Strategies for Improving the Midwest Work Force
Mattoon, Richard, Chicago Fed Letter
Work force issues are critical to regional economic development. The Midwest faces a number of challenges in attracting and retaining skilled workers, training new entrants to the work force, and retraining displaced workers for a successful transition to new employment. How the region should respond to these challenges was the subject of a recent Chicago Fed conference.
Critical issues facing the Midwest work force formed the theme of a one-day conference sponsored by the Federal Reserve Bank of Chicago and the Gerald R. Ford School of Public Policy at the University of Michigan on November 21, 2002. The conference brought together academics, policymakers, and business people to assess the current status of the region's work force and identify strategies to help attract, retain, and develop the best human capital.1
In opening remarks, Curt Hunter, senior vice president and director of research at the Chicago Fed, noted that the Bank's 1997 study assessing the turnaround in the Midwest economy found that regional work force development and education strategies would be critical to sustaining economic health. The study suggested that as physical capital played a less important role in economic growth, human capital would grow in importance as an economic input. Next, William Testa, vice president and director of regional programs at the Chicago Fed, provided an overview of the Midwest work force. Testa described the region's work force as marginally high income, with an above the national average concentration in manufacturing jobs. The work force tends to have moderate educational attainment with a higher than average percentage of workers having a high school or slightly better level of education and a lower percentage having a college or college plus level. Other features of the region's work force include a tendency for outmigration to be led by younger and more educated individuals, a difficulty in attracting domestic in-migration, and a below the national average ability to attract international immigrants, with the exception of Chicago.
Testa concluded that the lack of an available work force in the late 1990s most likely constrained the region's growth. He also suggested that much of the region's strong performance in the 1990s came from fully employing its work force rather than from significant gains in wages.
Midwest work force quality
Dan Sullivan, vice president and director of microeconomics at the Chicago Fed, presented joint work with Dan Aaronson, senior economist and economic advisor at the Chicago Fed, on regional differences in worker quality. Worker quality is one of several factors that support labor productivity growth, and it is one factor that can be influenced by public policy. Sullivan defined worker quality as a composite of attributes, such as years of education and experience, sex, and other factors, that are related to relative wage levels at a point in time. Research on worker quality assumes differences in relative wages reflect corresponding differences in worker productivity. Thus, changes over time in the distribution of such characteristics should lead to changes in average productivity levels. Sullivan and Aaronson's research suggests that labor quality growth has varied over time. During the late 1980s and early 1990s, labor quality grew relatively rapidly, averaging about 0.5% per year. Recently, growth has slowed to half that, and Sullivan projects growth to slow even further because of slower growth in education levels (due to demographic shifts) and the aging of the baby boom generation.
Comparing the Midwest to the U.S. as a whole, Sullivan said that the Midwest is perhaps the "most average" region. It has caught up to the U.S. in education, has somewhat better levels of worker experience, and modestly faster worker quality growth over the last 20 years. As for theU.S, as a whole, much of this has to do with the changing demographics of the work force-in particular, a decline in the share of prime--age workers as baby boomers pass their peak earnings and productivity years and head toward retirement. …