The Competitive Edge: Creating a Human Capital Advantage for Kentucky

By Nancy Laprade(*)

From Foresight, No. 44
published 2005


Unless the skills gap within the United States is closed and employers can find the workers they need, and job seekers have the skills to pursue the opportunities that will exist, then America’s economy will remain vulnerable…The stakes are high: freedom of trade and commerce; personal and political liberty; and national and individual security.(1)

David Sampson, Deputy Secretary of the U.S. Commerce Department

Our nation and our Commonwealth face an unprecedented challenge: the need to prepare our youth and adults for competitive employment and continuous or lifelong learning. Historically, economic development professionals have promoted locations based largely on infrastructure benefits (roads, water, sewer, utility rates, tax policy and incentives). However, the competitive advantage of today and tomorrow lies less and less in infrastructure, and more and more in the knowledge and skill of the workforce–the human capital advantage. “Place” is becoming increasingly less important to the way we work–intellectual work can be delivered from anywhere in the world. A recent survey by the Kentucky Chamber of Commerce of its members suggests that the greatest deterrent to business growth and economic development in Kentucky is a shortage of educated and skilled workers. In fact, according to Dave Adkisson, President and CEO, Kentucky Chamber of Commerce, “we are talking about our economic survival as a state and nation. Business, education, and government must work together as equal partners to find solutions to our workforce development challenges and we must do it now.”(2) Similarly, the U.S. Chamber of Commerce notes in its 2002 Keeping Competitive survey that nearly three fourths of all respondents (73%) reported either “very” or “somewhat” severe conditions when trying to hire qualified workers;(3) and the National Association of Manufacturers stated in The Skills Gap 2001 report that despite the slowing economy, 80 percent of manufacturers continued to experience a moderate to serious shortage of qualified candidates.(4) As futurist Ed Barlow of Creating The Future, Inc. has said on numerous appearances in Kentucky: “After national security, the second most critical issue facing the United States and Kentucky is that of a competitive workforce. Evidence is mounting daily that such competitiveness is being lost. This condition will affect our economic well-being and standard of living through the 21st Century.” This paper examines the broad trends affecting the economic environment, assesses how well Kentucky stacks up against them, and offers some recommendations about what the state can do to remain competitive in the future.

Quote from Dave Adkisson, President and CEO, Kentucky Chamber of Commerce

Trends affecting the economy and workforce of the 21st century

Changing demographics. We hear repeatedly about the aging of the workforce, the upcoming retirements of the baby boomer generation, and our need for increased reliance on ethnically diverse workers (immigrants). However, many businesses and policymakers have not grasped the full effect of these demographic changes, nor have they begun serious planning to address their implications. In Kentucky, the aging workforce issue is particularly acute for the coal, healthcare, and automotive manufacturing industries. For example, according to Mark Daugherty, Human Resources Manager for Toyota Motor Manufacturing, Kentucky, Inc., “At Toyota we anticipate a huge retirement bubble beginning in 2013, due both to demographic trends and our rapid build-up of personnel when we started production at the Georgetown plant in 1988. This impact will be felt in both skilled trades and production; and we are very concerned that we will not be able to find an adequate supply of people with the work ethic, interests, and skills we need. Our only option is to improve the quality of the available applicant pool.”(5) Kentucky is a leader in “new manufacturing,” but could easily lose its edge if we cannot train a skilled workforce. How will we recruit new workers into these industries that have not been attractive to young people? How will we train supervisors to work with an increasingly diverse workforce? How will we develop the P-16 “pipeline” to help all young people succeed and excel in school? The demographic trends will require that we educate and fully prepare every young person and working age adult to compete in the global knowledge economy.

