EconSouth (Third Quarter 2001)


CURRENT ISSUE


Worker Skills Must Expand to Meet Long-Term Demands

While recent tragic events have increased the sense of uncertainty about the short-term prospects for the U.S. economy, an important factor that will help determine the economy’s long-term health and productivity is the labor quality of the country’s workforce.

Becoming more productive
The increase in labor productivity was one of the significant economic developments over the past five years. Recent statistics show that productivity growth during this period averaged around 2.5 percent, much better than the 1.4 percent average during most of the past two decades.

What brought about this increase in productivity? While there have been numerous contributors, I believe that much of the increase can be attributed to two factors: capital deepening and innovation from business investment.

Photo of Jack Guynn

Capital deepening occurs when businesses invest in additional equipment to help them produce more — for instance, when a bread maker buys more ovens to bake more bread. Innovation, on the other hand, happens when businesses find newer, more efficient ways to do their work — like when that same baker develops a revolutionary yeast that makes bread rise faster.

During 2001, growth in business investment has slowed significantly, and this development will likely lower productivity growth, at least in the short term. While business investment in new technology and equipment should ultimately pick up, I believe that another ingredient will be essential for sustainable, long-term productivity gains. That ingredient is human capital — good quality in addition to sufficient quantity.

Human capital is essential
What is human capital? I define it as the skills, talents and training it takes to use technology effectively to generate productivity growth.

Over the last decade, as firms invested more in new technologies, the demand for people with the skills necessary to produce and use these technologies also grew. But a chronic and acute shortage of skilled high-tech workers in the United States probably kept many firms from reaching their full potential. I heard that story over and over in the Southeast during the latter part of the 1990s.

To sustain many of the productivity gains of recent years, I believe that our society will have to provide a better-educated, more skilled workforce to help set the pace. But a skilled workforce doesn’t just happen, as the article on workforce development in this issue of EconSouth indicates.

Investing in the future
Developing a skilled workforce will require the cooperative efforts of a variety of groups, including federal and state lawmakers and schools — from K–12 to colleges and universities to technical schools and workforce development programs — along with business and community leaders. And it will require substantial investments of intellectual energy, money — and time and patience.

But these investments are clearly worth making to help ensure that our nation has the skill sets required to help the economy remain highly productive. I believe it would be negligent not to recognize this issue’s importance to the economy as well as to our society as a whole.

By Jack Guynn, president and chief executive officer of the
Federal Reserve Bank of Atlanta

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