According to a study by a University of Michigan economist, workers in benchmark states make far more than Michigan workers, as those states made the transition to a knowledge economy that largely bypassed Michigan. (Getty images)

Thirty-five years ago, Michigan workers were paid far more than their counterparts in North Carolina and Texas, and about the same amount as wage-earners in Massachusetts.

Today, workers in all those states are bringing home paychecks that are far fatter than those of Michigan workers. That’s because those states made the transition to a knowledge economy that largely bypassed Michigan, according to a study by a University of Michigan economist.

“We were so concerned with keeping auto jobs that we missed the stuff that was coming,” said Don Grimes, who has forecast Michigan’s economy for decades and who counts himself among those who initially didn’t fully grasp how the economy was fundamentally shifting to high-wage, high-education-attainment service jobs.

The wage gaps between Michigan and what Grimes described as benchmark states are startling. Adjusted for cost of living, real wages in Massachusetts last year were an average $16,116 per worker higher than in Michigan, while Texas wages were $5,513 higher.

In 1990, North Carolina workers earned an average $8,598 less than Michigan workers. Today they bring home $566 more than their Michigan counterparts.

North Carolina’s economy has largely shifted away from employment in tobacco, textiles and furniture to higher-wage jobs in financial services, pharmaceuticals and various technologies.

“North Carolina used to have a higher concentration of manufacturing than Michigan did,” Grimes told me. “They’ve made the transition to a knowledge economy really well.”

And it’s not just those states that became far wealthier than Michigan over the past four decades. In 1990, Michigan’s cost-of-living adjusted wages were 9.5% higher than the national average, the sixth highest in the nation.

Today, the state’s wages are 4.2% lower than the national average despite Michigan’s relatively low cost of living, the U of M study said.

For decades, Michigan prospered from a healthy wage premium in manufacturing and other blue-collar jobs. But that premium has fallen from about $11,500 above the national average in 1990 to just $3,051 in 2024. Plus, the share of blue-collar jobs to total Michigan jobs has fallen from 32.9% in 1990 to 27% percent in 2024.

“We’re getting relatively poorer,” Grimes said. “We want to see our glory days. Now it’s a new formula.”

That new formula is a big concentration of high-wage jobs in areas such as information technology and financial services that can lift wages overall. Those are areas where Michigan lags far behind.

The state does possess thousands of good-paying engineering jobs. But many of those are connected to the auto industry, which pay far less than in other high-tech industries.

Michigan’s efforts to protect those positions, as well as auto factory jobs, have not succeeded. Michigan has lost about half of its auto manufacturing jobs since 1990. And many white-collar auto technology jobs have moved to Silicon Valley, Tennessee and other places, Grimes said.

“That’s really sort of depressing,” he said.

Michigan also has fallen far below the nation and benchmark states in wages paid in private-sector, high-wage service industries. Those jobs paid an average $88,655 in the state in 2024, about $11,000 less than the national average.

Those Michigan wages were an average $27,855 less than in Massachusetts, $10,494 less than in North Carolina and $9,377 behind Texas.

Closing those gaps will require a “massive revamp” of economic development efforts and attitudes by residents and policymakers about how Michigan can regain its wealth standing, Grimes said.

“It’s astounding what Michigan did in the ’40s, ’50s and ’60s,” he said. “But we’re still looking backward. Everybody’s got to think differently.”

That’s a tall order at a time when politicians on both sides of the aisle are preaching the gospel of manufacturing as economic salvation, and when universities that produce high-wage workers are under attack by the Trump administration and many Republicans.

Grimes said the reality is that Michigan needs to attract more rich people who can boost the state’s wealth with their own incomes and the wages their companies provide. He’s blunt about that view, which he admits that candidates for political office this year are unlikely to embrace.

“Michigan should only give subsidies for jobs that pay over $100,000, and that should go up over time,” he said. “We need to eliminate the idea of trying to bring in factories” to create wealth. “You have to focus on jobs that pay a lot.”

While Grimes is not particularly confident that Michigan can catch up to other states that have transitioned to a knowledge economy any time soon, he said the state has powerful economic development tools — “extraordinary” water resources and world-class universities it can promote to attract the best and brightest.

West Michigan is outperforming the rest of the state in part because of its proximity to Lake Michigan, which is attracting investment from wealthy Chicagoans, Grimes said. The state could step up efforts to attract more wealthy job creators from the Windy City, among other places, he said.

“We need to go after people we’re not going after now,” he said.