a good deal of work remains to achieve widely shared economic success, and the city lags several of its Midwestern counterparts in the number of workers earning a living wage," UM economists said.
Gabriel Ehrlich, study co-author and director of the Research Seminar in Quantitative Economicsat UM,said high inflation, at least in the near term, will consume much of residents' rising incomes. He and his colleagues are concerned about the economic effects of a strike by the United Auto Workers, if that happens.
The economists say the national economy will see a patch of slow growth next year, but they don't expect significant negative effects on the area's construction and automotive industries.
Employment in Detroit
Detroit's unemployment rate fell to 4.7% in April, the lowest level since the Bureau of Labor Statistics' records began in 1990.
However, "it reflected primarily a decline in the city's labor force rather than more Detroiters finding work," economists pointed out. "The unemployment rate rose to 6.9% in June as Detroit's labor force picked back up."
The city's blue-collar sector, which includes construction and manufacturing, will continue to be a bright spot in the local economy, economists said. The industries' job count exceeded their pre-pandemic level by 6,000 jobs, or 13.7%, in the second quarter of this year, and if the forecast holds, Detroit's blue-collar jobs count would reach 52,400 by 2028, the highest level since 2010.
While the study also projects that Detroit will recover its labor force losses from the past two years by the end of the forecast period, labor shortages will persist for the foreseeable future in the city and state of Michigan, economists wrote.
Payroll employment in Detroit dipped by about 1,500 jobs from May to September 2022, the most recent month the data was available. The finance industry lost more than 4,000 jobs from mid-2021 to the third quarter of 2022 as interest rates spiked, according to the report. In the first half of this year, Detroit added 3,200 payroll jobs, a post-pandemic high point.
"We are projecting ongoing gains over the next five years both for jobs located within the city boundaries and for employment among Detroit residents," economists said.
They predict the city will add 4,900 jobs in the remainder of this year, 4,300 jobs in 2024 and then add, on average, 1,900 jobs per year from 2025 through 2028.
"By 2028, the city will have 11,000 more jobs than in 2019," according to the report. "Employment among Detroit residents follow a similar pattern."
Living wages
For the first time, UM's economic forecasters analyzed Detroit's living wage in comparison with "peer" cities: Chicago, Cleveland, Milwaukee, Minneapolis and St. Louis. They used income and household data from the 2021 American Community Survey and an adapted definition of a living wage from the Massachusetts Institute of Technology Living Wage Calculator.
They found only 36% of Detroit residents earn a living wage, compared with 45% in Milwaukee, 48% in Cleveland and 60% in Chicago. Minneapolis has the highest share among cities, though still less than two-thirds of its primary earners make a living wage.
Average annual wages earned by employed Detroit residents rose by 47% from 2014 to 2021, from $26,600 to $39,200. In contrast, wage growth among jobs located in the city totaled only 25% during that time.
Economists expect Detroit residents’ wages to continue climbing over the forecast period, reaching an average of $50,300 by 2028.
Researchers considered several explanations for the city's lower share of a living wage: educational attainment, occupational category, industry category and hours worked.
Educational attainment accounted for about one-third of the gap between Detroit and the other cities. Adding occupational and industry categories, as well as the number of hours worked, explains about 40% of the gap overall.
"I wasn't surprised to find education was the most powerful predictor for the share of workers earning a living wage," Ehrlich said."What did surprise me is that we could only explain less than half of the gap between Detroit and its peer cities. That said, this research was only a first step — I hope to continue this research in the future to learn more about what Detroit can do to raise the share of its workers earning a living wage."
After adjusting for inflation, Detroit residents' total income per capita grows by nearly 6% from 2019 to 2028 in the UM forecast, a bit stronger than what they project statewide.
The forecast was produced as part of the City of Detroit-University Economic Analysis Partnership between UM, the city, Michigan State University and Wayne State University.
srahal@detroitnews.com
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