Technology, innovation and the rapid rate of change. Technology has allowed the U.S. to make unprecedented increases in productivity over the past decade. However, this rapid technological change requires workers with not only more sophisticated technology skills but also with the ability to “unlearn” and learn new concepts, innovate, read technical manuals, think critically, pursue lifelong learning opportunities, and demonstrate “adaptive expertise.”(6)(7) For example, Toyota is shooting to develop a new model in six months without building a prototype, using virtual design and assembly up to the first trial production run. Innovation and technology skills are needed across all areas of the economy–agriculture, manufacturing, mining, government, education, and services. Additionally, the emerging fields of nanotechnology, biotechnology and advanced materials will drastically reshape the employment landscape of the future. We do not even know what many of the jobs of the next decade will be. What we do know is they will require educated and technologically savvy workers. That is why, in a July 2005 report, Tapping America’s Potential: The Education for Innovation Initiative, 15 of our country’s most prominent business organizations joined together to “express their deep concern about the United States’ ability to sustain its scientific and technological superiority through this decade and beyond.” They have called for the country to “double the number of science, technology, engineering and mathematics graduates by 2015.”(8)

Globalization. First we worried about commodity manufacturing jobs being sent offshore to countries with low wage structures. Then we began to see higher skill level jobs (reading x-rays or providing accounting services in India) being outsourced offshore. Any work that can be digitized can be done anywhere in the world. In The World is Flat, Thomas Friedman argues that we entered a new phase of globalization in the year 2000–Globalization 3.0. He suggests that Globalization 2.0 lasted from 1800-2000 and was characterized by companies globalizing. The dynamic force in Globalization 3.0 is the newfound power for individuals to collaborate and compete globally.(9) This obviously has profound implications for intellectual capital development. In this new environment, a critical strategy for Kentucky and the U.S. must be to increase our competitiveness constantly by developing a highly skilled and flexible workforce–knowledge workers who can add high value to products and services. And other countries will not stand still–they will be growing knowledge workers as well. As Bill Gates noted at the National Education Summit on High Schools in February 2005: “The percentage of a population with a college degree is important, but so are sheer numbers. In 2001, India graduated almost a million more students from college than the United States did. China graduates twice as many students with bachelor’s degrees as the U.S., and they have six times as many graduates majoring in engineering. In the international competition to have the biggest and best supply of knowledge workers, America is falling behind.”(10)

One aspect of the globalization challenge is spotlighted by Ted Fishman in a New York Times Magazine article in July 2004: “…China’s people must be regarded as the critical mass in a new world order. The productive might of China’s vast low-cost manufacturing machine, along with the swelling appetites of its billion-plus consumers, have turned China’s people into probably the greatest natural resource on the planet. How the Chinese (and the rest of the world) use that resource will shape our economy (and every other economy in the world) as powerfully as American industrialization and expansion has over the last hundred years.”(11)

Skills gaps and worker shortages.. In 2003, Jerry Jasinowski, then president of the National Association of Manufacturers, and Dick Gabrys, Vice Chairman of Deloitte and Touche, wrote: “It may seem contradictory, but at a time when manufacturing has lost jobs for 32 consecutive months–more than 2 million positions–we face a looming shortage of skilled manufacturing employees. The stark reality is that this trend presents a real and growing threat to the ability of the United States to compete in the world marketplace.”(12) Labor economist Anthony Carnevale and Donna Desrochers of the Educational Testing Service warned in 2003 that the shortages of workers with at least some college education will be a growing problem over the next two decades. “Assuming even moderate employment growth rates of 15 percent and a continuing increase in skill requirements on the job, the combined effects of these trends should result in significant labor shortages of at least 20 million workers [by 2020], especially in jobs that require the most skill and provide the greatest economic value. Two thirds of the expected shortage in 2020 will likely arise in the most skilled jobs, resulting in a net deficit of workers with at least some college of about 14 million workers…. By comparison, what employers experienced in 1999 and 2000 was a minor irritation. The shortage won’t just be about having to cut an extra shift. It will be about not being able to fill the first and second shift too.” The largest growth will occur in jobs requiring training beyond high school (i.e. certificates, associate degrees, apprenticeship training); but not necessarily a bachelor’s degree.(13)

Organizational dynamics. Within the context of this global, fast changing environment, businesses of all sizes must constantly improve their productivity and meet the changing needs of their customers. Continuous improvement is the mantra of the day–if your business is not improving, your business is headed toward extinction. Innovation, agility, and speed to market are critical to remain competitive. So what type of workers does this culture require? It requires workers who are flexible, agile, innovative, constantly learning, team players, problem solvers, and critical thinkers. Employers are increasingly looking to contract or project workers to fill these changing employment needs. Today’s organizational dynamics also challenge employers to stay competitive in the areas of compensation and benefits and to meet the varying needs and expectations of four generations and a multicultural workforce. For example, younger workers entering the workforce today tend to be highly impatient with routine and unchallenging work. They expect work that uses their creative, process oriented, and interactive ways of thinking. This can be a real benefit to companies in the knowledge economy but a real challenge for baby boomer managers.

