Lawmakers have several ways to promote conditions for future job growth.
By Louis Jacobson
After a brutal recession and a middling to weak economic recovery, December brought some good news on the jobs front. The unemployment rate fell to 6.7 percent, the first time in five years it dropped below 7 percent. And although jobs rose by only 74,000, the average job growth over the year was 193,000 per month.
Still, the number of the long-term unemployed (those jobless for 27 weeks or more) remains stubbornly high at 4.1 million Americans. The question on their minds is, “Where are all these jobs?” And for many state lawmakers, the questions they want answers to are:
- What industries are expected to produce the most jobs in the near-to-medium term?
- What parts of the country, and what types of locales, are likely to see the fastest job growth?
- How can state governments best promote job growth?
Far and away the most commonly cited sector for growth, according to just about any expert you ask, is health care.
“The forces driving the growth in health care represent long-term trends,” says Michael R. Pakko, chief economist and state economic forecaster at the University of Arkansas-Little Rock. “As the baby boom generation retires, a growing demand for health services will undoubtedly continue.”
Pakko and others acknowledged that the Affordable Care Act brings some uncertainty, particularly given the troubled rollout of the HealthCare.gov website. But there’s also broad agreement that the upside for the health care industry from the new law could be substantial over the longer term, as the government injects more money into the system by expanding care to previously uninsured Americans.
“If the health care sector adjusts quickly to the new systems, it should have a favorable growth outlook,” says James Skurla, director of the Bureau of Business and Economic Research at the University of Minnesota-Duluth.
Two sectors rank a close second for job growth—construction and real estate, and professional services.
For the construction sector, the key to its rebirth is the devastating collapse that began in 2008. “Growth is coming in the areas where most of the losses took place,” says Dennis Hoffman, director of the L. William Seidman Research Institute at the Arizona State University’s W. P. Carey School of Business.
A Moody’s Analytics forecast from mid-October concluded that “housing forms a solid base for growth nearly everywhere, but most highly concentrated in the Southeast and Southwest, where vacancies are among the lowest. Foreclosures are ceasing to be a weight on house prices nearly everywhere outside Florida and Illinois.”
Pakko agrees, saying that while the residential real estate market hasn’t fully hit its post-recession stride, “it has been showing clear signs of recovery lately, so employment in home construction should begin to pick up.”
The professional services sector—a catch-all category that includes everything from accounting to engineering—has been taking an increasing share of job growth in recent years, says Doug Henton, the chairman and CEO of Collaborative Economics, a consulting firm based in San Mateo, Calif.
“Since the mid-1990s, the primary driver of new jobs has been the expansion of existing firms, and the strongest growth has occurred in knowledge-based services,” Henton says.
Next is information technology, including cybersecurity and data management, though not without an asterisk.
“Information technology, the hot ticket item for the past two decades, is likely to have slower growth in the future as it reaches maturity,” says Roger Noll, an emeritus economics professor at Stanford University. “Not a decline, just a slowdown in growth to look more like the rest of the economy.”
Technologically advanced manufacturing is also inspiring some hope, though one tempered by the long-term reality of declining manufacturing employment in general. Between March 1998 and December 2009, manufacturing jobs in the United States fell from 17.6 million to 11.5 million. It will take incredible growth to make up for a decade of losses this huge.
But there’s hope in recent growth trends. Since 2009, manufacturing employment has grown, slowly but steadily, with the first sustained increases in years. And places that have a history of manufacturing, such as the Pittsburgh area, are taking advantage of this trend. According to the Allegheny Conference on Community Development, Pittsburgh is home to almost 1,000 companies, 41,000 direct energy jobs, and a $19 billion economic impact, or 16 percent of the 10-county region’s economy.
“Traditionally, this has been a region with great strength in manufacturing, but we also have a strong research base with federal laboratories and universities,” says Laura Fisher, senior vice president at the conference. “Given Pittsburgh’s focus on heavy industry throughout the 20th century, we were always front and center for advanced materials. We can benefit from the resources, people and capital that have been invested over the long term.”
Jobs in education, particularly those in higher and continuing education, may also have a bright future, in large part because teaching the workers of tomorrow is so crucial. When the Allegheny Conference on Community Development looked into what occupations were likely to be in demand in the coming years, it came up with 14. Many of the positions require training in engineering, and the majority require specialized training, though not necessarily a four-year college degree.
“Not all good jobs require a bachelor’s degree, but an awful lot of them do,” says Charles L. Ballard, an economist at Michigan State University.
Many see promise in the financial-services sector as well. “Going forward, Arizona may see more of a transition away from population-growth-serving jobs and into more long-term sustainable areas, such as finance, insurance and related financial services,” says Hoffman of Arizona State University.
One of the industrial sectors with the most impressive growth in recent years has been energy, thanks in large part to the rapid expansion of “fracking,” which has opened up previously unreachable natural gas deposits. “The growing energy independence of the U.S. means more dollars are spent on domestic sources and less on imports,” says Noll of Stanford.
