Untangling the Skills Mismatch Debate: Implications for Local Economic Development

The skills mismatch debate underscores why a solitary focus on college completion is insufficient to build competitive regional economies.

The paradox of persistent unemployment and unfilled jobs has many analysts pointing to a  skills mismatch in the economy.  This widely accepted hypothesis has come under fire recently, with implications for local and regional economic development.

Looking deeper inside the black box of matching workers with jobs reveals more nuance than unavailable skills. A wage gap, lack of recruiting intensity, strict hiring requirements, and lack of hiring are also at work.

The Chicago Fed’s research finds that although a skills mismatch does not exist across the board, there seems to be one for middle skill jobs, or requiring education and training beyond high school but less than a bachelor’s degree.  Martin Scaglione, president of the ACT Workforce Development Division, in an interview with blogger George Lorenzo, affirms this finding from the supply side perspective. “There is not enough talent coming through the system to meet the demand for jobs at the middle-skill level, and there is an overabundance of low-skilled workers.”  Lorenzo observes that “many college graduates are being forced to take on middle-skill jobs, thus sending those who should be filling those jobs into the low skill arena,” further complicating the job market.

Analysis of future job markets finds that the share of jobs requiring more than just a high school diploma will increase from 59% in 2008 to 63% in 2018, but about 30% of all jobs will require a technical degree or certificate, not a bachelor’s degree.  The Bureau of Labor Statistics similarly finds that jobs in growth industries will be predominantly middle-skilled.

So, what does this all mean for local and regional economic development?

In the knowledge economy, talent is clearly an economic asset.  By “talent” I mean a pool of appropriately skilled labor.  The skills mismatch debate reveals that appropriately skilled will include a mix of high and middle-skilled workers and will vary to a large degree by regional job market. Expanding and enhancing the pool of talent requires integration of workforce development and economic development to address the needs of employers and provide opportunities for those in the community.

But, recent policy dialogues have conflated “talent” with a college degree, encouraging practitioners on the ground to tie a neat bow of “college for everyone” around the complex challenges of unemployment, a competitive workforce and business viability.  Why would we narrowly focus on bachelor’s degrees as an indicator of an appropriately skilled workforce, when the weight of evidence suggests the skills mismatch is as much about mid-skill jobs?

The “college for everyone” movement rests on solid foundations.  Economic development experts have long noted the key role of “human capital” (another take on “talent”) in driving economic growth.  But lacking better data, many analysts default to using the Census’ “percentage of adults 25 and older with a bachelor’s degree or more” to measure the human capital, or talent, of the workforce.  There’s also the notion that this figure drives site selection decisions, as many a top 10 list would suggest.

I’m not suggesting that a well-educated workforce shouldn’t be a goal.  But, it’s only part of the equation, and part of what makes an area attractive to business.  Businesses that are looking for a talent pool to stay productive and successful are not just looking for a high percentage of college degrees in the area.   They are looking for the right mix of skill sets.

Policies based primarily on increasing college attainment rates neglect the range of skills needed by job creators and compel the use of local talent chasing strategies.   Talent chasing favors low-hanging-fruit approaches, like building coffee shops and artist lofts, or out-competing other jurisdictions for small gains in the percentage of college graduates, rather than driving at the harder work of growing a pipeline of talent in the community.   Like smokestack chasing, too much emphasis on chasing college graduates is zero sum for national economic growth and can’t make up the gaps in skills in severely depressed economies.  Everybody wants to be Seattle, with its 50%+ population of college graduates.  But, if your city’s percentage is nowhere near Seattle’s, no amount of coffee shops, artist lofts and talent attraction will solve your underlying economic challenges.

Enhancing the talent pool includes college completion, but it also means improving education pipelines and training systems, ensuring that these are flexible enough to keep up with changes in business demands, communicating with the business community, understanding and anticipating needs of growth industries, and having a grasp on available and future human capital assets.  Places as diverse as Garland, Tex., Northeast Indiana, St. Louis, Ventura, Calif., and Seattle have created systems and partnerships to build their pool of talent and expand, retain and attract businesses.

