Proceedings of a Workshop

Advancing Economic Development and Workforce Readiness in Micropolitan Areas

Proceedings of a Workshop—in Brief

Micropolitan areas of the United States, cities with populations between 10,000 and 50,000 people,¹ have received little attention from either the research or policy communities regarding their roles in the U.S. economy. Only recently has attention turned toward small-town America in order to try to characterize and understand the roles micropolitan areas play in productivity, growth, employment and, more broadly, in the innovation system of the nation. Likewise, little research has been undertaken to gain a better understanding of which policy instruments and frameworks can best support economic development and workforce readiness in micropolitan areas.

To explore this topic, the Innovation Policy Forum of the National Academies of Sciences, Engineering, and Medicine held a one-day workshop in Indianapolis in April 2018 on “Advancing Economic Development and Workforce Readiness in Micropolitan Areas” in coordination with the Indiana University Public Policy Institute’s “Thriving Communities, Thriving State” program. Beginning with a question-and-answer session with Indiana Governor Eric Holcomb, this event sought to connect theory to practice by bringing together policy makers, individuals from industry, and researchers across several disciplines to discuss lessons from current research and on-the-ground experience, explore how this knowledge may be utilized to shape policies to effectively support economic development and workforce readiness, and ultimately lay the groundwork for creating a research and knowledge agenda for future work.

Panelists and participants sought to address questions such as:

• What actions can support growth of micropolitan innovation networks?
• How can innovation partnerships spur broad-based growth?
• What do micropolitan innovation ecosystems most need to grow?
• What tools or actions can accelerate innovation and advanced manufacturing growth?

CONVERSATION WITH GOVERNOR HOLCOMB

In the opening dialogue between Eric Holcomb (Governor of Indiana) and Tom Guevara (Indiana University), the governor offered remarks on building an innovation economy focused on workforce and infrastructure development, themes that were echoed in the panels that followed. Governor Holcomb noted that the number of Hoosiers without a high school diploma or its equivalent nears 500,000, a number that has risen over the past decade. He highlighted the need for infrastructure investment, which includes transportation infrastructure such as improved highways as well as information infrastructure such as cell towers and broadband access. These infrastructure investments mean that local assets will be connected to state, regional, national, and global assets and needs. Later, panelists highlighted social infrastructure as important to micropolitan areas—to facilitate the flow of ideas, people, goods, and services to help connect smaller areas to the overall state or economy. The governor also noted that preparing the workforce for the next generation of work should include the scores of people in the penal system, specifically mentioning programs, such as the Last Mile, that teach coding to inmates and work to reduce recidivism rates.

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NO UNIVERSAL POLICY FORMULA FOR ECONOMIC SUCCESS

Several presenters made the point that no one policy or set of policies will guarantee economic success in any location. Moreover, what works for one area or region is not guaranteed to have the same impact in another. John Hamilton, mayor of Bloomington, broadly supported this position and pointed out differences in strengths and culture around the state of Indiana.

David Audretsch (Indiana University) addressed why some places do better than others and what factors influence place-based economic performance. According to him, there are three large categories that influence performance: factors and resources, spatial structure and organization, and culture and human dimensions.

Audretsch explained that factors and resources—namely physical capital, natural resources, labor (both unskilled and skilled), human capital, creativity (new ideas), and knowledge—are specific economic inputs. Presence of the right ones enables, but does not guarantee, economic benefits. While the combination of both knowledge and ideas—deemed intellectual capital—appears especially important, there is no formal algorithm for what inputs are required, or how to utilize them. Yet how they are used and organized matters, and it is therefore important to pay attention to spatial structure and organization. Several elements fall under this rubric: geographic organization, specialization, diversification, market power, competition, and entrepreneurship. Of these, diversification, specialization, and geographic organization, often called clustering, appear most important.

Audretsch added that culture and human dimensions also seem quite important, if harder to define and measure. AnnaLee Saxenien’s (University of California, Berkeley) research on Silicon Valley first showed the importance of culture in making an economic impact. In particular, Saxenien and others have concluded that an entrepreneurial culture is important for innovative activity. Audretsch and colleagues have sought to assess what macropsychological factors could predict regional economic resilience during a major economic crisis,² and a key question from that work is whether policy can make a difference in the face of culture—that is to say, is entrepreneurial culture endogenous or exogenous? To suggest an answer, Audretsch and his colleagues point to two pieces of evidence. First, they observed geographic correlation between personality factors associated with entrepreneurial culture and locations with a high rate of new firm creation. Second, their data show that there tends to be an increase in entrepreneurial activity when people obtain more education in geographic areas that measure higher in entrepreneurial culture,³ but that no corresponding increase in entrepreneurial activity is observed when people obtain more education in areas measuring low on entrepreneurial culture. This suggests that simply encouraging individuals to obtain more education, through policy mechanisms or otherwise, will not always result in increasing amounts of entrepreneurial activity and subsequent economic benefits. Thus, a simple policy formula to increase education may not universally produce the expected economic benefits.

