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William Poole cites economic diversity, education as key elements to viability

Federal Reserve Bank of St. Louis official visits

Tupelo — Research and statistics emanating from recession and expansion periods underscore two familiar, but critical, challenges for Mississippi leaders: educational improvement and economic diversification, according to William Poole, president of the Federal Reserve Bank of St. Louis during a recent presentation at the Northeast Mississippi Economic Forecast Conference in Tupelo.

Noting that all states are bound together in the national economy, Poole put the state’s performance into perspective by analyzing Mississippi’s business cycle and the extent to which the state’s recent experience has been in sync with national experience. Examining differences between the Mississippi and national economies, Poole also shared his views on how public policy might improve the state’s business climate.

While research has shown that like much of the South, Mississippi’s periods of recession and expansion have been in sync with the national experience about 80% of the time, differences in timing and nuance may be attributed to a combination of factors, including industrial composition and demographic characteristics, according to Poole.

“Differences in states’ growth rates during recessions tend to be associated more with differences in their industry shares rather than with demographic factors,” Poole said. “During expansions, however, differences in growth rates are explained by differences in demographic factors — such as educational attainment levels — but not by differences in industry shares. The implications of this research for Mississippi are that the severity of recessions can be lessened by having a more diverse economy, and long-term growth can be enhanced by improving educational attainment, which includes attracting talented people from elsewhere and retaining talented Mississippians.”

While Mississippi has made a number of economic strides in recent years, Poole’s remarks underscored the challenges that face the state as it aims to compete in a global economy. Over the past several decades, according to Poole, manufacturing as a share of total employment has declined dramatically in the United States to about 11% today. While noting manufacturing’s importance in the national economy, Poole observed its particular sensitivity to business fluctuations.

“In a state such as Mississippi, where manufacturing employment still represents about 16% of total non-farm employment, business fluctuations in manufacturing can have significant consequences for the economy of the state.”

Notably, the proportion of service-sector jobs has increased in the Mississippi and national economies, according to Poole. According to his statistics, service-sector employment represents about 79% of total non-farm jobs in Mississippi-a proportion that is just shy of the 83% of the United States as a whole. In contrast to manufacturing and overall employment, Poole stated that employment in the service sector has increased in both Mississippi and the United States since March 2001. He added that services payrolls grew by about 3.2% in Mississippi through November 2004 while services payrolls increased by about 1.8% in the U.S. as a whole during the same time period.
These changes once again reinforce the importance of education, according to Poole.

“As the share of manufacturing employment continues to decline in the United States and in Mississippi, driven by productivity gains and the movement of lower-skilled jobs overseas, the new face of manufacturing is one of high efficiency and the use of advanced technology,” Poole stated. “The prospects for Mississippi and the nation to generate high-paying jobs in this sector hinge on attracting high-skilled workers. And this leads us to what is perhaps the most important challenge facing Mississippi: education.”

Observing that the difference in educational attainment in Mississippi relative to the rest of the country has been a “historically notorious problem,” Poole said that the state has achieved significant improvements throughout the past decade.

“Educational attainment in Mississippi measured by the proportion of all persons aged 25 years or older who have completed high school increased dramatically during the 1990s: from 68.9% in 1990 to 80.3% in 2000, an increase of 11.4 percentage points,” Poole said. “This increase was almost double the increase in the rest of the nation, helping to narrow the educational attainment gap between Mississippi and the United States.”

Poole said that Mississippi has also made progress in the attainment of a college degree, although “not as impressive as the increase in high school completion.” During the 1990s, according to Poole, the percentage of people in Mississippi aged 25 or older with a college degree increased by more than four percentage points to 18.7%, which was slightly smaller than the national increase of about 4.3 percentage points.

“As a consequence, the gap in the percentage of college graduates between Mississippi and the United States remains stubbornly large at about seven percentage points,” Poole said. “To a large extent, this gap can be attributed to the difficulty Mississippi has had in attracting people with college degrees and in retaining its own college graduates.”

Poole concluded with his personal views on how public policies might improve economic activity and create a more favorable business climate.

Over the years, he said that Mississippi’s state government has placed much effort into improving the state’s economy by providing incentives to attract investment and foster the creation of better jobs.

“These incentives have included direct incentives, such as tax breaks, subsidies and financial programs for training workers, as well as institutional incentives, such as maintaining limited market regulations and a relatively simple tax code,” Poole said. “My personal view favors the second type of measures, which are general measures consisting of establishing institutions, laws and regulations that reduce the transaction costs of running a business and facilitate entrepreneurship by private individuals.”

Poole again stressed education’s importance and reiterated that an educated workforce can also generate great social benefits through its “spillover effects” on other areas of society. He also emphasized that business leaders considering moves to a new location insist on good schools for their own children.

He added that a recent Federal Reserve Bank of St. Louis study suggests that increases in the proportion of educated labor force in cities tend to be associated with future growth in the number of high-paying jobs. Moreover, the same study also finds that the creation of high-paying jobs tends to be followed by wage increases in lower-paying jobs as well.

Contact MBJ contributing writer Karen Kahler Holliday at mbj@msbusiness.com.

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