How does Kentucky measure up?

Our state has not measured up well in terms of educational attainment and economic performance. Kentucky has certainly made good strides since K-12 educational reform (Kentucky Educational Reform Act) in 1990, postsecondary reform in 1997, and adult education and early childhood reform in 2000. However, good progress is not good enough. As we make gains and better prepare our workforce, other states and nations are doing the same–some at a much faster rate. And Kentucky has much further to go than many states. We must significantly accelerate our progress and “get to great” to compete in the knowledge economy. Key indicators appear below:

To create a competitive human capital advantage in today’s knowledge economy, Kentucky must do these seven things.

Create a sense of urgency. First and foremost, we must create a sense of urgency about the critical importance of creating a world-class workforce in Kentucky. As businesses strive to remain competitive each day, and government and education work hard to serve customers and reach their goals, it is often very difficult for businesses and organizations to identify the strategic tipping points for our future economic growth, competitiveness, and, ultimately, survival. Based on the environmental factors discussed previously, the author proposes that creating this human capital competitive advantage is one such critical strategic tipping point. For several years, Kentucky has rightly focused on the research and commercialization aspects of growing the knowledge economy. However, we will not be able to create, grow or attract these businesses if we do not have the intellectual capital to make them competitive. Additionally, what we have traditionally called “old economy” businesses will continue to upgrade their technology and business practices, requiring a skilled workforce to keep them competitive. Thus, creating a sense of urgency and a “call to action” is a crucial first step in developing Kentucky’s human capital advantage.

Align vision and resources. As in any effective strategic planning process, all the stakeholders in the human capital development arena must establish a common vision before moving to action and tactics. This visioning and planning must be aligned at both the state and regional/local level. Two models have shown great promise in this area of collaboration–the state and local Workforce Investment Boards and the state and local P-16 Councils. Both can play a significant role as conveners and facilitators in this process. Both venues have promising practices that could serve as useful models. This human capital development work is much too complex and interdependent to be done by only one or two sectors or organizations. It will require true public-private partnerships and getting beyond the rhetoric of collaboration and alignment to the very hard work it entails. However, with a common vision or “line of sight” toward economic competitiveness and a commitment to hard work and collaborating on results, Kentucky can (and must) succeed. As shown in the graphic below, education, workforce and economic development, business, and community development each have critical roles in ensuring our economic competitiveness. These sectors can no longer work in isolation. They must go beyond the “silo mentalities” of the past to a “systems thinking,” interdependent approach to human capital development. It is not often recognized that community development plays such an important role in this process. As Richard Florida discusses in The Rise of the Creative Class, community development is critical to creating communities that attract and retain creative talent. Common visioning, alignment and systems thinking are essential to Kentucky’s success in building our human capital advantage.

Graphic: Alignment of Vision and Resources Toward Kentucky’s Human Capital Advantage

Develop cluster-based economic development and career pathways strategies. “Place” is becoming less important in terms of economic development, as intellectual talent is grown and accessed worldwide. As previously mentioned, any work that can be digitized can be done anywhere on Earth; and commodity manufacturing is increasingly being done in low wage localities. However, even as this globalization of the workforce accelerates, there will continue to be an important role for jobs and industries that are locally or regionally based. Kentucky must be able to compete for these “place” oriented jobs–high value-added jobs that require skilled workers and pay good wages. One way to gain a competitive advantage is to grow and innovate in “industry clusters” that are important niches for the commonwealth–for example, equine, coal related products, and natural products. Clusters become international magnets for both talent and capital, attracting both physical and virtual talent. In the National Governor’s Association publication, A Governor’s Guide to Cluster-Based Economic Development, the concept and importance of clusters is well articulated–“Conceptually, industry clusters have become the sine qua non of economic development policy across the United States… A cluster differs from a sector in its geographic boundaries; the inclusion of resource, supply, and knowledge chains; and the importance of how they are connected… Concentration, or clustering, provides businesses with access to more suppliers and customized support services, to experienced and skilled labor pools, and to the inevitable transfer of knowledge that occurs where people casually meet to talk business…Among all of the advantages of clustering, none is as important as access to innovation, knowledge and know-how.”(20)

