• WisBusiness

Tuesday, November 9, 2010

The mathematics of job creation in Wisconsin calls for quantity and quality


By Tom Still
The challenge facing Gov.-elect Scott Walker isn’t to create 250,000 jobs over the next four years, as the numbers suggest that’s possible. The real challenge is to create the high-quality, well-paying jobs Wisconsin needs.

During his campaign for governor, which culminated with a five-point victory Tuesday, Walker promised to create 250,000 jobs and 10,000 businesses by 2015, the end of his four-year term.

Wisconsin has about 2.7 million non-farm workers today, so growing that total by 250,000 represents an increase of about 9 percent spread over four years. That may be possible given recent history and some basic workforce math.

First, Wisconsin’s workforce continues to grow even though many people are still out of work. Economist David Ward of Madison-based NorthStar Economics pegs that growth at roughly 1 percent per year, so that modest expansion alone could produce 105,000 jobs over four years.

Second, Wisconsin reported about 236,000 people unemployed in September 2010, when the jobless rate was 7.8 percent. If that rate fell to 5 percent over four years, that’s another 85,000 people back on the payroll. With luck and the right state government policies, it’s not hard to imagine another 60,000 jobs being created during Walker One.

However, the new jobs may not look like the ones they replace.

Here’s why: In early 2000, Wisconsin had more than 2.7 million non-farm workers, with a smaller population base. Unemployment was under 3 percent. The state actually added 125,000 jobs in one year alone, from early 1999 to early 2000.

But that was a time when manufacturing employment in Wisconsin was still very much on the rise. There were 611,000 manufacturing jobs in the state in early 2000, according to state records, compared to 422,000 today.

Most of those manufacturing jobs are lost forever to global competition and industry trends. Manufacturing is still a vibrant part of Wisconsin’s economy, but it has changed dramatically, in part because of technology and other efficiencies.

Some incremental increases in manufacturing can be expected over time, but the halcyon days of 600,000-plus jobs will remain a hazy memory. So, where will new jobs be produced? Sectors such as care for the aging, education, food processing and safety, information technology sectors, transportation, trade, bioproducts and alternative fuels hold potential.

“Raw numbers of jobs is not our problem. We need high-quality jobs,” said Todd Berry, president of the Wisconsin Taxpayers Alliance and author of new report titled “Wisconsin Jobs and Wages: A Wake-Up Call?”

Berry believes the number that will drive 250,000 new jobs is 10,000 new businesses, given that small businesses create virtually all jobs in the U.S. economy. As the Kauffman Foundation reported recently, “start-ups and young companies dominate job creation in the United States – and have done so for the past 30 years.”

Launching start-ups is precisely where Wisconsin has lagged since the early 1990s. In the 17 years ending in 2009, new companies as a percentage of all firms averaged 5.4 percent nationally, while in Wisconsin the “firm creation rate” was 4.5 percent. Wisconsin ranked 42nd among the 50 states and scored behind most of its neighbors.

Berry noted that attracting and retaining larger firms gets most of the political attention, and a disproportionate amount of state financial support, even though creating new businesses from within is the real game.

“If young firms are creating all of the new jobs, as the data show, then we’re having the wrong conversation,” Berry said.

Changing that conversation means creating a culture of entrepreneurism and removing obstacles that prevent young firms from getting a running start. Those obstacles can include local ordinances, state regulations and licensing requirements. Unemployment payroll taxes hurt young firms because it’s a tax not tied to profitability. The relative lack of venture capital also contributes to less-than-average firm creation.

“In the end, we’ve got to decide what kind of culture we want,” Berry said. “We should have a culture that rewards risk – a culture that allows entrepreneurs to keep money in their pockets and to keep pounding away in their garages.”

While that cultural shift is underway in Wisconsin, much work remains. Creating 250,000 jobs is laudable and attainable -- and launching 10,000 new companies with the potential to create high-wage jobs is even better.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.

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