Still, the impact on job creation may not be as large as it is for other sectors. “Energy accounts for a smaller fraction of jobs because it is so capital-intensive,” he says.
The Lower You Fall, the Higher You’ll Fly
Experts project that areas hit hardest during the Great Recession will eventually bounce back strongly, while those areas that weathered the storm well may have a more modest growth trajectory.
“In the parts of the country hit hardest by the housing crisis— California, Florida, Michigan and the Mountain West—recoveries have been strong, though there is still substantial ground to make up,” says Henton of Collaborative Economics. By contrast, he says, “metro areas in the Northeast, where the recession was relatively weaker, are exhibiting much slower growth today.”
Another key factor promoting economic growth will be the degree to which a given area has exploitable natural resources. For instance, Henton points to Texas, which is blessed with abundant natural gas. Other regions are similarly well-situated, says Pakko of the University of Arkansas-Little Rock. “The most prominent factor driving the geographic pattern of employment growth is the petroleum and natural gas industries,” Pakko says. “New technologies are driving significant expansion in oil and gas exploration, which spills over into general economic activity. North Dakota is the most prominent example of this effect.”
Finally, urban areas and close-in suburbs should continue to drive economic expansion, especially in the creation of high-paying professional jobs.
“Trends in urban-centered growth, along with continued demands on new space in suburbs proximate to city centers, will drive locational growth trends,” says Ryan Sharp, director of the Center for Strategic Economic Research in Sacramento, Calif.
According to the job-search firm Indeed.com, the top five areas for job postings per capita during the first and second quarters of 2013 had an abundance of higher-education institutions and home-grown high-technology companies. San Jose, Calif., ranked first, followed by Raleigh, N.C., Washington, D.C., Hartford, Conn., and Boston.
“The coasts and the urban knowledge centers—San Francisco, Los Angeles, San Diego, San Jose, Seattle, Austin, Washington, D.C.—do have an advantage,” says Hoffman of Arizona State.
During the recession, rural areas fared relatively well, both because the agriculture sector remained fairly strong and because most such areas didn’t suffer a real-estate bust that, in many Sunbelt locales, radiated outward and took down fast-growing economies. But rural areas are likely to be overtaken once again as the recovery gains more momentum, says Ernie Goss, an economist at Creighton University in Omaha, Neb.
“Rural areas generally lose out because of the distance to markets, and because workers want the amenities of larger cities,” added Skurla of the University of Minnesota-Duluth. “The suburbs and cities that have urban renewal are the winners.” Economic development specialists offer a number of do’s— and don’ts—for promoting growth and job creation.
1. Create a desirable place to live.
This is perhaps the most important factor in creating jobs and involves having top-notch educational institutions and well-maintained infrastructure. “States should focus their efforts on the things that government must do well: infrastructure, education and training, and quality of life,” says David Penn, an economist at Middle Tennessee.
State University’s Jones College of Business. “These factors are more important than monetary incentives.”
Of these, education probably tops the list. “Businesses want skilled workers, and they really won’t migrate to places that lack them, no matter how low the tax rates may be,” says Hoffman of Arizona State. “Conversely, California still attracts knowledge jobs, despite its high tax rates, because that is where the talent and ideas are.”
Ballard of Michigan State worries that state lawmakers aren’t ready to fund education adequately, whether it’s in early childhood or post-graduate education.
“If you want ‘good jobs, good jobs, good jobs’—and not just ‘jobs, jobs, jobs’—the top priority should be ‘education, education, education,’” Ballard says. “Unfortunately, governors and legislatures are so enamored of tax cuts that it’s very difficult to find the funds to do what needs to be done.”
Michael Leachman, the director of state fiscal research at the liberal Center on Budget and Policy Priorities in Washington, D.C., urged states to be creative. He suggests reducing the share of residents who are in prison and using the proceeds for education, especially to bolster schooling in low-income neighborhoods. “In general, this can be done without harming public safety,” he says.
2. Consider tax cuts wisely.
“When competing with neighboring states for new industries, high business taxes can be a major competitive disadvantage,” says Skurla of the University of Minnesota-Duluth. To aid business growth, cut business taxes specifically, he says.
Focusing on broad income tax cuts instead can be a “lousy strategy,” Leachman says. “First, they are very expensive—they typically result in deep cuts in funding for schools and other public investments that form the foundation of long-term economic growth—and second, they are very poorly targeted,” he says. “The vast majority of the money goes to people who are in no position to create even a single new job.”
Leachman further recommends a fresh look at long-standing tax breaks to “get rid of breaks that aren’t working or are low-priority.”
3. Harness federal support when appropriate.
When the Allegheny Conference on Community Development was looking for ways to improve its region’s economic competitiveness, it joined forces with neighboring states to secure millions of dollars in grants from the U.S. Department of Labor, enabling thousands of workers to get crucial training for jobs in the natural gas industry.
“Only at the federal level can we create incentives to work
across state lines,” says Fisher, the group’s senior vice president.
