EconSouth (Third Quarter 2000)


Investing in Human Capital
Should Be Southeast’s Priority

Ts the U.S. economy continues its longest recorded expansion, the Southeast basks in the glow of this prosperity, but shadows are lurking.

By many measures the Southeast has done extremely well during this expansion. For most of the 1990s, the region’s job growth outpaced the nation’s. More jobs have propelled in-migration, and in-migration has created jobs too, especially in services and homebuilding. More jobs have fueled higher income, enabling states here to narrow the long-standing gap in per capita personal income relative to the nation. But shortages of qualified workers could cause the region’s growth engine to stall. And fostering sustained economic development is an important challenge in its own right because the region’s prosperity has not extended to all segments of society.

Capital investments in technology
The length and nature of this expansion, with both low inflation and low unemployment, have prompted many to declare ours to be a new economy. Whether or not this is the case, the economy has been experiencing a “new” rate of productivity growth not seen in decades, in large measure the result of greater capital investments for each worker. If this investment hadn’t occurred, the declining pool of available workers would probably have prompted higher labor costs and other problems.

In the 1960s and 1970s, American businesses, especially manufacturers, dealt with rising labor costs in the United States by shifting production abroad. In the 1990s and into the new millennium, businesses are using technology to enable workers to produce more goods and services more efficiently, from industries like health care to farming, both of which are profiled in this issue of EconSouth.

To some extent this technological infusion enables employers to hire workers with minimal education to, say, scan in prices at the cash register. However, much of the technology in which businesses are investing requires more, not less, education, and the jobs workers are being asked to fill require skills that come only with better education — analysis, problem solving, judgment, collaboration and so forth. And here’s where the Southeast is at a disadvantage — a disadvantage that in-migration and years of prosperity have helped masked.

Bobbie McCrackin

More investment in education is essential
Starting from a legacy of underinvestment in education, Southeastern states continue to lag behind the nation in terms of schooling quality as well as in the percentage of the population that has finished high school, let alone college. Political, business and community leaders are aware of this problem and have taken a range of actions to improve the quality of education, especially at the K–12 level.

However, despite the potential value of programs like charter schools, mentoring and smaller class size, sufficiently and efficiently funding education remains a foundation of reform. As recently as 25 years ago schools had the advantage of a segmented labor market: educated women had few career options outside nursing and teaching. That situation has changed dramatically for the better, but school systems have not fully adjusted salaries and technology to address the increased competition for the best-qualified teachers. Moreover, most Southeastern states spend less per student on average than states elsewhere do.

Until investment in the Southeast’s human capital has as high a priority on the region’s agenda as other types of capital investments do, the Southeast will not realize its full economic potential.

By Bobbie H. McCrackin, vice president and public affairs officer for the
Federal Reserve Bank of Atlanta

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