Talent-driven economic development underscores a fundamental tenet of the modern economy: workforce capabilities far surpass any other driver of economic development. This paper aims to help economic development leaders recognize that the future success of both their organizations and regions is fundamentally intertwined with talent development. From that recognition, its goal is to allow economic development leaders to confidently and knowledgeably approach businesses, educational institutions, and community groups with a clear value proposition that aligns their core capabilities in service of systemic, non-duplicative talent development solutions. Specifically, the report makes the following arguments:
1. Economies grow when they develop and deploy their people in ways that maximize their productive potential
Structural shifts in the labor market now mean that human capabilities are the fundamental driver of regional and state economic development. The collective knowledge of the U.S. population is worth approximately $240 trillion, far exceeding the value of other inputs to economic growth. Educational attainment—the core, albeit imperfect, metric for gauging knowledge and skills—is one of the best predictors of economic success for an individual, organization, or community. How talent is developed and deployed, therefore, is of fundamental concern to local and state economic development organizations.
2. Economic development objectives—business growth and worker prosperity—are mired by two labor market challenges
First, talent development pathways are too unclear and unequal, limiting the supply of prepared workers. Broadly, three issues undermine talent development: (1) the U.S. favors a narrow “four-year degree for all” pathway to good jobs, (2) alternative pathways beyond traditional higher education are difficult for individuals to navigate, and (3) the entire talent development system suffers from racial and economic inequities that restrict the nation’s productive potential.
Second, private sector hiring and training norms have shifted in ways that undermine inclusive talent development and deployment. Depending on the estimate used, the U.S. corporate sector invests anywhere between $90-$590 billion annually in training, but it tends to disproportionately go to highly educated workers, which limits inclusive talent development. Meanwhile, changing corporate norms and power imbalances between companies and workers undermine talent deployment by inserting unnecessary barriers between job seekers and jobs, including degree inflation, experience inflation, non-poaching agreements, and outright discrimination.
3. Economic development organizations (EDOs) were not originally designed to address these labor market challenges, hindering their effectiveness in a talent-driven economy
Workforce quality is paramount to core economic development interests such as business attraction, retention, and expansion, and 95% of executives rate the availability of skilled labor as “very important” or “important” to their investment location decision. But each year, only 2% of the country’s $50 billion in economic development incentives goes to job training, even as the return on investment from customized training is about ten times that of traditional tax incentives.
4. Economic development organizations can reorient their activities and expand their capabilities by generating talent intelligence, developing talent incentives, and supporting talent systems
The economic development field is not a monolith, and there are roles and responsibilities that EDOs are filling now or could fill with renewed focus. Drawing on a review of dozens of local and state initiatives, and interviews with over 50 leaders in workforce development, economic development, and education, we outline the challenges and potential applications for EDOs in these three areas:
5. Five discrete priorities for economic development leaders.
Taken together, the framework provides one vision for how a talent-focused regional or state economic development approach can better accomplish its core mandate: help firms grow and create good jobs. How should economic development leaders proceed? We conclude the paper with five discrete priorities for economic development leaders:
I. Realign state economic development spend to invest in proven training solutions, such as customized job training grants and community college partnerships.
II. Target economic development incentives towards opportunity-rich business practices that help build local talent pipelines.
III. Develop and disseminate new skills-based hiring tools that facilitate more efficient and equitable hiring practices.
IV. Test new local talent financing solutions, such as revolving learning funds, that target training toward high-demand jobs.
V. Experiment with new regional Talent Exchange intermediaries that connect middle schools, high schools, community colleges, higher education institutions, and in-demand skills providers with businesses in key growth sectors.
Report Produced by Brookings Metro