ECONOMIC DEVELOPMENT QUARTERLY / November 2001
investments too often are viewed as ancillary to the primary goal of real estate and business growth, or worse, as a cost to be minimized (Ranney & Betancur, 1992). However, firms frequently leave localities because they cannot find residents with the qualifications for vacant positions—not sim- ply, as many contend, because of the lack of developable space or the heavy tax burden (Giloth, 1998). Economic development staff must think of labor as an asset that along with its arsenal of financial incentives, can be used to attract and retain businesses. Especially during periods of low unemployment and shortages of skilled production workers, they have little choice but to adopt workforce-focused policies.
Businesses seek workers with basic skills who are prepared for work; tax abatements and credits that encourage firms to hire unqualified workers are counterproductive. Most localities lack the means of addressing these skill shortages and connecting workforce development to ongoing industrial retention and attraction efforts. Existing job training programs are often loosely con- nected to actual employment needs and operate without any guarantee that their graduates will find positions in the occupations for which they have been trained (Harrison & Weiss, 1998b; Jenkins, 1999; Weber, 1999b). This means that job seekers may not achieve the hoped-for wage gains or the career-track jobs that prompted their participation in training programs. Moreover, programs to boost the supply of skills through mandated training or new workforce development programs—in the absence of actions by firms to adopt new approaches to organizing work—might not signifi- cantly improve demand or the utilization of skills. The resulting lack of coordination between eco- nomic and workforce development systems compromises the effectiveness of economic development efforts.
American manufacturers simply cannot compete with low-wage countries on the basis of labor costs alone. When they decide to cut labor costs, rather than pursue performance-enhancing strate- gies, firms may dampen productivity in the long run and make it harder to retain their best employ- ees. Moreover, cost-cutting strategies, such as the widespread use of low-wage temporary workers, jeopardize many of the goals of local economic development.
Small producers must pursue economic advantage based on performance—improved product quality, flexibility, innovation, and product differentiation, all of which require a high-quality workforce. To implement the new technologies that are necessary for these firms to meet higher quality standards and compete for larger contracts, they must build long-term capacity by investing in new forms of workforce organization. Initial access to an adequate supply of workers who pos- sess problem-solving skills and can read and perform basic math is only the first step. Businesses must provide on-the-job training and an atmosphere conducive to firm-based learning to capture the productivity gains from valued employees. Increased productivity is the primary means through which employers can raise wages.
Firms that do not make productivity-enhancing investments run the risk of providing dead-end, low-paying jobs that contribute little to the local economy in terms of earning power. Conversely, firms that elect to make these investments can develop a skilled and stable local workforce able to make home purchases and contribute more to the revenue base of the locality. This, in turn, can lead to a decreased reliance on transfer payments from the federal and state governments.
Because firms are able to pursue alternative strategic paths, economic development policy mak- ing needs to assist those firms trying to make the transition to high performance workplaces. It can do so by improving the supply and the access of job seekers to good jobs, which increasingly involves sectoral, firm-to-firm initiatives as opposed to tax breaks oriented toward individual com- panies. They can also create an environment that encourages firms to modernize in ways that do not displace workers or downgrade the quality of available jobs. Public support for related investments in workforce development and firm modernization can yield significant returns for regions and workers, benefits that do not have to come at the expense of the private sector.