While there is no doubt that the knowledge economy values high skilled individuals, and that communities with higher skills will be competitive, building strong economies for the long term requires creative, and often difficult, approaches to education systems, workforce development, and economic development to grow a range of skills in the community that are appropriately matched with and able to leverage job growth and local assets.

Attribution: I’d like to thank Chris Hoene and Katie McConnell for their insights, contributions and “water cooler” conversations on the complex topics of workforce development, talent attraction and the skills mismatch debate.

The Latest in Economic Development

This week’s blog highlights the recent success of New Jersey’s economic development incentives, explores the story of two rural North Carolina towns and how they dealt with losses of industry, mentions efforts in Seattle and Philadelphia to streamline their regulatory structures, and points out increasing foreign direct investment flows from China to the US.

Comment below or send to common@nlc.org.

Get the last edition of “The Latest in Economic Development” here.

Economic development incentives can be a contentious issue, but New Jersey seems to have had some recent success in retaining big business. In a NJBIZ article, Joshua Bird explains that “the state’s arsenal of incentive programs has prevented firms from leaving the state.” Some of these firms include Goya Foods, Realogy Corp., Burlington Coat Factory, and Conair Corp. – all companies that employ more than 3,000 employees.

Incentive programs such as New Jersey’s tend to drive a wedge between taxpayers and the corporations receiving tax breaks and other incentives, since they are often perceived as a wealth transfer, or “corporate welfare,” from workers and small businesses to politically connected companies.  It has also been demonstrated on numerous occasions that the jobs promised as part of these deals rarely come to fruition. A Pew report conducted earlier this year highlighted this fact, and while they deemed New Jersey a state that is “leading the way” in its performance monitoring incentive programs, over half of US states (26) proved that they were not meeting any of the criteria for scope or quality of evaluation.

According to Kim Zeuli of the Federal Reserve Bank of Minneapolis, small town economic recoveries are largely determined by “community resilience.” Small towns usually don’t have the most diverse economies, which leaves them uncomfortably exposed to recessions that affect the industries they support. In a recent podcast (with transcript available), Zeuli tells the story of two North Carolina towns, Eden and Concord, and how they responded to the loss of their respective textile industries. While there are many determinants of community resilience, a couple factors stand out. One is fairly obvious; industry diversification is crucial to respond to external shocks. The other focuses on an important intangible: leadership. In the case of Eden and Concord, local leadership proved to be a big factor in their respective responses. Concord’s leaders had a little more foresight that the textile industry was losing steam, enabling the town to get out in front of the crisis. Podcast via Southern Compass News

Regulatory regimes can sometimes be stiflingly rigid, but Seattle’s new program shows that pragmatic flexibility can be a catalyst for productive projects. The Industrial Development Pilot Program is designed to help nudge industrial projects forward that are having trouble clearing certain hurdles by: 1) stretching the permitting process; 2) utilizing a low-interest federal loan program to help cover costs; and 3) training workers. The first program participant, Harley Marine Services, was able to build a four-story structure when the height restriction was two – a simple fix, but important nonetheless. Roque Deherrera of the Seattle Office of Economic Development says that “if someone has a project, and they can achieve their project except for an issue in (the) city of Seattle, we would take a lead in supporting that project.”

Staying with the regulatory theme, Philadelphia transitioned to a new zoning code last week, replacing an outdated regime that was “in use since 1962, when Philadelphia still saw itself primarily as a manufacturing center.” The simplifying move was a welcome sign for developers, who will save time and money by not having to appeal to the city every time they needed to go “off-code” (which was a lot) in the old system.