Quote from Michael B. McCall

Kentucky has begun some work in cluster-based economic development, as demonstrated by Governor Fletcher’s establishment of the Life Sciences/Biosciences Consortium and the Department of Commercialization and Innovation’s identification of five research focus areas for Kentucky: Human Health and Development; Biosciences; Information Technology and Communications; Environmental and Energy Technologies; and Materials Science and Advanced Manufacturing.(21) Additionally, the KCTCS is leading a multistate automotive manufacturing workforce initiative to meet the training needs of the automotive manufacturing cluster. However, much work remains to be done in Kentucky to develop this cluster-based approach and connect workforce development strategies to the clusters identified for research and commercialization in a systematic and strategic way.

Closely aligned with this cluster-based approach is the need to develop career pathways for students and workers. The Community College Bridges to Opportunity Initiative defines a career pathway as “a series of articulated educational and training programs and services that enables students, often while they are working, to advance over time to successively higher levels of education and employment in a given industry or occupational sector. Each step on a career pathway is designed explicitly to prepare students to progress to the next level of employment and education. Career pathways target jobs in industries of importance to local economies. They are designed to create both avenues of advancement for workers, jobs seekers and future labor market entrants and a supply of qualified workers for local employers.”(22)

The KCTCS Career Pathways initiative, funded through a Bridges to Opportunity Grant from the Ford Foundation, has made significant progress in developing 16 regional career pathways throughout the state, in collaboration with local businesses and local Workforce Investment Boards. To take this career pathways development to the next level, a wider “systems” approach should focus on strategically identified state and regional clusters, and include all levels of education and other stakeholders.

Respond with agility and speed to businesses’ needs. As stated previously, the fast-changing global economic environment is putting enormous pressures on businesses to remain competitive through innovation, agility and increased productivity. These business pressures, in turn, make it essential for education and government to respond in kind to businesses’ workforce development needs with responsiveness and agility.

Quote from Commissioner Laura E. Owens, Education Cabinet Dept. for Workforce Investment

For educational institutions, this flexibility and responsiveness translate into moving from rigid, “seat-time” institutions to fluid “systems of learning” and evaluation (or communities of learning) that focus on the attainment of competencies. Some of the characteristics of this learning system would include strong public-private partnerships; modularized, open-entry, open-exit courses; nontraditional hours of delivery; breaking down traditional curriculum silos; meeting the needs of varying learning styles; agility in start up and shut down of programs; expansion of e-learning options; reducing the cycle time of learning through new technologies and pedagogies; and organizing learning into team projects for developing higher level problem-solving skills.

For individual workers, this agility means developing employability skills rather than having employment security—in today’s world workers must continuously update their skills so they can be employable in the ever-changing economy. The old paradigm was that employers were largely responsible for upgrading the skills of their employees, who would, in turn, stay with the company for many years. The new paradigm is that this is a shared responsibility between employers and employees, with much more of the responsibility falling on the employee to keep his/her skills current through lifelong or continuous learning. This also incorporates the trend toward more contract or project work, making the employee more of a career entrepreneur. As stated previously, Thomas Freidman suggests that Globalization 3.0 means that individuals are now collaborating and competing globally. This is the ultimate in career entrepreneurship, but only for those with a high level of skills and adaptability.

Build a more comprehensive, responsive workforce information system. Today’s complex decisions in business, education and government require easy access to good data and meaningful analysis. The field of workforce development is no different. In fact, because of the “multiple partners/stakeholders” nature of the work, it is particularly important to our ability to create a human capital advantage for the Commonwealth. Although Kentucky has made significant progress in the advancement of its labor market information system over the last several years with the development and implementation of Workforce Kentucky(23) and the partnership with the U.S. Census Bureau around the Local Employment Dynamics project;(24) it is now time to expand this system by moving from a labor market information system to a more comprehensive workforce information and analysis system. This new system would integrate labor market, economic, and educational output data to provide meaningful workforce information and analysis for businesses, educators, public policymakers, Workforce Investment Boards, and state and local economic development professionals. This system should include such information as emerging industries and the skills needed to support them; anticipated labor shortages by industry and occupation; trends in declining industries; and supply-side data from postsecondary institutions. For maximum effectiveness, this new system should be developed by a multidisciplinary team of both technical and policy experts–economists, demographers, labor market information specialists, workforce and economic development professionals, and educators.

