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We’re short of skilled workers – so train more of them instead of relying on tax breaks for development

Instead of spending $50 billion on tax incentives to lure businesses to their communities, state and local governments would be better off allocating at least half of that money for job training.

That’s the message in a new report from the Brookings Institution. Joseph Parilla, a fellow at the Metropolitan Policy Program there, joins me on Episode 16 of the Lumina Foundation podcast “Today’s Students/Tomorrow’s Talent” to discuss the findings in the paper he and research analyst Sifan Liu issued in October, “Talent-driven economic development: A new vision and agenda for regional and state economies.”

Their report looks at the extent to which economic development organizations are focused on talent development and workforce capabilities as a means to further prosperity in their communities. They write: “Each year, only 2 percent of the country’s $50 billion in economic development incentives goes to job training, even as the return on investment from customized training is about 10 times that of traditional tax incentives.”

In our conversation, Parilla notes that 95 percent of executives say a qualified workforce is important/very important to investment location. In addition, four in 10 middle-market companies say they could grow but aren’t because they don’t have access to the workforce they need.

“Now,” Parilla says, “in a tight labor market, employers are knocking on the door of economic development organizations and saying, ‘You’re supposed to be here to help us with our growth challenges. One of our challenges now is workforce.’”

Parilla and Liu’s report examines the efforts to lure the second Amazon global headquarters, which ultimately was awarded to northern Virginia. The company decided on that location because “it would give them access to the best technically trained talent needed to stay ahead of the competition and innovate,” he says.

Virginia’s investments in computer science programs in its higher education system aligned with Amazon’s needs. While there were some tax incentives in Virginia’s proposal to Amazon, “the company knew they were going to be surrounded by systems that would continually prepare people for the jobs Amazon is going to create.”

“The ability of workers to complement technology—that is the special sauce in the modern economy,” Parilla says.

Companies are interested in data like: What are the third-grade math and reading scores in your state? What kind of partnerships do your local businesses have with K-12 schools with regard to computer science and STEM fields? What are the graduation numbers and placement rates for two- and four-year college grads?

“That’s the playbook for cities and states to develop,” he tells me.

He recommends that economic development organizations get higher ed, workforce training, community groups and employers together in what he calls “a civic superstructure” that also brings employers into the talent-development system much more comprehensively and much earlier.

But freeing up even half of the $50 billion that’s being spent at the state level on incentives would allow for investment in these partnerships. Right now, Parilla says, there is a perceived lack of talent in the American workforce. Even though human capital stock—what the workforce is capable of—has an estimated value of $240 trillion, “we don’t have the talent to pivot to the future.”