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Joining MiBiz for a roundtable on economic development were (top row from left) economist Tim Bartik from the Upjohn Institute, Angela Huseman at Lakeshore Advantage and Paul Isely from Grand Valley State University; (bottom row from left) The Right Place’s Tim Mroz, Al Pscholka from Kinexus, Greg Tedder of the MEDC and Muskegon County’s Jonathan Wilson. Joining MiBiz for a roundtable on economic development were (top row from left) economist Tim Bartik from the Upjohn Institute, Angela Huseman at Lakeshore Advantage and Paul Isely from Grand Valley State University; (bottom row from left) The Right Place’s Tim Mroz, Al Pscholka from Kinexus, Greg Tedder of the MEDC and Muskegon County’s Jonathan Wilson. PHOTOS BY JEFF HAGE

ROUNDTABLE: Economic developers, economists push ‘culture shift’ for Michigan

BY Sunday, June 24, 2018 02:00pm

New issues have become top of mind for West Michigan economic developers and economists.

Increasingly, as economic development organizations react to talent issues in their communities, they’ve been pulled into new discussions around housing and mass transit — far from their previous focus on business attraction and retention. At the same time, West Michiganbased economists continue to point to statewide issues — namely, a lack of investment in education and infrastructure — that are holding back economic growth.

Those were among the topics a group of economists and economic developers discussed in an executive roundtable convened by MiBiz. Participating in the discussion were:

  • Tim Bartik, senior economist at the W.E. Upjohn Institute for Employment Research, a Kalamazoo-based policy think tank
  • Angela Huseman, COO of Lakeshore Advantage, a Zeelandbased economic development organization
  • Paul Isely, economist and the associate dean for undergraduate studies in the Seidman College of Business at Grand Valley State University
  • Tim Mroz, vice president of marketing and communications at The Right Place Inc., a Grand Rapids-based economic development group
  • Al Pscholka, vice president of public relations and government affairs at Kinexus, a Benton Harbor-based economic development organization that sponsored the roundtable
  • Greg Tedder, executive vice president and chief community development and marketing manager at the Michigan Economic Development Corp.
  • Jonathan Wilson, economic development manager for Muskegon County

Here are some highlights of the conversation:

Issues like housing and transit seem to be on the minds of economic developers much more these days. How are your various communities addressing these topics?

MROZ: On the urban side, you have housing affordability. On the rural side, you have housing availability. Businesses are expanding and their workforce wants to be near those job opportunities, but in a lot of our rural counties, there’s just no housing stock to be had, much less affordable housing stock to be had.

HUSEMAN: I think one of the ways that we’re tackling that in my area is through Housing Next. Ottawa County has someone devoted 100 percent of the time to housing, and it’s not just affordable, it’s workforce (housing). It’s everything from trying to make sure that we have zoning in place that will allow for the type of housing that people want right now. We’re seeing that, every community is seeing that. We’re excited to have the beginnings of that organization in our backyard.

WILSON: Muskegon County has had four or five different projects that completed in the past year — different types of housing, whether senior affordable living or market-rate housing downtown. A lot of people want to take advantage of our waterfront and our up-and-coming downtown quality of life, I think. I’m pretty excited about that.

TEDDER: I think different communities have different challenges with housing. And I think that, unfortunately, affordable housing carries this stigma with it. But what we really need is housing for all income levels in your community and what drives it is different things. So if we do a big business development project in a rural community and you’re all of a sudden injecting 500 people into an area, you’re going to have a housing issue. It’s different than housing issues in some urban core areas where the market is basically just driving up the prices in core downtowns. So different markets obviously have different housing challenges. I think that there’s not really a one-size-fits-all solution to the challenges that our various communities have. At the state level, what we’re trying to do is basically be flexible to every different market’s needs.

As companies expand in outlying areas that have the space and infrastructure they need, what conversations are they having around transportation and transit, given those areas often lack mass transit options?

PSCHOLKA: It’s all we heard at the Mackinac Policy Conference:transportation and how to get people to and from (work). It’s a big issue down by us. In one county, we have four transit authorities that don’t talk to each other. It makes absolutely no sense at all that to get from Benton Harbor to Niles takes you more than three hours and you’ve got to get on three different transit systems — and they drop you off on the side of the road and you have to make a call and hope the next one comes and gets you. For us, it’s eliminating some of these barriers for people so that companies can move their workforce.

WILSON: In Muskegon, the transportation operators, the service providers and the business community are just now starting to talk about how to optimize public transportation systems.