Chinese investors and companies are flush with cash, and recent foreign direct investment inflows from China to the US show that they desire Western assetsThere are a few reasons for this rising trend. First, the Chinese economy is naturally evolving; unskilled manufacturing margins are being squeezed by higher labor costs, requiring Chinese opportunists to look elsewhere for returns. Second, since asset prices are lower in developed countries due to the lingering effects of the financial crisis, there are many bargains to be had. Third, they are fulfilling strategic objectives, such as acquiring technology and marketing prowess, which is why the continuing trend makes some US officials squeamish. Especially with the Chinese scouring the globe to secure energy producing land and assets, inward FDI will most likely be a contentious issue in the near future. But as of now, China “accounts for only about 3% of foreign investment into the US” and is providing much needed cash to US companies, not to mention jobs.

Our Divided Political Heart

It’s a shame that political party conventions don’t provide the kind of compelling and stimulating debate on policy issues that might actually serve to inform voters – assuming any are listening – about the electoral choice before the nation. It’s all the more regrettable because the American Republic is a nation of problem solvers all but genetically predisposed to “fix” things that appear broken, out of synchronization or that are not performing up to an acceptable standard.

Of course, implementation of this pragmatic solution-driven approach assumes that some significant portion of the general public actually agrees on the nature of the problems and on the necessary solutions. Judging by contemporary assessments of the political branches of government, the nation is not only divided over what solutions to offer but also over the very definition of the problems.

Herein lays the thrust of Our Divided Political Heart, E. J. Dionne’s contribution to election year politics.

Read More

Resources for Rural Communities–in Good Times and Bad

As the worst drought in U.S. history continues to impact agriculture and businesses in rural communities, various federal agencies are offering additional aid to affected Americans.  With more than 1,800 counties designated as disaster areas, the U.S. Departments of Agriculture (USDA), Commerce, Interior and Transportation have worked to lessen hardships by providing emergency loan funds to farmers, ranchers and producers, increasing lending to small businesses and waiving certain requirements on commercial trucks.  In addition, the Small Business Administration, USDA and Economic Development Administration are hosting forums in designated communities and through state and county fairs to provide information about other federal resources available.  For the most up-to-date information, visit www.usda.gov/drought.

Last month, USDA released Federal Resources for Sustainable Rural Communities, a guide outlining federal programs available to rural communities for promoting economic development and improving their residents’ quality of life.  The guide includes information about grants, loans and technical assistance focused on transportation, housing, and environment and natural resources.  By accessing resources from not only USDA, but also the U.S. Department of Housing, the U.S. Department of Transportation and the U.S. Environmental Protection Agency, rural communities can leverage local assets to increase economic competitiveness, preserve natural resources and create jobs for rural Americans.

In another sign of the legislative dysfunction plaguing this Congress, the U.S. Senate and U.S. House of Representatives were unable to agree on a way to extend valuable economic development resources for rural communities or provide relief for the farmers affected by the drought before going home for the month of August.  When they return, members of Congress will resume debating whether to pass legislation targeting aid to areas hurting from drought and natural disaster or reestablishing federal policies about rural development, nutrition, conservation and farming in a broader multi-year farm bill, the current version of which is set to expire on September 30.  This legislation concerns Americans not only in rural communities but across the country, who deserve both certainty and support that a comprehensive farm bill with policy improvements and continued investments can provide.  Only then can our rural areas recover from these historic natural disasters and focus on prospering again.

Board Appointments for Public Safety Communications Network Signals Good News for Cities

The Department of Commerce took the first major step in the planning and construction of a public safety communications network Monday morning when Acting U.S. Commerce Secretary Rebecca Blank appointed 12 members of the board of directors for the First Responder Network Authority, which—thankfully—is simply being referred to as “FirstNet.”

FirstNet is responsible for overseeing the planning, construction, and maintenance of a nationwide wireless communications network that will provide seamless, high-speed wireless data services and interoperability between first responders.  Building a public safety grade, dedicated nationwide wireless data network on the scale of a major carrier like Verizon or AT&T is not a simple or inexpensive task—not to mention one fraught with politics.  Guaranteeing both urban and rural coverage (as Congress required in legislation) while keeping federal, state and local costs down is going to take innovative thinking and extraordinary determination by the board of directors.

