Investments in workers and technology can improve productivity

As the nation’s population ages, birth rates will fall and population growth will slow. This could dampen economic growth, which is partially dependent on workforce growth. In Maine, attracting and retaining more young workers and giving them the tools of productivity is our best defense against that unhappy outcome.

“Plugging the brain drain” (Sun Journal, July 26) highlighted the Libra Foundation’s efforts to support young Maine entrepreneurs and attract fresh talent to the state. The Maine State Planning Office is benefiting from the work of a Libra “Summer in Maine” intern to study potential economic implications of populating aging.

This study’s findings reveal the importance of programs that help Maine attract and retain more young people.

One simple equation explains why:

A state’s total economic output (the value of all goods and services produced in the state) equals the number of workers, multiplied by the amount of output each worker produces. Increasing output requires increasing the number of workers, or the productivity of each worker, or both.

For example, imagine two countries whose entire economic output is from hand-sewn shirts. In each country, the total amount of shirts produced equals the number of workers, multiplied by the number of shirts each sews.

Then imagine both countries want to increase output. One country expands its factory and hires more workers. Each worker sews the same number of shirts each day, and collectively, produces more shirts. The economy grows.

The other country buys sewing machines and temporarily slows production while workers learn to use them. Number of workers remains the same, but each sews more shirts per day. Ultimately, they produce more shirts than before. The economy grows.

The first country is like China. It’s not the skill-level of Chinese workers that has generated the country’s strong economic growth in recent years, or even new technologies. It’s the sheer number of workers.

The second country is like Ireland. Investments in workers and technology (education, research and development, and infrastructure), along with sound fiscal policies, sparked its recent expansion – not population growth.

Maine would have difficulty following the Chinese model. As one of the oldest states in the nation, Maine population growth projections are low. In fact, as Maine’s population ages, the number of Mainers aged 25 to 64 is projected to grow just one percent by 2030, compared to 18 percent nationally.

Donald Kohn, vice chairman of the Federal Reserve Board, testified earlier this year before the U.S. Senate Special Committee on Aging that, “because total output is equal to output per worker times the number of workers, a slowdown in the rate of labor force growth will, all else equal, tend to slow the growth of output.”

That would be a pretty dismal prognosis if it wasn’t qualified by “all else equal.” By this, Kohn means fewer workers might not reduce output, if something else changed.

That “something” is an increase in worker productivity – the Irish model.

Two things can increase workers’ productivity: enhancing their skills or improving their tools. In the shirt example, increasing skills might entail teaching the most efficient way to sew shirts – cutting patterns from two pieces of cloth at once or sewing pieces together in a certain order. Improving tools means buying sewing machines.

In Maine’s economy, enhancing workers’ skills means postsecondary education and training that helps workers adapt their skills to new industries, learn new technologies, or be more creative and effective in their current jobs.

Improving tools means research and development, investments in telecommunications, and access to capital like that offered by the Libra Future Fund.

Libra’s well-placed efforts reinforce other positive developments. Enrollment at Maine’s community colleges has jumped nearly 50 percent since 2002. Organizations like YPLAA (Young People of the Lewiston Auburn Area) and Realize!Maine are connecting and empowering young people throughout the state. Maine’s annual loss of residents during the 1990s has turned into gains in recent years.

Still, vigilance is key. Only sustained, strategic investments in Maine’s workforce – and its toolbox – will ensure long-term economic growth.

Catherine Reilly is Maine’s State Economist and a board member of Realize!Maine. She lives in Portland. Crystal Callahan, from New Jersey, is an economics major at Loyola College in Maryland and a Libra Foundation’s Summer in Maine intern at the Maine State Planning Office.