Economic development: Cultivating prosperity The State Policy Road Map: Solutions for the Journey Ahead
07 February 2018
In order to revitalize their economies, states should address the questions that matters most: Which policies accelerate talent development, boost economic growth, and catalyze productive employment—and which are impediments?
What is the issue?
What can state governments do to create jobs and boost economic competitiveness?
Most state economic development strategies fall into two broad categories:
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States looking to revitalize their economies need to think creatively about the steps they can take, and address the one question that really matters: Which policies accelerate talent development, boost economic growth, and catalyze productive employment—and which may impede it?
Issue by the numbers: Economic development
- The “middle skills” gap: Middle-skill jobs (which require education beyond high school, but not a four-year degree) account for 53 percent of the United States’ labor market, but only 43 percent of the country’s workers are trained to the middle-skill level. Nearly half of all job openings between 2014 and 2024 are expected to require middle skills.2
- Automation: Depending on whom you believe, job-killing robots could be coming to take your job3—or, conversely, automation and artificial intelligence (AI) will likely drive the next great economic boom. According to an analysis by Gartner, in 2020, AI will become a positive net job motivator, creating 2.3 million jobs while eliminating only 1.8 million jobs.4 Most economists, however, believe the new jobs created through advanced technology will require higher level skills.
- Licensing requirements have increased: The share of the workforce that falls under some sort of licensing requirement has increased from 5 percent in the 1950s to almost 30 percent in 2015.5 Excessive licensing requirements can stifle innovation.
How can state leadership tackle the issue?
For state policy makers aiming to boost economic growth, a two-pronged strategy of strengthening the state’s talent pool and improving the business environment can be a good starting point. But first, it is important to understand some of the factors that drive economic growth in the information age.
In survey after survey, talent often tops the list of the most important factors determining competitiveness. As the World Economic Forum notes: “A strong innovation capacity will be very difficult to achieve without a healthy, well-educated, and trained workforce.”6
The notion of what constitutes a “job-ready workforce” has shifted. Today, there is a widening earnings gap between those with and without a college education—what economists are calling the great economic divergence.7 Middle- and low-skill workers from working-class regions may suffer as automation rises and manufacturing jobs wane.8 Automation has the potential to boost economic growth by creating new types of jobs and improving efficiency in many businesses, but its current negative effects can’t be ignored—the loss of some middle-class jobs.9
Meanwhile, overly onerous regulatory compliance burdens can cost businesses and citizens, stifle innovation, and have an adverse effect on economic growth and employment. As the innovation economy accelerates, states should focus on fostering a great workforce and an attractive environment for entrepreneurs.
Build a work-ready population for employers to tap into
Talent development by its very nature creates a positive-sum game—everyone benefits when states develop talent more broadly and rapidly.
Become a magnet for top talent. To remain competitive in the twenty-first century, policy agendas should focus aggressively on growing and attracting talent. Studies show that when it comes to high-paying knowledge, professional, and creative jobs—the ones that drive the economy and innovation—jobs follow people.10 Increasingly, businesses want to be based where talent wants to be, and for those people, factors such as housing, cost of living, and quality of life influence that decision. In fact, several cities in the United States have seen an influx of skilled talent and businesses due to favorable housing costs, better public transit, and improved quality of life, while traditional tech hotbeds may see an outflux due to these very factors.11
Increase educational attainment. Many of the jobs being created today—and those created tomorrow—can’t be filled by lower-skilled workers. Yet a significant portion of the US population doesn’t receive formal education after high school. Postsecondary enrollment has declined for the fifth straight year.12 A key to state competitiveness is to get a much higher percentage of the workforce on the path to a college degree, in a skilled training program for a trade, enrolled in community colleges, or deeply engaged in alternative education options or alternative paths to a degree.
Make skills, training, and retraining the focus of workforce development. Allocating funds for workforce training instead of just employment services can lead to more effective use of public dollars.13 Although employment services, such as job search and placement, can facilitate employment in the short term, evidence shows that they do not typically result in an increase in income or better economic opportunities.14 Participants who receive such services often end up in low-skill jobs. In contrast, those who receive longer-term training services ultimately see greater gains in both employment and earnings.15
Flip the customer: Shift the customer of workforce programs from job seekers to employers. To address the skills gaps, the solution is not simply more education, but ongoing and more specifically tailored professional development that aligns more closely to employer needs. Two ways to close the skills gap between employers and workers are just-in-time learning and a modernized accreditation system that objectively evaluates skills gained. State education authorities could identify ways to work with alternative education and training providers—for example, providers of bootcamps, massive open online courses (MOOCs), apprenticeships, and community college education—as well as with employers and businesses to carve out space and support experimentation with new learning and training models that promote job-to-skill alignment.