HUSEMAN: There are several programs going on right now that will support transportation like Wheels to Work. That’s through Hope Network, and they’re expanding all the time. I know there’s a working group around the Prosperity Corridor and talking about what transportation back and forth to the lakeshore might look like. These are things that are long-term projects, but we know that development isn’t going to stop. We know that companies are going to continue to locate here and so we’re always looking for the next solution to our transportation issues.

MROZ: I think a lot of us are rethinking the traditional hub-and-spoke model to mass transit, having everything go through a central station of some sort to do transfers and things like that. I had a meeting with a township recently that was actually evaluating having a municipal contract with a ride-sharing program to say, ‘We will identify a certain number of points throughout our community to get around where we know that people need to get to a common destination or a point of connection to go further. And we will pick up or supplement that cost between those by using a private ride-sharing program.’ It’s through combinations of using ride-sharing programs and zoned coverage with traditional mass transit where you’re going to get to your solution.

For the economists, how do you envision finding solutions to these challenges?

BARTIK: When I hear people talking about problems with talent, with transit, with roads, part of it is simply just inadequate state and local funding of these things in Michigan. And so it shouldn’t be a surprise if we have problems with talent if we’re not funding schools and job training very well. It shouldn’t be surprising that we have problems dealing with transit and roads if we’re not funding that. So at some point, you have to talk about these things are not cheap to solve. Obviously, you can be smart and solve them at a higher bang for the buck ratio, but if you want to significantly affect the quality of the labor supply or the quality of transit, you’re going to have to spend some money.

ISELY: The quality and type of labor issue is more than that. It’s just that we’re out of people. If you look across West Michigan, even if I had the training in place, you wouldn’t have the individuals to go into it. If we looked at Kent County, two thirds of the job growth that we’re seeing right now is immigration, having to draw people into the area to generate that job growth. Where we’re at right now is we have a lot of people who are underemployed. We have people working below the ALICE rate and we’re bringing in jobs that are just barely above the ALICE rate. (Editor’s note: The ALICE rate is defined as the portion of the population who are “asset limited, income constrained and employed,” and functions as a measure of a region’s so-called working poor.) They’re not wanting to switch and we’re wondering why. It’s probably because there’s large switching costs. That’s all under the (larger issue) where we have decreases in high school graduates for the next 10 years, maybe 15, depending on the county that you’re in. You’re not having young people coming through the system.

What can the state do to boost workforce development initiatives?

TEDDER: One of the solutions is the governor’s Marshall Plan for Talent, which is $100 million dollars. (Editor’s note: The legislation was approved by the Michigan legislature following this roundtable.) These things aren’t cheap, but $100 million dollars is a step in the right direction and it’s really about working with companies to understand what their needs are over the next year to two years. It’s something that they’re obviously reluctant to share to some extent because it’s a little bit of their proprietary business information. But what we can do a better job of as a state is really saying, ‘OK, we can work with a community college, a university, a high school, whatever it might be, to effectively create that program. We already know (these companies) are going to hire an electrician, a welder, a software engineer, whatever that might be.’ So I think we can be more proactive with the pipeline.

ISELY: But we still have a wage problem in Michigan. We still — at least across West Michigan — are running 10 percent behind the nation for what we’re paying our workers. It shouldn’t be a surprise to us. Even though our cost of living may be lower, it’s really hard to go with an offer 10 percent below your competition from another city and convince someone to come here. As I talk to firms, they’re really reluctant to increase their wages, but then they’re complaining that they can’t find anybody who will come. You can’t have it both ways.

HUSEMAN: It’s problematic, but what I see companies doing is looking more toward automation to solve some of their people issues. We do know we don’t have enough workers to fill the positions that are out there, and we know that companies have percentages as high as 30 to 40 percent of their existing workforce that could retire in the next five years. So that poses another challenge. You’re not necessarily able to attract someone to a $12 or $13 or $15 an hour job from out of state, and so companies are being resourceful and trying to introduce automation where it makes sense. Now what happens when you have a lot of automation is that the technical side of those jobs goes way up. It’s not necessarily a bad thing because the education programs that are going to be needed directly tie into the Marshall Plan. There’s a lot of synergies that will happen between those two things over the next five to 10 years.

WILSON: In Muskegon, we’ve seen a lot of success with our Muskegon Area Promise, which is free two-year community college … and then you add that with our technology center downtown college campus. We’re actually training students directly with the companies who will be hiring them after they graduate for the types of jobs you can get.

Does the Marshall Plan go far enough to address the state’s talent needs?

