In state where labor force participation is low, Reeves & Gunn are right on unemployment

*Appeared in the Laurel Leader Call newspaper  

Gov. Reeves recently announced he would be ending the state’s participation in extra federal unemployment benefits, saying that Mississippi no longer has a need to opt into programs like the Pandemic Unemployment Assistance which Congress passed last year to alleviate the impact of job losses due to COVID-19.  

 

In a letter, Speaker Philip Gunn had urged the Governor to end the program, stating that “small businesspeople…inform us their businesses are at risk.  They report that they cannot get employees to return to work because they can earn more from combined federal and state unemployment benefits than their normal wages.”

 

According to the Bureau of Labor Statistics (BLS), which measures wages, the mean hourly wage in Mississippi as of May 2020 was $20.00.  This means an individual working 40 hours per week will earn, on average, about $800.  Compare that to what an individual can currently earn by claiming unemployment – a maximum of $235.00 per week plus another $300.00 in the extra federal pandemic stipend for a total of $535.00 per week.  While this amount is roughly 33 percent less than what an individual can earn from working, it does represent a significant increase over “normal” unemployment benefits – an increase of more than 128 percent.

 

That means unemployment benefits, when including the federal supplement, have more than doubled for recipients.  Economics teaches us that this type of increase has an impact on human behavior.

 

It reminds me of what my old economics professor at Vanderbilt used to say…a lot. He’d always talk about “incentive alignment,” and while his examples were not usually unemployment-related, the same concept remains true here.  If individuals can earn nearly as much by filing unemployment as they can by working a job, then some (not all) will be incentivized to choose the former approach.

 

That’s particularly troubling in a state like Mississippi, where the labor force participation rate has lagged behind the nation for decades.  As of March 2021, the state’s labor force participation rate (meaning the number of people in the workforce, including those with jobs and those actively looking for jobs) was 56.1 percent, according to the BLS.  The U.S. rate stood at 61.5 percent for the same time period. 

 

When I was worked for former Gov. Haley Barbour, I led a project on the state’s labor force participation rate.  We commissioned a study from the W.E. Upjohn Institute for Employment Research to delve into why Mississippi’s workforce lagged behind our neighbors and the nation.  While the study is now about a decade old, many observations remain poignant today. 

 

“Labor force participation is a key social indicator because the economic performance of a state and the well-being of its residents are closely tied to labor force outcomes. Together, the labor force participation rate (LFPR) and the unemployment rate are of paramount concern to state governments because living standards and consumption are so closely tied to work and earnings from employment,” the paper began. 

 

It studied many reasons why individuals dropped out of the workforce and ultimately concluded that contributing factors were Mississippians living in non-metropolitan areas, Mississippi having a higher percentage of residents who had not completed high school and having a lower percentage of residents who had a college degree, and – you guessed it – the incidence of government income transfers, such as Social Security benefits and unemployment benefits. 

 

I am not an opponent of the state’s unemployment insurance program.  I believe it can and does serve an important societal purpose as a temporary stop-gap for those individuals who lost jobs through no fault of their own and are actively seeking other employment.  However, this program was never designed to be a permanent income solution and, with misaligned incentives, can do more harm than good to the state’s economy.

 

Like our state itself, Mississippi’s labor force market is complicated.  There are many reasons for low workforce participation, and it would be overly simplistic to say people aren’t searching for jobs just because they’re getting bloated benefit checks.  But policymakers must not ignore proven economic theories about the impact of government income transfers on labor force participation.

 

And…that’s a long, wonky way of me saying that I ultimately agree with both Gov. Reeves and Speaker Gunn in their opposition to extra federal benefit checks for the unemployed. 

 

Workforce development key component of economic development

*First appeared in the October 31 edition of the Laurel Chronicle.

This week I attended a workforce development conference hosted by the Federal Reserve Banks of Atlanta and St. Louis, the Mississippi Manufacturers Association, and other statewide partners. The event reminded us that, as MMA president and CEO Jay Moon said, workforce development remains a critical element of successful economic development.

Here are a few more observations from the event.

Panelists at the conference included representation from multiple states and a mix of the public and private sector, and conference attendees represented business and industry; education; and workforce agency stakeholders.

Throughout the day, much discussion centered around “soft” skills. That’s industry speak for things parents used to teach their kids – how to dress for work, how to have a good attitude, punctuality, and motivation to do a good job. Believe it or not, states are spending millions of dollars each year to teach workers these types of skills. Employers are clamoring to find workers who exhibit “conscientiousness” (as one panelist put it). To paraphrase another speaker, employers want a motivated workforce even more than a trained workforce.

As I’ve said before, when the family unit fails our kids, the government tends to step in. Ideally, parents – not training providers – would teach their children these very basic life skills.

Nicole Smith, senior economist at Georgetown University, raised the issue about Mississippi’s “brain drain,” noting our state is a net exporter of college graduates. In essence, we are training young workers to go somewhere else. This is particularly troubling in a state that already suffers from a historically low labor force participation rate (the number of people who are either working or looking for a job). This measure certainly won’t improve if our future workers catch the next train out of town.

Representatives from the construction and defense industries stressed that workforce policy should embrace all career and education pathways – both those which require a four-year degree and those that require a technical degree or certification. The earning potential of non-university careers was explored, with economist Smith noting that a bachelor’s degree in education typically pays much less than a two-year certification in an engineering-related field. (Students: Y’all take that to heart.)

Mike Beatty, president and CEO of the Great Promise Partnership, discussed a Georgia dual enrollment program targeting at-risk youth. The public-private partnership combines traditional classroom education with a job working about 20 hours a week as long the student maintains certain grades and behavior requirements. This program provides real-life work experience – such as those soft skills I mentioned earlier – and demonstrates the value and reward of hard work. It has helped turn the tides for at least 600 Georgia teens since the program’s inception and could be a model for similar Mississippi efforts.

Mark Henry, head of Mississippi’s workforce agency (the Department of Employment Security), is currently serving as president of the National Association of State Workforce Agencies. In this role, he is advocating Congress give states maximum flexibility on federal workforce dollars. Amen to that, brother.

Conference attendees broke into small groups, with each group producing a single idea for further study by Mississippi workforce officials. These ideas ran the gamut: Emphasizing the value of work to youth; developing a single workforce development brand for the state; renewing our focus on entrepreneurship; understanding and overcoming the barriers faced by felons re-entering the workforce; unifying the education system; and developing workforce academies and ensuring courses taught by community and junior colleges meet employer needs.

These topics aren’t new, but they continue to be challenges faced by Mississippi as we look to improve our workforce delivery system. I suspect these issues will continue, at least in the foreseeable future, to dominate discussions on how to move Mississippi forward, since successful workforce development breeds successful economic development.

Economic development is, after all, the art of attracting new business and industry to a city, county, state, or region. While competitive tax structures, financial incentives, and other bells and whistles are important, a company won’t locate its next facility in an area without qualified workers.