Employers can also play a bigger role in training workers through apprenticeships (see sidebar, “Direct state investment in apprenticeship to encourage employment participation”), as well as by reskilling existing talent as technologies automate work (as AT&T is doing through the retraining program described later in this article).16 Anything that states can do to put employers at the center of workforce development and incentivize investing in skill-building is helpful. Several states, including Connecticut, Georgia, Kentucky, Mississippi, Rhode Island, and Virginia, provide training tax incentives between 5 and 50 percent of training expenses.17
Direct state investment in apprenticeship to encourage employer participation
Public investments can influence employer willingness to participate in apprenticeship programs. South Carolina’s apprenticeship program encourages and incentivizes employers to sponsor apprenticeships. Often seen as a model for states, the program offers comprehensive support to employers through a host of options:
- A tax credit of $1,000 per apprentice for employers who sponsor apprenticeships
- Access to apprenticeship consultants at no cost to facilitate the process of registering apprenticeships, connecting companies to high school tech centers, and evaluating apprenticeship performance
- Access to the state’s technical colleges through Apprenticeship Carolina, an affiliate of the Division of Economic Development embedded within the technical college system
Similarly, Iowa enacted the Apprenticeship and Training Act in 2014, which established an apprenticeship program training fund with annual appropriations at $3 million. The apprenticeship training program funds are used to support grants to Registered Apprenticeship program sponsors—which are typically employers, labor-management partnerships, or industry associations—to subsidize the cost of apprenticeship programs.18
Address information mismatches in workforce development. Information gaps between various players in the workforce development system can make workforce development programs less effective.19 Programs could see better results if information mismatches among all stakeholders—including workforce boards and employers, employers and participants, participants and training providers, and workforce boards and training providers—were corrected. Greater coordination between Chambers of Commerce, youth training programs, and community schools could help further address barriers to education and training, as well as spur innovative partnerships and policy changes.
Tailor transition programs to individual needs. Public policies can help in reducing the stresses that workers face when shaping their own careers, learning new skills, and participating in global talent networks. For those caught in challenging and unexpected transitions, the question that should be asked is: How can public policies help to shorten the time spent on the unemployment rolls, support necessary retraining, and ensure the provision of basic necessities such as health insurance? 20 Digital technology infrastructures and greater accessibility to data about individuals can make it more feasible to tailor transition programs to people’s evolving needs. Exploring unemployment policy adjustments such as providing one-time/lump-sum unemployment benefits, linking unemployment benefits to professional development, or subsidizing work rather than unemployment during downturns could incentivize and motivate unemployed workers to get back on their feet faster.21
Michigan’s Promise Zones
To lower the financial barriers to a college education, Michigan created 10 Promise Zone designations through public-private partnerships to provide every high-school graduate in selected low-income communities a tuition-free path to college. Districts identified as Promise Zones are allowed to keep a portion of state revenue to issue scholarships. Many of Michigan’s Promise Zone awards are last-dollar scholarships to supplement other aid students receive from Pell Grants, other need-based aid sources, and private contributions.
In Baldwin, the first district to start giving out scholarships, 14 students out of the 23-student graduating class enrolled in college when scholarships were awarded—a 26 percent increase from before the program started. In addition to improving college enrollment rates, the Promise Zone program has improved how these communities think about college and higher education and made students more aware of the opportunities available to them.22
Make your state a great place to do business
Human and economic activity clusters in areas that are highly attuned to the needs of businesses and employees, where people expect to find jobs and opportunity, and where innovation, ideas, and freedom are welcomed, incubated, and encouraged.
Understand your state’s competitive advantage. Not every city or state in America can become Silicon Valley, but all states can build their competitive advantage by playing to their unique strengths. Identify and invest in your state’s assets—the factors that differentiate the state in terms of improved competitiveness and economic outcomes (for example, world-class talent and institutions, geographic location, quality of life, and so on). At the same time, supporting geographic clusters of the specialized industries and sectors that have traditionally driven the region’s growth and employment can help boost and sustain economic gains from these areas. Firms located in dense clusters of industry along with related or supporting companies tend to be more innovative than isolated enterprises.23
Make it easy for businesses to transact with government. Businesses interact with government in numerous ways—from registering businesses, getting licenses and credentials, and obtaining permits for thousands of activities to reporting on compliance and paying taxes and fees. Making it easier for businesses to transact with government can both reduce compliance costs and boost voluntary compliance. Steps to consider include:
- Treat businesses as customers: Treat businesses as customers who want to obey the law but might need some guidance navigating the maze of government rules and regulations. Tools developed in the private sector, such as human-centered design, personalization, data analytics, and the use of feedback loops, can make a powerful difference for governments trying to engage these “customers”—the businesses that operate within their boundaries.