BARTIK: I realize $100 million in terms of state government is a huge amount of money, but compared to the size of Michigan’s economy, it’s not a lot of money. So that’s what people need to realize. We spend ($14.8 billion) on K-12 in Michigan. … If you want to increase the investment scale by 10 percent, it’s not $100 million, it’s $1.4 billion. You have to think about where you’re going to come up with the resources for that. That’s the big issue. Obviously, no one likes to increase taxes, but at some point, you have to. … If you really want to increase talent, you have to invest in a variety of skill areas. And I understand you’re saying there’s not enough people. I do think that if you go for folks you usually don’t think of as being a source of labor, you can get more people than some people may think.

MROZ: That’s one of the problems that even our partners in Hello West Michigan are seeing. … The problems we had coming out of the recession in 2010 are very similar to the problems we’re still having today, it’s just the numbers have amplified. And one of the big problems that still persists five years later, eight years later — we call it the ‘purple squirrel’ philosophy.

What does that mean?

MROZ: (For example, a company) had to let Kelly go back in 2009 and Kelly ran our CNC machine. I still haven’t been able to replace them — I can’t find (the new) Kelly. There isn’t an opportunity to say, ‘Well, you know what? Kelly isn’t available, but David or Sue might be.’ We have to train them up to do that. It’s not just the manufacturers: There are very few human service companies out there that are willing to take that chance and up-skill. It may be a one-year, two-year ramp up. They don’t want that. They’re still trying to find that ‘purple squirrel’ that they used to have. And at 3-percent unemployment levels, hovering around 4 percent, you’re not going to find it.

BARTIK: How do you change the culture around that? When I look at it as an economist, it’s a market failure. In other words, collectively, all the businesses in Michigan would benefit if all of them were willing to devote a higher percentage of their resources to training. So even if some companies would lose people to other companies … there would be a collective benefit to that.

Has that model worked in other areas?

BARTIK: In Germany, they have huge apprenticeship programs, huge investments in job training. They’ve made their manufacturing sector very competitive. A lot of these companies lose the people they train, but it is part of the culture. In Germany, if you’re a business person, if you’re not investing heavily in apprenticeships, you can’t even go to the local business groups and hold your head up. You can’t go to the country club and talk to your peers because you would be ostracized. You would be considered behaving in a totally self-centered (way) by not recognizing that we need to have funds invested in training people in these various skills. How do you change the overall business culture to recognize if we’re going to invest in training, part of that has to be business investment in training? We can talk about trying to mobilize public resources, but there needs to be some buy-in from the business sector.

MROZ: We’ve seen a lot of things here around West Michigan. You can use DeWys Manufacturing, you can use Cascade Engineering, you can use Autocam. A lot of these more proactive employers on the manufacturing side have put in either apprenticeship programs or on-site training programs where they’ve dedicated 5,000 square feet of their own facility to say, ‘We’re going to train.’

ISELY: But isn’t that part of that risk question that you both brought up? One of the things that I see … is that the investment’s not what I would expect to see right now. People are keeping way too much powder dry. I don’t know if others are seeing that, but it seems to me that they’re so risk averse that they only want plug-and-play employees and they don’t want to invest money where they’re not convinced they’re going to have a return on investment with ridiculously short timelines.

HUSEMAN: Yeah, and the companies who are ahead of the curve in the talent race are those that are doing the investment. … It’s those who are investing and understand that they need to grow their own. They not only invest in their apprenticeship programs and those kind of things, but their relationships with schools and they utilize the services that are available to them. The Skilled Trades Training Fund has made a big difference for employers in West Michigan … So I think that is what has really brought a lot of attention to how to really engage in best practices. Those companies who come and do all of the above, they’re the ones who are saying, ‘Yeah, our turnover isn’t as high as our competitors and we’re retaining people a lot longer.’ And so they’re able to beat some of the talent issues that others have.

Is it the private sector’s role to spread those best practices or that of government and higher education?

HUSEMAN: It’s not just one. We are one resource. We try to make sure that people understand what is available to them and our businesses and community. But it really takes the entire community and all partners engaged to be able to make sure that those companies have what they need — because they’re busy doing their business. They’re doing what they’re doing — especially right now.

TEDDER: Yeah, and I think you need to show immediate results when a company is ready to hire today. That’s really what the Marshall Plan focused on. You can’t go to a company and say, ‘Oh, don’t worry, our K-12 pipeline is great, you’ll be able to hire somebody in 18 years.’ It’s not a replacement for the K-12 system. You’re going to have to come at it from both ways. You need both a long-term talent pipeline in the state of Michigan and you need also to be able to adapt the short-term needs … That’s the balancing act and that’s why $100 million dollars can be impactful in trying to solve that problem — the problem we have today.

PSCHOLKA: We spend a lot of time with our business resource network working with existing employers and solving those barrier issues and changing culture. That’s a big part of what we’re doing.

