Rebuilding employment

The Federal Reserve Bank of Chicago hosted a two-day conference in Detroit this week on the subject of work force adjustment (link). It was convened by the Federal Reserve Bank, the W. E. Upjohn Institute for Employment Research, and the Brookings Institution Metropolitan Policy Program. This is one of the many efforts underway to attempt to address the unemployment crisis we now face in the industrial Midwest. Participants included state and federal jobs officials, foundation leaders, and a few academic specialists.

Are there strategies that a region can pursue that will result in significant jobs creation? To grow employment in a region there are only a couple of possibilities: to expand employment in existing companies, to stimulate the creation of new businesses, and to recruit relocation of existing businesses from other regions. In each case the business owner or entrepreneur needs to be confident that he/she can add marginal revenue to the company by hiring the additional worker. This requires that the worker has knowledge and skills whose use will contribute to a saleable product. The product needs to have features of quality and utility that consumers want. Finding the workers who have the right kinds of talent, skill, and knowledge is a key challenge for the business owner. And availability of talented prospective workers is a key aspect of the company's decision to locate or grow in the region.

So what options do these pathways suggest for policy intervention to increase employment? It might be the case that there is latent labor demand out there in existing industries, where employers would hire more workers if they could find people with the right qualifications. In this case, remedial and transformative training could lead to new jobs, shifting workers from old industries to new industries. Second, there may be identified areas of potential expansion of employment where there are specific skills missing in the workforce. Maybe specialized bakeries could sell more products if they could only hire more qualified pastry chefs. Here too it is credible that we could devise specialized training programs that fill in the missing skills. There are specific community college programs that were developed for this reason, responding to the specialized needs of existing employers. But third, we can imagine a region preparing itself for a new surge of business creation and job growth in new industries and sectors. And this requires raising the number of college-educated adults in the region. This constitutes a talent pool that will encourage the expansion of businesses and overall employment.

And sure enough -- this conference focused on "talent" and "entrepreneurship." The industrial Midwest needs more of both; it is pretty well recognized that revitalization requires enhancement of the talent base of the region, and it is recognized that recovery requires the creation of vast numbers of new small businesses.

But what I find interesting and worrisome is the level of skill development that gets most of the attention in these discussions. There is a very clear focus on training rather than higher education. Much of the focus in this conferences was on targeted jobs training at a pretty low level -- training programs that provide new skills for unemployed and underemployed workers, with emphasis on laid-off auto workers in Ohio and Michigan. Several speakers emphasized that training programs need to tailor their educational programs closely to the specific needs of regional employers. The key words are skills and training --not creativity, innovation, and the bachelor's or master's degree.

But this seems wrong-headed to me; surely the most valuable asset a region can have is a significant population of well-educated, creative, and innovative people who have been challenged and stretched by a demanding university education. So shouldn't there be a lot of priority given to the complicated challenge of sustaining high-quality universities and making sure that a high percentage of high school graduates attend them?

In fact, people like Richard Florida at CreativeClass sound a very consistent drumbeat when they talk about the twenty-first century economy, emphasizing innovation and the college-educated workforce. Creativity and invention are the central components of future economic success. But the jobs-training orthodoxy points in a different direction. They emphasize vocational training and community college programs -- the message conveyed by President Obama in his July announcements at Macomb Community College relating to investments in the US community college system. (Perhaps the President's position was influenced by the findings of the 2009 Economic Report to the President, which is worth reading in detail; post.)

It seems to me that Richard Florida is surely right about the medium- and long-term story: our economy needs to constantly move towards greater innovation and greater concentration on knowledge-based sectors. So the goal of increasing the percentage of baccalaureate-level adults in a region is a crucial element of our future economic success. The ability to offer innovative ideas, to provide new kinds of problem-solving, and to work well in nimble teams -- these are crucial "skills" that emerge most frequently from a college-educated workforce. And they are crucial for vibrant business and job growth.

This means that states really need to recognize the crucial role that their universities play in their economic potential for the future. And we need to work hard in seeking out ways of allowing talented young adults to complete their college degrees -- including those 25-34 year-olds who have done some college without completing a degree. Unfortunately, public universities are suffering from fiscal crisis almost everywhere in the country. This implies that we are likely to fall even further behind in creating the highly qualified talent pools that our regional and national economies need in order to thrive in conditions of global competition. And this in turn is likely to impede the growth of employment that we all want to see.