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Perpetual Pneumonia–Structural Unemployment and Functional Illiteracy in Detroit

Posted in News & Entertainment by trickyd313 on August 10, 2012


Perpetual Pneumonia–Structural Unemployment and Functional Illiteracy in Detroit

Jesse D. Sutton

24 April 2012

WSU – ECO 5800–001





The unemployment rate for the United States is 8.2 percent, down from 9.6 percent last year. The unemployment rate for Michigan is 8.8 percent, down from 10.7 percent last year. It is rather common for a state to lag a fraction or so behind the national rate and in many cases for a city to lag behind the state rate by a few points. In contrast, Detroit’s unemployment rate is a colossal 17.8 percent—more than double the state’s unemployment rate (“Employment & Unemployment”). Detroit’s unemployment rate has only decreased by one point over the past year. This would suggest that Detroit is not recovering from the recession at the same rate as the rest of the state or the rest of the nation. That would seem reasonable if applied to this adage. “When the country has a cold, Michigan has the flu.” To this I add… “When Michigan has the flu, Detroit has pneumonia.” So, how well does the country need to be for Detroit to just have a cold? Some reports have Detroit’s U-6 (real) unemployment rate at nearly 50 percent (“Huffington Post”). This means that nearly every other person that you meet in Detroit are unemployed. Michigan’s U-6 unemployment rate is 20.3 percent (“”). This would suggest that if Michigan achieved full employment, Detroit would still have a U-6 unemployment rate of 30 percent. The reason for this is that much of the Detroit workforce suffers from structural unemployment. Structural unemployment is the mismatch between the demand in the labor market and the skill set of the available workforce. The skill set of the Detroit workforce is largely manufacturing. When technological advances eliminate manufacturing jobs, structural unemployment is the result. This is why perceivably, the country and the state can recover from this recession, but unemployment in Detroit would remain high. In this essay, I will discuss some factors that contribute to structural unemployment, along with possible solutions.


This pneumonia called structural unemployment is prevalent in the movie 8-Mile. Many see the movie as a struggle to win a rap battle but the b-story deals with economic conditions in Detroit. The character B-Rabbit lives with his unemployed mother. She is not collecting unemployment so she would be represented in Detroit’s hidden unemployment statistics. B-Rabbit who works at the New Detroit Stamping plant is a part-time employee who wants more hours. He would also be counted in the hidden unemployment statistics as underemployed. The character B-Rabbit is loosely based on rapper Eminem’s life story and we know that Eminem dropped out of high school so it is safe to assume that B-Rabbit did not graduate. While at work, B-Rabbit decides to skip out and competes in a rap battle. Though he wins the battle and gets his deserved respect, he goes back to work to finish his shift. The question is what happened to B-Rabbit the next day? B-Rabbit’s untold story most likely reflects a large percent of the unemployed and underemployed population in Detroit. That story is that he went back to work and continued to press out bumpers at the stamping plant. Labor processes at the plant were automated or jobs were outsourced to another country (“World Socialist Web”). Either way B-Rabbit was terminated due to some form of downsizing. This process has played out thousands of times in the real world over the past 40 years. Improvements in technology have been a benefit and a disadvantage to the Michigan economy. These improvements have shifted the demand from manual labor to highly skilled knowledge based jobs. Unfortunately, the B-Rabbits of Detroit does not have the education necessary to fill these new jobs.

The main symptom of this pneumonia called structural unemployment is Detroit’s literacy rate. Nearly 50 percent of adults (more than 200,000 people) in Detroit are functionally illiterate (“Detroit Regional Workforce Fund”). This too means that every other adult that you meet in Detroit can only read and write on the most basic level. Half of these functionally illiterate people have a high school diploma; suggesting that the problem cannot be solely attributed to high school completion. In Oakland and Macomb counties, functional illiteracy is at 13 percent. The municipality breakdown in the region rivals Detroit: Southfield 24 percent, Warren 17 percent, Inkster 34 percent and Pontiac 34 percent (“National Center For Education Statistics”). Functionally illiterate people have problems reading job advertisements, completing job application or writing resumes. This contributes to the number of discourages workers that decides to stop looking for employment.

Individuals that demonstrate a higher level of literacy are more likely to be employed. As literacy levels increase, weekly earnings increase (Jessup). As weekly earning increase, stimulus through a cycle of spending between households and firms moves the economy (Mankiw). Conversely, considering that a vast number of functionally illiterate people live in Detroit, many of these people are doing just fine. Many adults with limited skills are high earning managers or professionals that work in a field that they are experienced in (Jessup). These people don’t have to face the reality of their literacy until that job goes away. This produces a false sense of security in the workforce. Although there are many people who are managing without formal education past high school, this will be their major problem if they ever become unemployed.

