The Puzzling Differences Between Michigan and Indiana in This Recession

Good article and accurate, read the whole thing.

This recession has been difficult throughout the Midwest. The nation’s two leading manufacturing states, Indiana and Michigan, have and still continue to feel the pain of this recession. Yet Michigan, which is less dependent on manufacturing, has had a much deeper and longer downturn than Indiana. This is a great puzzle. We have recently authored a study that attempts to frame the issues more clearly "The Puzzle of Indiana's Economy Through the Great Recession," for the Sagamore Institute.

In the wake of this recession the livelihoods and dreams of many in the Midwest have been impacted by high levels of joblessness and persistent unemployment. Unemployment peaked in Indiana at 10.8 percent, but rose to 14.9 percent in Michigan. Any economic model would predict either state would have had unemployment rates in the 13 to 15 percent range. Our study tries to explain this difference in outcomes between the two states. It is the puzzle that has a few answers.

First, it is pretty clear that the unemployment rate differences cannot be wholly explained by the structure of manufacturing. Indiana is more manufacturing intensive than Michigan, and the sharp drops in auto sales such as those seen in 2008 and 2009 are not correlated with increased volatility in Michigan’s unemployment rate. Of course, the auto industry matters. Indiana saw just one Big Three plant closing during the recession, while Michigan lost seven GM plants over the same time period. Indiana is also home to Honda, Toyota and Subaru plants. In 2010, Indiana was site of large announced investment by GM. Granted, the life cycle of a particular plant will effect closing and opening dates, so plant closings can be affected by such things as a discontinued product line or aging equipment. In the end, plant closings are heavily influenced by underlying economic factors, both local and national.