Are there any unique challenges that you’re having to address in Southwest Michigan?

PSCHOLKA: What we found was, yes, transportation is an issue. One of the top issues that I never would have guessed was food — especially in a place where we’re part of the fruit belt. We’ve got a ton of food. But when you think about it, folks will pay the car note, they’ll pay the mortgage. The one thing they’ll scrimp on if wages are low is food. So we’re actually working with employers and nonprofits on having food trucks come to employers and giving out commodities once or twice a week, and having food trucks come to businesses and trying to change the culture inside those companies. Because if you can do that, you can reduce your churn, and that’s good for your business. We are seeing some wage growth. It’s been a little slower … but it’s being forced by the market.

ISELY: I’d like to flip back on that, though, because one of the reasons we see that is we’re still thinking of $12 an hour as a good wage. Right now, at $12 an hour with a family of four, you’re not hitting poverty. There needs to be that cultural shift. … For a family of four (to get above the) ALICE rate in West Michigan, you’re talking $24 or $25 an hour. That’s not wages I hear about in West Michigan.

What can the region do to encourage companies to raise wages?

ISELY: We’re not quite sure why wages haven’t gone up as fast as they should. But I think one of the keys here in West Michigan is that we have such a high exposure to manufacturing. Those manufacturing wages were relatively good, but they’re also capped by your international trade, so you can’t push them up any more. They’ve been sort of frozen for quite a while. You don’t see that same frozen nature in those service jobs, but those are starting at a lower baseline.

BARTIK: Unless you increase their skills, because wages aren’t low in Germany. They’re pretty high, actually.

ISELY: Yeah. So it’s a matter of when do you see the productivity or how do you deal with that productivity, and how does labor share in that?

PSCHOLKA: These are all nicer problems to have than what we had in 2010. … The reason I ran for office in 2009 was because my daughter couldn’t get a job in the stinking state. She did everything she was supposed to do: graduated, went to Hope College, got her degree. But she couldn’t find a job in Michigan and moved away. A bunch of us ran for office, went to Lansing and said we’re going to fix stuff. We’re going to try to make it a better environment, a better climate for people to come back to. Now we’re sitting here eight years later going, ‘Ah, gee: We can’t find any people.’ What a nice problem to have. My wife would say you’ve got a success problem now.

Is West Michigan better positioned to weather a recession now than we were a decade ago? What are some of the gaps you see?

PSCHOLKA: I think we’ve diversified our economy. We’ve talked about that initiative since I was a boy, that somehow we’ve got to diversify our economy. I think we have to some degree. There’s a lot more jobs in services and health care and we’re not as heavy on the heavy manufacturing. So my answer to that would be, yeah, I think we are in a better position now. The old joke was when the country gets a cold, Michigan gets the flu. I don’t think it’s as relevant as it was back then.

BARTIK: We might still get a really bad cold, though.

ISELY: I think we’re in better shape, but we still have some weaknesses. We certainly have strengthened by diversifying. The fun thing about diversifying, as anybody who does investing knows, is that you don’t fly as high, but you don’t fall as far. But I think we’re much more susceptible to an export driven value in West Michigan than we’ve ever been. There’s some substantial risks with that. We have substantial risks in our agriculture side right now with both infrastructure issues and immigration issues. And those two things here in West Michigan are enough to tip us in places that we wouldn’t normally be. Because we have so many Millennials, I’m not worried about real estate. And the cool thing about Millennials coming in is it could solve our talent problem because we’re bringing in young people with energy and that’s never a bad thing when you’re looking at economic growth.

That said, our manufacturing base in West Michigan and statewide is still weighted heavily in the automotive industry. What does that mean if sales in that sector continue to plateau or possibly drop off?

TEDDER: I think the automotive industry in and of itself has diversified. If you want to go build a touchscreen, you can work for General Motors or you can go work in Silicon Valley. I think the auto industry’s transformation is going to be interesting in that they’re now competing against Twitter and Facebook for talent. So, it’s opening up. Yeah, we’re still automotive based, but that industry is changing so much that they’re recruiting software engineers as much as they are diesel engineers, if not more.

HUSEMAN: I know with our companies, one of the reasons that they might be better prepared should the economy soften is that they continue to invest in R&D internally. The research that we have done with our companies over the last several years said the correlation to a higher investment in R&D has helped them out of the chute faster once the recession is over.

MROZ: Oftentimes, we have the conversation about manufacturing and then we start talking about automotive. I think that’s different in West Michigan. We do have a large automotive manufacturing base here, but we make a lot of different things here, not just automotive. You have the same supply chain manufacturers that are servicing three, four, five different industries. That helps, that’s not just automotive.

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