4. Don’t get sidetracked into luring big companies.
Focusing only on large companies, offering incentives to entice them to relocate to your state is not very productive, says Henton of Collaborative Economics. “Many agencies and leaders see companies from elsewhere as their top priority, even though only 2 percent of annual job gains across states can be attributed to business relocations. Yet, according to one analysis, in fiscal year 2013, states are planning to devote almost 27 percent more of their economic development funds to strategic business attraction than they did in fiscal year 2012.
”In addition to squandering resources that could have been put to better use, attempts to lure companies can bring other problems, says Ballard of Michigan State. Such deals “often have very little oversight or accountability. They open the door to potential corruption, and their record of success is mediocre, at best,” he says.
5. Encourage the growth of smaller firms.
Although the big deals to lure established companies across the border tend to generate the most headlines and photo-ops, “most job growth comes from small firms, particularly young, small firms,” says Pakko of the University of Arkansas-Little Rock. “These emerging innovators are often unnoticed, adding a few jobs here and few jobs there, but they are important in driving overall economic and employment growth.”
One category of smaller firms that’s sometimes overlooked includes companies that send products overseas, work with foreign companies, or employ international workers, says Goss of Creighton University. Giving attention to the needs of internationally focused companies can produce dividends, Goss says.
6. Understand the limitations.
State policy can only do so much when it comes to creating jobs. Some aspects of economic growth are simply out of the control of state governments. States, for instance, have little influence over economic forces operating far beyond their borders.
“The largest factor influencing state and local development is the health of the national economy,” says James W. Kleckley, director of the Bureau of Business Research at East Carolina University. “All other factors pale in significance.”
As a result, it’s sometimes beneficial to simply get out of the way and not worry about micromanaging the state economy, says Mark Schniepp, executive director of California Economic Forecast, an economic consulting firm based in Santa Barbara, Calif.
Besides the recommendations listed above, there is little else state lawmakers can do directly to create jobs, Schniepp says. Businesses create jobs, so state legislators should just get “out of the way by trying to reduce roadblocks and other obstructions.”
The sectors that look the most promising for sustained job growth are:
- Health care
- Construction and Real Estate
- Professional Services
- Information Technology
- Technology-Based Manufacturing
- Higher/Continuing Education
- Financial Services
- Energy Production
Pittsburgh Plows On
The 14 occupations identified by the Allegheny Conference on Community Development to be most in demand in that area of the country in the coming years are:
- Installation, Maintenance and Repair Workers
- Mechanical Engineers
- IInspectors, Testers, Sorters, Samplers and Weighers
- First-Line Supervisors of Construction Trades and Extraction Workers
- Electrical Engineers
- First-Line Supervisors of Production and Operating Workers
- Welders, Cutters, Solderers and Braziers
- Industrial Machinery Mechanics
- Sales Managers
- Heavy and Tractor-Trailer Truck Drivers
- Petroleum Engineers
- Property and Real Estate Managers
- Computer-Controlled Machine Tool Operators
NCSL Convenes Jobs Summit
America has long been a country of innovation, says Tony Wagner, the innovation education fellow at the Technology & Entrepreneurship Center at Harvard, but our education system isn’t teaching the kinds of skills young people will need to get good jobs in the new global, knowledge-based economy. That was the message he shared with more than 100 legislators and staff during the first NCSL Jobs Summit in Austin, Texas, last fall.
Our education system is obsolete, he says, because it:
• Rewards individual achievement rather than team work.
• Encourages playing it safe rather than taking risks that can lead to failures on the road to success.
• Relies on passive consumption rather than creativity.
Wagner, who is also the co-director of the Change Leadership Group at the Harvard Graduate School of Education, told the lawmakers and staff that the key to the nation’s prominence in the 21st century is not just to reform American education but to reinvent it to make innovation the key component of our schools.
Creating jobs and well-trained workers are two of the most pressing issues states face in revitalizing their economies, and hearing from business entrepreneurs and innovators gave the attendees a different perspective on policies worth considering.
Educating people is key to a vibrant workforce, and Richard Garriott, an entrepreneur and video game developer who was also the first American space tourist, focused on the need to adapt our education system to the information age and the increasingly globalized economy.
From tax expenditure evaluation and state manufacturing strategies to infrastructure investment and connecting education to employment, participants discussed new ideas to put America to work. Illinois Representative LaShawn K. Ford (D) said he was “looking forward to reflecting on what I have learned and engaging other members in the Illinois’ General Assembly.” Tennessee Senator Dolores Gresham (R) commented that she is “still reeling from the amount of info poured into my brain” at the Jobs Summit in Austin.
Ten private sector sponsors of the NCSL Foundation Jobs and Innovation Partnership, plus the generous support of The Pew Charitable Trusts, made the meeting possible. NCSL is now planning to convene a second Jobs Summit in September 2014, which will continue the important discussions between state policymakers and industry leaders on developing practical solutions to create more jobs.