Why Connecting Economic and Workforce Development Matters

December 2012

Alfreda Norman: Welcome to the Federal Reserve's Economic Development podcast series. I'm Alfreda Norman with the Federal Reserve Bank of Dallas.

Historically, the fields of economic development and workforce development have been divided, each with its own set of goals, programs, and in many cases different outcomes. Yet over the last decade, the shift to a knowledge-based economy has resulted in often opaque lines between the two.

Today I'm speaking with Christopher King, director of the Ray Marshall Center at the University of Texas's LBJ School of Public Affairs. Chris is a labor economist with nearly four decades of experience at the international, national, state, and local level, conducting policy and program analysis, designing innovative programs, evaluating impacts, and measuring the benefits and costs of education, employment, and training interventions. He has written widely on education, workforce, and social policy and was a featured presenter at The Future of Workforce Development Conference held in Kansas City. Chris, welcome.

Photo of Chris KingChristopher King: Thank you for having me today.

Norman: In your talk at the Kansas City conference, you discuss economic development and workforce development being different historically in terms of goals, actors, and tools of the trade. Could you shed some light on these differences and how it has changed over the past decade or so?

King: So if we compare the two, the economic developers tend to be focused, for the most part, on creating jobs in their regions, building infrastructure, creating economic growth while on the workforce side they're focused on getting people into jobs, helping them keep those jobs, developing their skills, and increasing their earnings over time. The key actors on the economic development side tend to be a group of regional and state economic development agencies while on the workforce side there are workforce investment boards in every community as well as community and technical colleges. And we shouldn't ignore the fact that most workforce development happens in the workplace.

I think over the last decade we've seen a movement for the economic development and the workforce development folks to come closer together. There have been some significant federal, state, and local efforts where you've had the economic development and workforce agencies partnering on different initiatives at the regional level, but I think there's a long way to go before the two of them actually work closely together. The economic development folks tend to be focused on the high-end talent recruitment and their short-run efforts. Workforce development actors tend to be focused more on recruiting and training at all levels.

Norman: Tell me why the movement to a more service and knowledge economy has influenced both firm and employee behavior. What implications does this have for workforce development?

King: The economy has changed markedly, and I think what we see is a marketplace that's much less hierarchical. For example, in the labor market you don't really have the old "career ladder" system with nice, well-defined steps on a ladder for workers to move up. And there's also a greater imperative for speed. Employers don't really have the opportunity to wait for workers to go through long-term training before they can put them into the workplace and start taking advantage of whatever skills they've developed.

So these forces put significant pressure on local workforce boards, service providers, and especially community and technical colleges to do things faster, to rearrange the way they do their business, and to get workers through these processes much quicker so they can be productive in the workplace.

Norman: In your work, you've identified cluster and sectoral approaches as a key theme in both economic and workforce development. What is a "sectoral strategy," and what are the related benefits? Also, can you provide some examples of how this approach has been implemented, especially in workforce development?

King: So let me talk about a concept called "cluster-driven" development. I would define a cluster as a geographically connected group of companies, suppliers, service providers, firms in related industries, and the associated institutions, which would include colleges, standard-setting agencies, trade associations, and so on, linked by things that they share in common.

So, basically, there are three kinds of clusters. We have natural resource clusters, we have local clusters, and, most importantly, I think, traded clusters, which are the ones that bring new money into regions and help drive their regional growth and prosperity. So sectoral strategies in the workforce development arena play off of cluster-based development. We basically focus on specific industry sectors within those clusters so there are sectors that might have things in common; an example would be health care. We would intervene through credible organizations called workforce intermediaries, which might be community colleges, they might be workforce boards, they might be key providers of training services. They would work to understand and address employer's needs for hiring and their needs to be competitive in the local labor markets. And they would also push for developing skills in those sectors so that the workers could plug in and have both employment opportunities but also career advancement within those sectors.

I think at last count there may be up to a thousand different sectoral strategies operating throughout the country. And in each case, the organizations have basically come together, they've pulled in key employers, they're driving curriculum in community and technical colleges and sometimes unions, they're training to employer needs, they're providing supports to workers to help them get the jobs, keep them, and advance up the career pathway so that they're earning much better money over time.

Norman: The Ray Marshall Center has been conducting a longitudinal study that explores the outcomes of a particular sectoral approach. Please tell me more about this project and your preliminary findings.

King: We began studying a group called Capital IDEA, which is a local nonprofit here in Austin, Texas. We began the study in 2006 and we're continuing to look at Capital IDEA. They are a group that provides longer-term occupational training, probably 75 percent in nursing and allied health careers. They have very strong engagement with the health care employers in the Austin region. They provide wraparound services, including counseling, college coaching, college preparation, and related services to help the participants stick with it.

So we stay in touch with the staff over time. We interview people at the community college that provide most of the training. We link the data for the participants up so that we can track their employment, their earnings, their involvement with the unemployment insurance system, and their eligibility for unemployment.

What we can say about the impacts, because we're not just computing the outcomes, we're actually comparing the results for the Capital IDEA participants against a similar group of nonparticipants over time to estimate impacts on employment earnings and so on. We see that employment rates for all participants in Capital IDEA have increased by over 12 percentage points to about 74 percent over all the available period after their participation, and that's measuring for about eight years. The share of participants that now qualify for unemployment insurance has increased by about the same amount—12.3 percentage points. And the participants from Capital IDEA enjoy almost an $800 advantage in average quarterly earnings over that period, which again is about a 12-point impact. So the program is having a lasting impact on their earnings, and it appears the long-term skills training they're getting leads to employment credentials as part of the sectoral strategy and leads to long-term lasting impacts on key outcomes of interest.

We're looking at participants that spend about a year and a half in the program. Estimated cost is not cheap: per person cost of about $6,500. What we see is that the expenses that are spent on these participants really are an investment. So over 10 years, every dollar invested in Capital IDEA returns about $1.65 to taxpayers, which is an annual rate of return of about 9 percent.

Norman: Given structural changes to our labor and economic markets through the decades, coupled with diminished funding to support these efforts, how might economic developers and workforce developers better leverage their efforts to promote sustainable employment opportunities?

King: It's a tough question. Clearly, the funding isn't going to be increasing in the near future. So I think whether you're an economic developer or a workforce development staff person, you simply are going to have to work smarter. We're going to have to collaborate more at all levels, whether it's national, regional, state, local. I think there's plenty of room here to coordinate both on the policy and the program front.

One example that I've seen locally, which works quite well, the Greater Austin Chamber [of Commerce] serves as a key player in economic development strategies locally. It's become standard practice for the chamber to involve the workforce investment board staff, which has workforce responsibilities, and the community college in their recruitment efforts with firms that are coming in as well as with firms that are looking to expand operations here in the region.

Norman: Chris, thanks for joining me today.

King: It's been my pleasure. Thanks for having me.

Norman: This concludes our podcast. We've been speaking with Dr. Christopher King at the University of Texas. For more information about Chris's and other presentations from The Future of Workforce Development conference, go to kansascityfed.org. Also, for more podcasts on this topic and others, please visit the Atlanta Fed's website at frbatlanta.org. Thanks for listening.