The current school system is not producing high school graduates that are capable of meeting the needs of 21st century employers. This is contributing to Detroit’s illiteracy rate. In the past, someone may have been able to work in the manufacturing industry with less than a high school education and make a good living. B-Rabbit represents my grandfather who worked for Ford Motor Company for 45 years without a high school education. My grandfather retired in the 1980s. He was fortunate enough to complete an entire career without being downsized due to out sourcing or technological improvements to the Rouge Factory. By the same token, he was unfortunate; in that he retired from Ford Motor Company with the same education level that he had when he started there at 15-years-old. Today, technological advances have changed the qualifications necessary to get a job in the manufacturing industry. The education system has not kept up with these demands. The most recent attempt to overhaul the public school system was the No Child Left Behind Act of 2001. This Act was supposed to improve the basic skills of elementary and secondary education students (“NCLB2001”). The effectiveness of this program is of much controversy. Students that have been a part of the No Child Left Behind system are now college age. Studies are underway to measure the effectiveness of the program. One indicator of its effectiveness was clear in an early April 2012 news report. Fifty students walked out of Fredrick Douglas Academy because they felt they were not getting an adequate education (“Lang”). Reportedly, one of these students received a passing grade for just showing up to class on test day. Another student was interviewed and his English skills were well beyond so-called Ebonics. These students represent a portion of the functionally illiterate people that we meet every day. When these people speak you mentally translate what they said because you “know what they mean.” One of the Fredrick Douglas Academy students stated that it was too late for them, but they were protesting to help make conditions better for the next class. They were all suspended for their action and when they graduate, they will be counted among the population of Detroit’s functionally illiterate.

One marketplace solution for structural unemployment is the stimulate demand through retail spending. Demand in the marketplace creates jobs. Growing these jobs through rebuilding Detroit’s central business districts is a short-term solution to Detroit’s unemployment rate. In the early 1900s, the retail industry in Detroit grew along with the automobile industry. The population that migrated to Detroit for manufacturing jobs found their shopping needs met by a merchant named Joseph L. Hudson. During the same time that Henry Ford changed the manufacturing world, J. L. Hudson changed the retail world. In 1911, Hudson’s Department Store on Woodward Avenue with a vision that it would become the heart of Detroit (“Detroit News”). Though he died a year after it’s opening, his nephews took over the business and kept up the customer pleasing traditions of the founder. Over the next 40 years, Hudson’s became a giant of retail due to the company’s “more and better” philosophy.

In 1954, Hudson’s opened the world’s first shopping center, Northland Mall, in Southfield, Michigan. The idea was to provide retail services to the growing suburbs. This idea backfired on the main store. The suburban shopper no longer needed to come to Downtown Detroit for their retail needs. Other malls opened in the suburbs modeled after Northland. These mall openings helped facilitate Detroit’s population loss to suburban communities. This population loss called “white flight” was escalated due to the 12th Street Riots in 1967.

In 1970, the project to build the Renaissance Center was launched to revive the Detroit economy as part of the larger “Bridge To Bridge” project (Detroit News). The Renaissance Center Project was wildly successful generating over one billion dollars in economic activity after opening. Retail shops were available inside the Renaissance Center complex. This “city within a city” concept did not foster the long-term growth of retail establishments along the east riverfront as planned. Additionally, this “city within a city” concept was copied in the suburbs with the construction of the Southfield Town Center a few years later. This further facilitated “white flight” and created new central business districts in Southfield. In what seemed to be a final effort to stimulate the Downtown Detroit retail district, the Republican National Convention was held at Joe Louis Arena in 1980. This was a boon for economic activity in the central business district. However, when then California Governor Ronald Reagan left with the republican nomination, retail goods and services appeared to leave with him. Hudson’s main store closed in 1983. They became victims of their own creation (Northland Mall). The retail establishments in the surrounding areas began closing thereafter.

In 1984, the Detroit Tigers went to the World Series. By then, retail stores in Downtown Detroit were mostly closed. The crown jewel of Detroit, the Book Cadillac Hotel, closed after the Tigers won the World Series. This event was emblematic of the decline of Detroit’s retail economy in the central business district. In the late 1980s, former Mayor Coleman Young proposed a project for a new super mall in Downtown Detroit to rebuild retail economic activity. Decision makers did not view this to be a successful endeavor and the plan was abandoned. Downtown Detroit has not had a vibrant retail district since the height of the success of Hudson’s Department store in the 1950s and 1960s. The effort to bring retail back to Downtown Detroit continued with Mayor Young’s successor Dennis Archer.

In 1996, Michigan voters approved a referendum to bring casinos gambling to Detroit (“Michigan In Brief”). The Archer administration scrambled to assemble the land parcels to create a casino/retail district on the Detroit Riverfront. By 2001, that effort failed and the task went to Mayor Archer’s successor Kwame Kilpatrick. Due to conflicts with Riverfront landowners and a sense of urgency to have these establishments built by the time Detroit hosted the 2006 Super Bowl; a deal was brokered to have the permanent casinos built on their current temporary sites. This deal also saw the plans reduced from 800 to 400 room hotels. MGM Grand Casino was allowed to move but the permanent site was less than half mile from the temporary site (though still not on the riverfront.) This same deal allowed Peter Karmonos to scale back the number of buildings to be built for the new Compuware World Headquarters at the Campus Martius location. These concessions effectively killed that economic stimulus through developed retail establishments in an organized shopping district on the riverfront.