Develop and promote a “Certified Workforce” initiative. For several decades, employers have often expressed their disappointment about the quality of the workers that come to them from our educational system. They have no way to evaluate and compare the skills of a graduate from a high school in Paducah to one from Richmond. Although strengthening our P-20 educational system is critical and ongoing, the development and promotion of a “certified workforce” initiative would be a valuable tool for employers and economic development professionals as they evaluate and “sell” Kentucky’s workforce. Students/workers could be certified by a variety of valid, reliable assessment tools, including The Kentucky Employability Certificate (KEC),(25) the Kentucky Manufacturing Skills Standards (KMSS),(26) as well as other industry credentials. Both the KEC and the KMSS are powerful Kentucky workforce development tools, but a systemic “certified workforce” initiative would help by branding and promoting the concept. The scores of students/workers with certifications would be kept in a statewide data base that could be queried and aggregated for purposes of economic development and job placement. This would provide a real “value-added” advantage for businesses looking to grow and economic developers promoting Kentucky to prospects.

Require rigorous standards and curricula–emphasize math, science, problem solving and thinking skills for all students. Based on the projections of significant skill and worker shortages over the next several decades, we must be committed to equipping all students with knowledge economy skills. As Bill Gates stated at the National Education Summit on High Schools: “The idea behind the old design [of high schools] was that you could train an adequate workforce by sending only a third of your kids to college–and that the other kids either couldn’t do college work or didn’t need to. The idea behind the new design is that all students can do rigorous work, and–for their sake and ours–they have to.”

As the nature of teaching and learning and knowledge acquisition are being transformed by fast-paced research and technology, certain skills become ever more critical. It has become increasingly less important to memorize “facts” and more important to learn to think and perform in a team-based environment–to solve problems, demonstrate adaptive expertise, think critically, communicate effectively, be flexible and adaptable, and perhaps most important, to learn how to learn. Anthony Carnevale writes: “Knowing how to learn is perhaps the most basic of all skills because it is the key that unlocks future success.”(27) Mathematics, reading, science, and the use of technology are obviously crucial as well in today’s economic environment. The standards of our P-20 educational system must also be continually updated to meet the changing global standards of the economic marketplace. Kentucky’s involvement in the American Diploma Project (ADP)(28) is a positive step, because it establishes specific, rigorous content and skills that high school graduates should master in mathematics and English to be prepared for both postsecondary education and the workplace. It is important to note that the standards are the same for both postsecondary and workplace success, and that business was a key partner in the ADP development process.

Kentucky can meet the challenge

The challenge is daunting, but Kentucky can and must meet it. With KERA and the other educational initiatives, Kentucky has already taken steps to make its citizens more competitive in the global workplace. But as important and as impressive as the steps are, the reality is that they are not enough. Kentucky had further to go than many states, which are also working hard to improve the quality of their workforces. So Kentucky must build on what it has done by pursuing the steps outlined here. Given the challenges it has overcome thus far, a determined effort to implement these recommendations will go a long way toward securing the place of Kentucky’s citizens in the global knowledge workplace.

Lessons Learned

Notes

*  Ms. Laprade is the president of the Pawleys Group, a project management and consulting firm assisting businesses, not-for-profit, education and government agencies with developing workforce and organizational solutions. Laprade was the executive director of the Kentucky Workforce Investment Board from 1999-2004.  Return to text.

1  David Sampson, remarks, 2001 Workforce Development Policy Forum, National Governor’s Association meeting, New Orleans, 7 Dec. 2001.  Return to text.

2  Interview with the author, July 2005.  Return to text.

3  Scott Cheney, “Keeping Competitive: Hiring, Training, and Retaining Qualified Employees,” U.S. Chamber of Commerce, updated survey, 2002 <http://www.uschamber.com/cwp/publications/cwparchivepublications.htm>.  Return to text.

