Red State Conundrum


How do you raise incomes when your state’s economic appeal is based on low costs?

That’s the basic conundrum facing a number of red states. They rightly talk about their cost climate, touting tax rates and such. But the biggest component of cost for many businesses is labor. Being a low cost state is tantamount to being a low wage one in many cases.

A recent workforce survey from the Indiana Chamber of Commerce highlights this dilmmea. Some key findings:

• Applicants not willing to accept pay offered (45% agree or strongly agree). Lack of minimal educational requirements was only 27% [problems in recruitment]
• Only 26% very likely or extremely likely to add high-wage jobs in next two years

Employers are having trouble finding workers. A big problem is pay, but not many employers plan to add higher wage jobs.

The survey asked how firms dealt with positions they couldn’t fill. Here were the results:

• 55% left unfilled until a candidate was found<
• 18% assigned duties internally to other workers
• 11% hired an underqualified candidate
• 16% other

Notice what’s missing from this list: raising the wage on offer in order to attract qualified applicants. Maybe some of that is included in “other” but it’s clearly a small amount.

The real question that needs to be asked is why these firms aren’t offering a market clearing wage.

If they can’t afford to pay the going rate, then these firms don’t have a skills gap problem, they have a business model problem. The problem is with the companies, not the workforce.

That’s not to say there isn’t some skills gap, training gap, etc. But when the pay problem is screaming at you loud and clear and you refuse to address it, something bigger is going on.

It’s not government’s job to underwrite a highly skilled but poorly paid workforce.

This piece originally appeared on Urbanophile.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian,, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo by Bidgee/Wikipedia – CC BY 3.0.