The casino industry more so than any other industry is in the business of retaining every dollar from their customers that they possibly can. Casino economics are known to destroy urban areas. This is part of the reason opening new casinos is such an arduous process. Therefore, the risk of having casinos in urban areas should produce a long-term benefit for that risk. The long-term benefit of having casinos in Detroit should have been realized by the development of retail shops along main thoroughfares that attract walking traffic. However, the casino deal that was renegotiated in 2002 broke the first three rules of real estate (location, location, location). This is evidenced by the lack of retail development around their current locations (except for Greektown Casino that was built in a pre-existing retail district). The casinos are content with this situation because they are not interested in competing with any entities outside of their four walls. Motor City Casino was built across the street from Carl’s Chop House and denied that they would have any negative effect on Carl’s business. Motor City argued that Carl’s legendary reputation would cause the casino to lose customer in their restaurants (MacDonald). Carl’s Chop House, who previously had no competition at that location, was now in direct competition with the gaming industry. Prior to Motor City Casino opening at Grand River & The Lodge, there were no other businesses there except for Carl’s Chop House. After the casino opened, Carl’s did not have the benefit of retail attractions that facilitated walking traffic that could patronize his restaurant. He had to compete with the restaurants inside of the casino. After losing over one million dollars in 2008 alone, Carl’s closed for remodeling and never reopened (“”). The Detroit casino industry has employed a great deal of Detroiter’s however, employment and growth through local entrepreneurship has not been realized through the failure to create a dynamic agglomeration economy through this casino deal. Although this opportunity has passed, there are still favorable circumstances where Detroit can receive treatment through retail stimuli.

The effort to bring new retail outlets to Detroit will not be successful without a population base to support it. People will not migrate to a place that doesn’t have retail establishments to provide for their needs. This presents the problem of the chicken and the egg. Which came first? This argument is avoided altogether with what’s being called “The Big Bang” approach. “The Big Bang” approach is a plan where Detroit’s population and retail establishments, grow together; and in a short period (“Crain’s Detroit Business”). Entrepreneur Dan Gilbert spearheads this project and has purchased several buildings in Downtown Detroit for development. These purchases have initiated a number of offers from retailers that are ready to develop these buildings. Gilbert is holding back on these offers until the project can be launched to its maximum effect. As part of “The Big Bang,” Gilbert has moved his Quicken Loans company from Livonia; and by the end of 2012 will have moved over 5400 employees into Downtown Detroit. This follows Peter Karmanos decision to move his Compuware headquarters and over 4000 employees from Farmington Hills to Downtown Detroit in 2003.  “The Big Bang” is a short-term approach to bring retail and people in the same place at the same time however–this plan is missing the critical element of providing jobs that match the skill sets of the available workforce in Detroit.

The Great Lakes Global Freight Gateway Project addresses a critical missing piece to “The Big Bang.” The industrial Midwest has been on a decline for the past four decades. Manufacturing jobs have left due to outsourcing or advances in technology. This exodus has left Southeastern Michigan with buildings, land, and other manufacturing infrastructure being unused. The Great Lakes Global Freight Gateway Project is a program that will use these vacant assets to create an inland port in Detroit, to promote global trade from the manufacturing Midwest to worldwide markets (“Building Consensus for Michigan’s Integrated Global Freight Hub”). Detroit has been a manufacturing city for more than 150 years. From railroads, to the auto industry, the citizenry of Detroit have become accustomed to labor based jobs and not knowledge based jobs. This blue-collar work ethic has been passed down over the ages and Detroit still has a workforce that is ready and willing to perform demanding manual labor for a decent wage. Unfortunately, this is the viral root of the pneumonia called structural unemployment. Nevertheless, The Great Lakes Global Freight Gateway Project will bring 200,000 new jobs that match the skill set of the available workforce in Detroit. This is only a short-term remedy for Detroit’s structural unemployment woes. The Great Lakes Global Freight Gateway Project will take advantage of the current factors of production that are readily available in Detroit. This project coupled with the “Big Bang” project addresses the immediate needs of both industry and labor in Detroit. These are short-term remedies. Detroit’s long-term cure for this pneumonia called structural unemployment is education reform.

Summary / Conclusion

The population of Detroit is 50 percent unemployed and 50 percent functionally illiterate. The unemployment rate is a function of the literacy rate. Therefore, improving education in Detroit will contribute to lowering the unemployment rate. This is a long-term solution. The No Child Left Behind generation of students is just entering the workforce. Though it is speculated that The No Child Left Behind act has not worked, their contributions to the economy cannot be measured for decades. The same can be said for any newly initiated education reform. Therefore, education reform should be pursued as one part of a two-fold strategy to reduce unemployment in Detroit. The second part is to grow Detroit’s economy using the skill sets of the available workforce. The Great Lakes Global Freight Gateway Projects will bring 200,000 jobs to the region and use the available infrastructure and unemployed industrial workforce that already exist in the region. The “Big Bang” project is set to stimulate population growth through the development of a retail district that has not been seen since the height of Hudson’s success. These two projects use the same approaches and largely the same infrastructure that lead to Detroit’s growth in the early 1900s. It worked before and with a focus on the long-term needs of Detroit’s economy– and it will work again.


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