Economists argue that there are only two avenues by which states can increase their level of economic output: either through more labor effort applied in the production process (specifically, more jobs) or through increases in the productivity of the workforce. As labor force growth slows and unemployment remains at relatively low levels, states increasingly must look to productivity enhancements in order to maintain the high rates of output and income growth that have become commonplace over the past few decades.
Using the REMI economic model, MERIC studied the potential economic effects associated with an increase in labor productivity in the Chemical sector in Missouri, a sector vital to the state’s economy. In general, this leads to a temporary decline in employment statewide: as the industry becomes more efficient, fewer employees are needed, resulting in lower income, which leads to less consumer spending, which leads to additional employment declines. However, these declines are eventually offset and exceeded by output and employment gains in the Chemicals sector and those industries that supply the sector with resources. These gains also lead to eventual increases in tax revenues for the state. (Graphs)
Clearly, then, increasing labor productivity is an important step for making economic gains in the state. Data demonstrates that productivity growth skyrocketed throughout the 1990s, as unprecedented technological advances made businesses more efficient.
Other research shows, however, that the labor force has been unable to keep up with growing technological demands. Thus, an even greater need for effective workforce training systems has developed as a result. Since greater workforce productivity benefits both business and government, the two entities should work more closely together in an effort to provide training for willing workers. Skills partnerships between industry, education centers, and governments are an excellent example of how such cooperation could be focused. (See the MERIC report Workforce Training in the New Economy.)
Either through skills partnerships, support of technological advancements, or through other means, policy makers must turn their attention to increasing the productivity of Missouri’s labor force.
Figure 1. Employment Impacts of Increased Chemical Productivity
Figure 2. Output Impacts of Increased Chemical Productivity
Figure 3. Income and Revenue Impacts of Increased Chemical Productivity
