Indiana must adjust human capital policies to put people back to work

Topic: Miller College of Business

April 2, 2013

The Great Recession may be officially over, but Indiana will have to adjust its human capital policies in order to help hundreds of thousands of people find meaningful employment, says a new report from Ball State University.

“Labor Markets after the Great Recession: Unemployment and Policy for Indiana,” an analysis by Ball State’s Center for Business and Economic Research (CBER), found that a skills mismatch in Indiana is not due to manufacturing job cuts or lack of worker mobility due to the housing bubble collapse. Rather, they were lost because a dearth of post-secondary educational achievement has limited worker re-employment options.

Simply put, as many as 130,000 to 150,000 Hoosiers currently do not have the necessary skills that employers need — either near their homes or elsewhere in the nation, said Michael Hicks, CBER director and economics professor.

“For many Hoosier households, perhaps one in seven, the Great Recession has led to labor market shifts that have left family members without the skills needed for reemployment within the occupations they vacated when losing their jobs,” he said. “More worryingly, the lengthy duration of unemployment, which now averages roughly five months, contributes to the declining skills of already low- and medium-skill workers.”

Hicks said “an example of this would be an assembly line worker, who had lost a job but lacked the skills to move into a growing occupation, such as advanced manufacturing.”

An appendix to the study outlines occupations in which there is wage growth – a necessary piece of evidence for a skills mismatch.

The study found that Indiana — like most of the nation — is transitioning from a manufacturing to a service economy. It was not a smooth process even before the Great Recession began in 2007. But when the recession hit, Indiana’s unemployment jumped from 5 percent to slightly higher than 10 percent statewide within just a few months.

Despite the return of manufacturing production to pre-recession levels, many jobs in that sector have permanently disappeared because technical advances have allowed employers to replace human workers with machines. At the same time, employment in the service sector has soared, requiring higher skilled workers for jobs where compensation and wages are more closely tied to education and skills.

Hicks points out that this transformation — and the resulting skills mismatch — is posing unprecedented challenges to Indiana’s human resources policies.

“We ask much of our investments in human capital, expecting a wide range of learning outcomes, higher levels of employment and gains in personal income,” he said. “Without careful structure, these goals may compete and require significant consideration in their development and deployment.”

The report reviewed human capital policy in Indiana, finding:

  • Focus on college attendance and completion is a necessary element of state policy, but doesn’t go far enough. The state also needs a stronger focus on developing market-oriented skills for post-secondary students.
  • At the K-12 level, significant recent policy developments have improved the college readiness of high school graduates. However, occupation-focused education with strong academic training will play an important part in improving post-graduation employment success for people not going to college.
  • Indiana must be prepared to identify and support workforce training programs—at both the federal and state levels—that are most critical to economic outcomes in the state.
  • Indiana loses many of the young men and women it educates to out-of-state jobs. As a result, Indiana communities must become more desirable places for college graduates and employers to locate.

Hicks also pointed out that private sector workforce development and educational support efforts should be supported because they are key to putting Hoosiers back to work.

“These range from the very robust statewide efforts of such organizations as Conexus Indiana to promote educational attainment and workforce training in the state, to business partnered local educational training efforts such as the partnership in Batesville, Indiana between Conexus Indiana, Ivy Tech and Hillenbrand,” he said. “Private sector workforce development and educational support efforts are critical components in mitigating the effects of the inevitable skill mismatch on Indiana’s economy.”

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