4  “Keeping America Competitive–How a Talent Shortage Threatens U.S. Manufacturing,” National Association of Manufacturers (NAM), The Manufacturing Institute, and Deloitte & Touche, April 2003; “The Skills Gap 2001–Manufacturers confront persistent skills shortages in an uncertain economy,” NAM, Andersen, and the Center for Workforce Success, 2003 <http://www.nam.org>.  Return to text.

5  Interview with the author, 18 Aug. 05.  Return to text.

6  Adaptive expertise goes beyond “routine” expertise in solving specific problems. It is having flexible knowledge that allows students to invent ways to solve familiar problems and innovative skills to identify and solve new problems.  Return to text.

7  “Work in Progress–Adaptive Expertise: Beyond Applying Academic Knowledge,” Brophy, Hodge, and Bransford, Vanderbilt University, 34th ASEE/IEEE Frontiers in Education Conference, Savannah, GA, October 2004.  Return to text.

8  “Tapping America’s Potential: The Education for Innovation Initiative,” Business Roundtable, July 2005 <http://www.businessroundtable.org>.  Return to text.

9  Thomas L. Friedman; The World is Flat: A Brief History of the Twenty-First Century; Farrar, Straus and Giroux; New York, 2005; 10-11.  Return to text.

10  Bill Gates, remarks, National Education Summit on High Schools, National Governor’s Association meeting, 26 Feb. 2005 <http://www.gatesfoundation.org>.  Return to text.

11  Ted C. Fishman, “The Chinese Century,” New York Times Magazine, 4 July 2004, 28.  Return to text.

12  “Keeping America Competitive.”  Return to text.

13  Standards for What? The Economic Roots of K-16 Reform, Anthony Carnevale and Donna Desrochers, Educational Testing Service, 2003 <http://www.ets.org/research/dload/standards_for_what.pdf>.   Return to text.

14  Council on Postsecondary Education 2005-2010 Strategic Plan <http://www.cpe.ky.gov>.  Return to text.

15  Kentucky Council on Postsecondary Education, “Adult Literacy in Kentucky,” Spotlight on Postsecondary Education 1:2, 2000.  Return to text.

16  Council on Postsecondary Education, determined by the number of students who scored below 18 on the ACT in subject area.  Return to text.

17  Council on Postsecondary Education.  Return to text.

18  1990, 2000 Census; Adults 18-64.  Return to text.

19  National Center for Education Statistics <http://nces.ed.gov/>.  Return to text.

20  National Governor’s Association, A Governor’s Guide to Cluster-Based Economic Development (Washington, DC: National Governor’s Association, 2002) <http://www.nga.org>.  Return to text.

21  Department of Commercialization and Innovation <http://www.one-ky.com>.   Return to text.

22  “Career Pathways: Characteristics and Principles,” Career Pathways Policy Seminar, The Community College Bridges to Opportunity Initiative funded by the Ford Foundation, Estes Park, July 2005.  Return to text.

23  Workforce Kentucky–Source for Kentucky Labor Market Information; Department for Workforce Investment <http://www.workforcekentucky.ky.gov>.  Return to text.

24  Local Employment Dynamics–US Census Bureau <http://lehd.dsd.census.gov/led>.  Return to text.

25  The Kentucky Employability Certificate is a portable credential that uses WorkKeys ® by ACT, Inc. as a common language and objective metric to document the level of skills that a person has in three skill areas–reading for information, applied mathematics and locating information.  Return to text.

26  The Kentucky Manufacturing Skills Standards are an industry designed set of standards that are assessed to indicate an individual’s preparation and basic skill level for entry into general manufacturing occupations (basic) or high performance manufacturing occupations (advanced).  Return to text.

27  Carnevale et al. 41.  Return to text.

28  Achieve, Inc., in partnership with The Education Trust and the Thomas B. Fordham Foundation, launched the American Diploma Project (ADP) in 2001 to restore value in the high school diploma. ADP developed English and mathematics benchmarks that describe the specific content and skills that graduates must master by the time they leave high school if they expect to succeed in postsecondary education or in high-performance, high-growth jobs <http://www.achieve.org>.  Return to text.

29  Department of Labor, Employment & Training Administration, full report available at <http://www.doleta.gov/reports/searcheta/occ/papers/FINAL_DOL_Workforce_Academy_Report.pdf>.   Return to text.