That said, the board is an impressive list of individuals who are certainly up to the task.  The FirstNet board features public safety and local government leaders, as well as private sector telecommunications experts.  From a city standpoint, former Denver Mayor Wellington Webb and current New York Police Department Deputy Chief Charles Dowd will be bringing their significant experience in municipal government to the board’s decision-making process.

The strong local perspective these individuals bring to the board is important.  The legislation creating the nationwide public safety broadband network relies heavily on a partnership between the states and the federal government.  With the vast majority of our country’s first responders being local employees (rather than state or federal personnel), the local perspective Mayor Webb, Chief Dowd, and the rest of the public safety personnel bring to the board will be vital in ensuring a practical network.  While virtually all the major negotiations will occur between the state and federal level, local governments are going to ultimately be responsible for deciding whether to—quite literally—buy into the network.  If the network does not serve local needs or is too expensive a solution, it serves no one.  These board appointments, however, provide some assurances that local first responders will come first.

Stay tuned for more as the board begins to meet and provide hints as to its vision for the network.

After the jump: Local governments moving ahead with the network, grants on the horizon, and more.

Read More

The Latest In Economic Development

After a brief summer hiatus spent writing about craft beer and economic development, the Latest in Economic Development returns to its normal, weekly posting. This week’s post focuses on port expansions, gambling and economic development, microlending, and mega-events.

Have things to add? Email me at mcconnell@nlc.org

The eastern seaboard is engaged in a port arms race as cities like New York, Baltimore, Miami, Savannah, and Norfolk, Virginia expand their port infrastructure to accommodate  planned “supersize container ships” coming through the expanded Panama Canal in 2015. According to The New York Times, “ this sense that the new set of locks now being built to allow giant ships throughout the canal will bring riches 1,000 miles or more to the north is shared by industry and government officials along the East Coast and the Gulf of Mexico, who have promoting multimillion – and in some cases multibillion dollar port projects for years.” Yet, with so many cities and ports competing for the same share of new traffic, there are concerns that the riches may not live up to expectations.

Maryland continues to push to expand its gambling avenues. The state passed legislation last week which, if approved  by voters in November, transforms “Maryland in a few short years into one of the most concentrated casino markets outside Las Vegas,” writes The Washington Post. While supporters of the plan tout “the promise of thousands of new jobs and tens of millions of dollars in additional revenue flowing to the state and host counties…opponents have warned that Maryland risks an oversaturated gambling market.”  Indeed, there are signs that while Maryland’s largest and newest casino is performing well, its smaller, older venue’s profits have plummeted. Further, nearby West Virginia officials also are “closely monitoring the situation” because of the potential “threat to the revenue stream for that area.”

Maryland isn’t alone, more states continue to turn to gambling as a budget solution and economic development generator writes Steven Malanga in The City JournalInterstate competition and empty state and local coffers are driving the interest as “states don’t want to be left behind as their neighbors institute more and more varieties of gambling” and thus take their potential share of tax revenue. Malanga warns that “gambling has often disappointed as a fiscal tool and a economic development strategy”  as it competes for limited dollars “and the new gambling enterprises seem merely to be siphoning money from elsewhere in the economy instead of generating new economic activity.”

Microloans are in high demand from small businesses. According to the Federal Reserve Bank of New York’s Small Business Borrowers Poll, microloans (loans under $100,000) “are in the highest demand and are tougher to secure compared to larger loans.” The New York Fed lists challenges facing small businesses in securing these loans  include “less-established firms, weaker sales performance, and infrequent banking relationships.” Further they found that firms seeking these microloans do so “to finance payroll, inventory and cash flow.”

