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Georgia’s Economy and Economic Development: What Went Wrong and What is to be Done?

March 6, 2015  |  Dr. Carolyn Bourdeaux, Director of the Center for State and Local Finance Georgia State University
Carolyn Bourdeaux
A little known piece of the economic development discussion in Georgia is that the state’s economy absorbed several body blows well before the Great Recession. Between 1985 and 1999, Georgia’s economy saw significant real per capita income growth, on average 3 percent per year, or in other words, Georgians were growing wealthier at a nice rate. However, around 2000, something changed in Georgia’s economy, and the state has never recovered. Since 2000, real per capita income has grown only around .35 percent per year.
 
A recent report by Peter Bluestone at the Center for State and Local Finance, Jobs in Georgia’s Urban and Rural Regions, attempts to untangle a piece of what happened. The report finds that over the past decade, Georgia lost 33 percent of its manufacturing jobs, with the vast majority vanishing prior to the recent recession.
 
The manufacturing job losses as well as the jobs that replaced them were not evenly distributed across the state. Overall between 2000 and 2012, net jobs in Georgia declined by 1 percent. (Note that this statistic seems small, but it is not particularly good news as the population has been growing, so the number reflects the relatively high unemployment in Georgia in 2012.) However, the metro-Atlanta region had no net job losses over this time period. Similarly, mid-sized cities and their suburbs also held even. Rural Georgia accounted for essentially all of the net job losses over this time period, around 55,000.
 
Digging deeper, the report finds that the urban areas, both the Atlanta metro area and other urban centers in the state, replaced manufacturing losses with jobs in health, education and social services. However, rural areas were not able to replace their manufacturing losses. Building jobs in health, education and social services is not entirely good news. Although a job is a job, and these are important sectors in an economy, generally speaking these sectors are heavily dependent on government support and are not industries around which one can truly build wealth in a state, i.e., they are not industries with goods for export. Additionally, it is not clear that the wages are as good.
 
Between 2000 and 2012, Georgia in aggregate has lost premium wage jobs, or jobs that commanded salaries of over $50,000, and replaced them with low to middle-wage jobs. Again, likely attributable to the loss of manufacturing, much of this shift actually occurred prior to recession, and one positive aspect of the growth in the 2010-2012 period is that Georgia appears to be adding back premium jobs.
 
What Is to Be Done?
Other states also experienced a significant decline in manufacturing over the past decade, much of it attributable to overseas competition from countries such as China. The difference is that other states were able to more effectively replace these jobs at least in aggregate. Why other states have been more successful is not entirely clear, but there are several plausible hypotheses.
 
One theory is that Georgia simply does not have enough highly educated workers. Today’s jobs, even the manufacturing jobs, require high levels of education and high skills. Much of the current and future job growth will be in the information and technology sectors. Simply put, Georgia cannot continue to have one of the lowest high school graduation rates in the country.
 
Based on the latest National Center for Education Statistics report, the national average was an 80 percent graduation rate in 2012, while Georgia was at 70 percent. By way of contrast, North Carolina, which has a similar population and demographic profile to Georgia, is at 80 percent. Georgia is behind on high school graduation rates at a time when even a high school diploma is not enough, and state and national leaders are calling for 60 percent of young adults to have some form of higher education, whether technical training or college.
 
A related idea is that cities and states should work to attract or internally develop and promote a “creative class” of high-skill entrepreneurs. The theory goes that these communities, often associated with young people and well-educated immigrants, are drawn to urban areas with good education and amenities such as transit, cultural resources, natural beauty and generally a good quality of life.
 
At the center, we are often asked about the tax credits or incentives that can attract business—and these can have some value at times. But a key element in most contemporary ideas about economic development strategies is that they require sustained, targeted and effective governmental investment. Given globalization and the ease of communication and transportation, jurisdictions in the United States will never be able to outbid an India or China on wages or cost of doing business alone. Instead, what we need to build is a high-skill, entrepreneurial labor force (which is attracted to an area because of a good quality of life), good infrastructure and effective governmental institutions.
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