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ECONOMIC ANALYSIS: Study exposes unfortunate work-force realities

February 25, 2008

For more than a half-century, we have built complex statistical models to attempt to explain why regions enjoy different levels of prosperity.

Virtually every conceivable variable-from ethno-linguistic similarity indexes to existing natural resources to government structures-have been tried, with the models proving enormously successful. One critical insight in this extensive body of research is that human capital-the quality of a labor force-yields the strongest explanation for differences in prosperity.

When we apply these models to the United States, the importance of human capital grows from being merely the most important factor in long-term growth to perhaps the only critical factor. Such issues as state tax policies and regulation serve primarily to spur short-run migration, and so contribute to long-run changes in human capital.

For this reason, I welcome the Chamber of Commerce's recent report on Indiana's work force, both for the good and bad news it heralds. Let me review some issues it brings to light, and focus on the troubled one-quarter of our adults.

Indiana's population is older than the national average. Without adjusting for generational differences, our state is probably in the middle of the pack in terms of national standings. Worker productivity is strong, and many of our schools are performing quite well. Indiana has a strong technical and community college system, along with universities that compete internationally for students and faculty. But this shouldn't lull us into inaction.

The fact that our schools are performing at about the national average means they are far behind the top one-third of truly academic schools everywhere else, including China, India and Malaysia. (Here, of course, I am speaking about such issues as literacy; in the breadth of our educational experience, we may be doing better.)

We mostly remedy these schooling shortfalls in public education by having the majority of our youngsters attend college, where they are quickly and expensively remediated. For two-thirds to three-quarters of Hoosier adults, high school and college experiences have left them prepared for and functioning well in today's labor markets. This however, leaves us with one-quarter to one-third of our young adults unprepared for the modern economy. What type of job skills are they missing?

The missing job skills of the "troubled quarter" are elementary and middle school mathematics, reading and writing. Simply put, one in four working-age adults in Indiana cannot read a street map, divide one-half by one-eighth, or fill out a job application.

While many of these adults did not finish high school, almost half did (and all passed through elementary school, where the tasks were to be mastered). This is a fiscal and social failure of high order, since it means much of the $80,000 or so a middle-age person received in public education was spent without effect. That is a true economist's lament.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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