detroit’s-economic-picture-expected-to-improve-over-next-few-years-after-labor-market-challenges

Detroit skyline.
Detroit skyline. Image credit: Eric Bronson, Michigan Photography

Residents of Detroit encountered a difficult 2024 with a decline in employment; however, experts predict a return to economic expansion this year as fiscal policies loosen and interest rates stabilize, according to economists from the University of Michigan.

This year and in the upcoming years, wage increases for residents are also anticipated—helping to reduce the existing significant gap in wage disparities between Detroiters and local job salaries.

Gabriel Ehrlich
Gabriel Ehrlich

These insights highlight the findings from the Detroit Economic Outlook for 2024-29, developed as a component of the City of Detroit-University Economic Analysis Partnership that includes U-M, the city of Detroit, Michigan State University, and Wayne State University.

The analysts warn that the overall outlook comes with substantial uncertainties, especially in relation to the policy shifts of the Trump administration, including tariffs, alongside inflationary trends and the Federal Reserve’s actions.

Economists observe that the city’s jobless rate saw a significant decrease from the pandemic’s peak to 2023—dropping to 5.7% in April, marking the lowest level recorded since monthly tracking began in 1990. Nonetheless, last year was marked by high volatility: The rate fluctuated between 7.4% in April and nearly 14% in July.

The forecast indicates that the recent surge in unemployment likely “reflects, in part, statistical fluctuations and, in part, a genuine slowdown in the local labor market.” Furthermore, it notes that researchers “anticipate a reduction in the city’s unemployment rate in the forthcoming months.”

Another positive takeaway from the research is that the employment gap between the city and the state has considerably decreased from approximately 12 percentage points in 2010 to 3.6 percentage points in 2023. Researchers predict this difference will stabilize at around 4 percentage points—similar to some of the more prosperous economic phases in recent history.

Wage advancement also slowed for payroll positions both within the city and for Detroit residents last year; however, projections indicate a rise over the next five years: 3.4% annually for one category and 3.8% for the other. Notably, wage growth for city inhabitants is expected to surpass the average increases of jobs situated in both the city and the state.

By 2029, the forecast suggests that the average wages for Detroiters will reach 53.3% of the average earnings at jobs within the city. While this still represents a significant gap, it reflects the smallest margin since data collection commenced in 2010.

“The previous year posed considerable challenges for Detroit’s labor market, influenced by elevated interest rates and sluggish auto sales affecting the city’s economy,” stated Gabriel Ehrlich, a co-author of the report and director of U-M’s Research Seminar in Quantitative Economics. “We are optimistic that the high inflation and interest rates of the recent past will give way to modest yet consistent improvements in employment and real income.”

Joining Ehrlich as co-authors are Jacob Burton, Don Grimes, Daniil Manaenkov, Michael McWilliams, and Yinuo Zhang.


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