One question that has long beguiled economists is why regions enjoy different levels of prosperity? 

For just over a half century we have built complex statistical models to explain why regions enjoy different levels of prosperity.  Virtually every conceivable variable from ethno-linguistic similarity indexes to existing natural resources to government structures have been tried, with the models proving enormously successful. One critical insight in this extensive body of research is that human capital—the quality of a labor force—yields the strongest explanation for differences in prosperity.

When we apply these models to the United States, the importance of human capital grows from being merely the most important factor in long term growth, to perhaps the only critical factor.  Such issues at state tax policies and regulation serve primarily to spur short run migration, and so contribute to long run changes in human capital. 

For this reason I welcome the Chamber of Commerce’s recent report on Indiana’s workforce, both for the good and bad news it heralds.  Let me review some issues it brings to light, and focus on the troubled quarter of our adults.

Indiana’s population is older than the national average, and so without adjusting for generational differences, our state is probably in the middle of the pack in terms of national standings.  Worker productivity is strong, and many of our schools are performing quite well.  Indiana has a strong technical and community college system and universities that compete internationally for students and faculty.  But, this shouldn’t lull us into inaction.

With Hoosier schools performing at about the national average places us dead last among the developed nations, and far behind the top third of truly academic schools everywhere else including China, India and Malaysia.  (Here, of course, I am speaking about numeracy and literacy, in the breadth of our educational experience we may be doing better). 

We mostly remedy these schooling shortfalls in public education by having the majority of our youngsters attend college, where they are quickly and expensively remediated.  For two thirds to three quarters of Hoosier adults, high school and college experience have left them prepared for and functioning well in today’s labor markets. This however, leaves us with between a quarter and a third of our young adults unprepared for the modern economy.  What type of job skills are they missing?

The missing job skills of the ‘troubled quarter’ are elementary and middle school mathematics, reading and writing.  Simply put, one in four working aged adults in Indiana today cannot read a street map, divide one-half by one-eighth, or fill out a job application. While many of these adults did not finish high school, almost half did (and all passed through elementary school where the tasks were to be mastered).  This is a fiscal and social failure of high order, since it means that about half the $80,000 or so a middle aged person received in public education was spent without effect. That is a true economist’s lament.