- Go digital: Develop user-friendly online systems that make license and permit applications simple, transparent, and predictable for businesses. Digitizing regulatory transactions as much as possible can increase satisfaction and reduce costs for those affected (as well as reduce costs for regulators).
- Reduce duplication and delays: Starting a business shouldn’t involve spending multiple days completing half a dozen different procedures with five different agencies. For example, in New Zealand, a business owner can register a business in less than a day by interacting with a single government department online.24
- Engage businesses while formulating rules and regulations: Seek input and create ways to listen to businesses, staff, and the enforcement community—whether through direct contact (“get out of the building” field visits), crowdsourcing, or more traditional outreach activities such as surveys—to understand pain points and successes.
Reassess legal and regulatory policies. Business formation rules could be updated to make it easier for entrepreneurs to launch a business. The future of work will likely involve a higher percentage of start-ups and small businesses, and policy makers will likely find themselves under pressure to update regulations to make starting small ventures easier.
Moreover, reviewing occupational licensing requirements for undue burdens can help policy makers make fixes and chip away at regulatory barriers. State-level licensing requirements can make it hard for licensed professionals such as doctors and lawyers to move from place to place to areas where wages are higher or where their services are in demand. Where licenses are necessary, states can evaluate whether their prices can be reduced.25
Reduce and streamline regulatory requirements. Some actions to consider here include:
- Assess where the challenges lie: Flag complex or costly regulations, and consider whether a proposed regulation would have a net positive or negative impact on the economy.
- Eliminate redundant regulations: Start with those that may have once provided value, but have remained fixed while the world evolved to a point where they now add little value and could be changed without affecting protection.
- Consider the TSA Precheck model: Similar to TSA Precheck, a risk-based system could be applied to regulatory enforcement, allowing for alternative modes and/or frequencies of inspection for pre-certified businesses. A similar practice has been put in place in some assembly plants in the United States, where parts vendors that demonstrate a highly reliable level of process control are pre-certified to ship their components directly to the shop floor without an incoming inspection.
- Implement an ongoing review process to surface out-of-date regulations: It is tempting to treat regulatory reform as a one-off project that can be done and forgotten. Unfortunately, our analyses have shown that a large percentage of regulations are never updated after publication.26 Establishing a clear process to continuously evaluate existing regulations can prevent such buildups from continuing into the future.
Make public data more accessible to business. States can share their data to help business owners make decisions such as the most appropriate locations for their business. For example, Utah has launched an interactive online economic development map. The site provides information on the state’s broadband services, utilities, transportation, workforce, and lifestyle features. It allows businesses to compare and evaluate the features of multiple locations and print personalized reports with summaries of available infrastructure.
States such as Virginia have also embedded interactive DataUSA charts into their economic development portals to make their regions more competitive.27
You don’t have to look too far for inspiration
NCWorks: Bridging the gap between employers and job seekers
North Carolina, the ninth-largest US state, has more than 80,000 students attending colleges for degrees who will soon be on the job market. In 2013, the state consolidated its job-training efforts and created an online portal called “NCWorks” to serve as a bridge between employers and job seekers. The portal has enabled employers to partner with universities, such as North Carolina State University, UNC-Chapel Hill, and Duke University, to customize workforce training programs based on their requirements. Through the NCWorks Incumbent Worker Training Grant program, the government not only reimburses the employers’ training costs, but also helps employees build skills that employers require.28
AT&T’s ambitious retraining program
Under its Workforce 2020 initiative, AT&T is investing over $1 billion to retrain 100,000 employees by 2020. In the face of rapidly changing technology, the company found that its employees didn’t have the necessary skills to run and maintain its changing software and technological infrastructure. Instead of looking outside to address this skills gap, AT&T decided to look within its own workforce and build the skills it would need in the future.
AT&T set out to help employees quantify their skills in terms of competencies and credentials, and launched internal tools that connected them to skills-training options. These include individual online courses and certifications as well as “nanodegrees”—course bundles that deliver specialized training that can, for example, prepare a programmer to upskill to a software engineer. AT&T also partnered with Georgia Tech and Udacity to deliver an online master’s degree through a MOOC. The company partly covers the cost of several of these options.29
In addition to building a steady stream of talent, AT&T is beginning to see other benefits, including an increase in speed and efficiency. It has reduced its product-development cycle time by 40 percent and accelerated time to revenue by 32 percent.30