According to the AP, Microloan programs are becoming more active in the U.S. Nationwide there has been a 25 percent increase in microloan distribution between 2008 and 2010 and “in cities like Miami, New York, Houston and Los Angeles, a small but growing group of mostly immigrant and minority entrepreneurs are turning to microfinancing.”  Philadelphia small businesses will soon have a new source for microloans, through FINANYA, a CDFI. The effort’s funding will come from 6 major banks, a loan from the Small Business Administration, and a grant from the City of Philadelphia’s Commerce Department.

Do mega-events, like next week’s Republican Convention in Tampa, create the projected economic wealth for their host cities?  According to Carl Bialik for The Wall Street Journal print and blog, it’s debatable ( for example, Tampa’s host committee is predicting an economic impact between $175 -$200 million). Questioning the validity of such projections, he cites that most economic impact studies are produced by the organizers or sponsors of the event; there is questionable legitimacy in counting event related government spending on security and transportation as “…those funds could have been spent elsewhere – or remained with taxpayers”, and the use of multiplier effects  can over estimate the economic impact on the local economy.  Yet, there may be some conditions where cities can benefit. For instance, if a mega-event is planned during a time of year not popular with tourists.

Two Birds/One Stone: Finding Common Ground in an Election Year & Supporting Our Veterans

In another sign that veteran-related issues garner bipartisan support, members of the House Armed Services and Veterans’ Affairs Committees recently held a joint hearing with both Secretary of Defense Leon Panetta and VA Secretary Eric Shinseki. Remarkably, after more than ten years of war in Afghanistan and Iraq, the hearing was the first time in history that the secretaries simultaneously addressed both committees.

During the hearing, committee members and the secretaries spoke about the need to improve services such as job placement and readiness, as well as access to educational benefits. However, they also noted that local communities must play a part in welcoming our men and women home.

It was noted that since 9/11, more than 50,000 men and women have been injured in service to our country. Approximately 26,000 veterans are in the process of having their disability evaluated. On average, these men and women, and their families, wait over 400 days for a determination.

What happens to these men and women during this year?

What happens to their children?

What happens when after waiting for more than a year, the answer comes back that they are not eligible for benefits, but they are unable to work at the level they once were?

No one has all the answers to these complex and difficult questions, but a critical role that local leaders can play is creating a space that allows local connections to be established with returning veterans.

Secretary Shinseki noted the important role local leaders can have connecting veterans to the best places to use their education benefits. When it comes to job training, local business leaders and organizations like the Chamber of Commerce will have a better understanding of an area’s job market. The local knowledge of and from community groups and individual community members can be the difference between success and failure for a veteran using their federal benefits.

One area that can be overlooked, but is unique in its importance, is ensuring that all exiting service members and their families have stable places to call home. If a veteran is unsure of the stability of their housing, they will be less able to continue educational opportunities or hold steady employment. To help ensure all veterans have a stable place to call home, city leaders can work to connect local VA representatives and leaders from area military installations and National Guard units with appropriate municipal staff, area non-profits, faith-based communities, landlords and other stakeholders.

At the hearing, Rep. Gibson (R-NY) mentioned his work with Rep. Peter Welch (D-VT) to highlight the National Guard’s Yellow Ribbon Reintegration Program. The Yellow Ribbon Program is open for all National Guard members and reservists, regardless of service affiliation, to help navigate the many Department of Defense, Veterans Affairs and state systems. When Yellow Ribbon events happen, local leadership can help bring the right partners to the table so there is an understanding of city and county resources. These singular events can become the starting place for a broader conversation about what communities can do to best support our veterans and their families in an ongoing manner.

City leaders are in a unique position to bring a community together and foster an environment where the people who interact with service members, veterans and their families, actively engage with those who provide services and/or benefits. In the face of the more than 1 million service members returning home in the coming years, more and more communities will face the choice of creating a community network to support our veterans or the costs associated with a highly skilled and driven population being disconnected with those they once proudly served.

For more information about what you can do in your community and/or examples of what other communities are doing, visit www.nlc.org/veteranshousing or contact Elisha Harig-Blaine at harig-blaine@nlc.org.