Mercedes Delgado (MIT) highlighted the role of linkages and cluster development for smaller communities. Clusters are geographical concentrations of related and complementary industries and firms that are connected by many linkages: supply chains, skills, technology, and knowledge. They have support from institutions as well. Each region, according to Delgado, has a unique cluster composition, and the Indianapolis area has clusters in the automotive industry, production, technology, plastics, biopharma medical devices, services, distribution, e-commerce, and environmental services (see Figure 1).

Industries that are part of a strong cluster environment register higher growth in jobs, startup activity, innovation, and perhaps most importantly, job resilience to economic shocks. According to Delgado’s research, co-location of innovation and production is one of the most important ingredients for growth and for resilience to shocks such as the Great Recession, but she added that innovation and production tends to co-locate only in city clusters. We know, for example, that metropolitan areas nationally hold 94 percent of automotive patents and 73 percent of employment, suggesting that an effective strategy to foster innovation in micropolitan areas should be based on the ability to connect to nearby regional clusters. On this point, Delgado identified 12 micropolitan areas in Indiana and showed that although they were all connected to at least one of the strong clusters in the area, more could be done to connect to both innovation and production. For example, the New Castle, Indiana, micropolitan area is only connected to the automobile cluster, but policies that connect it to production technology, metalworking technology, plastic, and upstream metal

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manufacturing may be important for its growth and resilience. David Roberts (Indiana Economic Development Corporation) agreed that Indiana needs to look at what it does well, such as transportation, logistics, energy, aerospace, defense, and life sciences, but also needs to look ahead at disruptive concepts like cybersecurity, and he noted that public-private partnerships are one method being used in Indiana to grow its digital economy.

Timothy Slaper (Indiana University) also highlighted the impact of the Great Recession on Indiana, showing that over half of the counties in the United States have not yet returned to their pre-recession levels of employment. Together with some researchers at Pennsylvania State University, Slaper is studying the linkage between arts and design and innovation. In order to do this, he and his colleagues are exploring new measures of art and design in a given region by looking at clicks on web sites that are related to the arts (such as artist supply stores and musical instrument stores). Their work finds a robust link between this arts measure and job gains, a finding that is consistent with the literature showing a relationship between employment growth and economic diversity.

Slaper also presented his work on measures of risk and resilience in clusters. He agreed with Delgado about economic development and specialization but noted that communities that were too concentrated on one particular industry were hard hit during the Great Recession (The economy of Elkhart County, Indiana, for example, is heavily concentrated in the recreational vehicle business and was extremely hard hit during the recession). He suggested that striking the correct balance between diversity and overspecialization may offer efficiencies in terms of growth. His work uses techniques from finance to calculate “betas” or measures of risk and resilience and shows that although some risk can’t be diversified away, there are specific risks that can be mitigated through diversification (An example from finance would be that a stock portfolio based on Standard & Poor’s 500 has diversified away much of the risk of any individual company stock). Using this same risk-resilience notion, Slaper has calculated the betas of counties in Indiana, based on their employment numbers and has found that communities with government labs or education/knowledge creation centers tend to have low betas, meaning more economic resilience. Thus, communities like Martin County in Indiana, where the Naval Surface Warfare Center Crane (NSWC Crane) is located, tend to have low betas, with relatively high growth for their level of concentration in a cluster. The connection between diversity and resilience was echoed by Jasper mayor, Terry Seitz, who commented that Jasper’s evolution from the wood furniture capital of the world to a diverse economy producing things like Jasper engines and transmissions, Jasper rubber products, and logistics helps explain why they were not hard hit during the last recession.

CHALLENGES AND OPPORTUNITIES FOR MICROPOLITAN AREAS

Speakers at the workshop highlighted the challenges facing micropolitan areas and the need for new data to determine how these areas are faring in the national economy. The panelists highlighted the need for improved partnerships between firms and universities, especially to improve talent development.

Maryann Feldman (University of North Carolina–Chapel Hill) presented her research, which focuses on studying regions by studying their constituent firms. She highlighted the difficulty in getting information on privately held, growth-oriented firms, calling them the Forgotten Firms in the economy. According to Feldman, the data show that micropolitan and rural regions, which are concentrated in the South and the Midwest parts of the United States, are not doing as well as metropolitan areas. Using data from Inc. magazine that was collected by Ian Hathaway (Brookings), she analyzed information on small, privately held, rapidly growing companies. The firms in this database (Inc. 5000) report 40 percent annual growth in sales and employment (contrasted to the national average of 3 percent sales growth and flat employment). Indiana lags the rest of the United States in terms of growth firms per capita. Within Indiana, the Chicago suburbs, Indianapolis, and Columbus (home to Cummins) are the location of fast growing firms, but, Bloomington and West Lafayette, both university towns, do not have concentrations of Inc. 5000 fast growing firms (See Figure 2).

In order to grow, firms need capital and talent. Feldman indicated that Indiana doesn’t seem to have bank deserts (areas that are underserved by local banking operations), but there still may be problems with expansion funding and bridge loans for smaller firms. And on the labor front, there is a need for additional data. For example, there are 500,000 veterans in Indiana, disproportionately located in micropolitan areas, who might be better integrated into the labor force. Feldman referenced work with her UNC colleagues that studies small towns with big ideas, which shows that such towns are able to use a variety of strategies to mobilize citizens to work together to keep their local economies healthy.

Stephan Weiler (Colorado State University) highlighted the need for more entrepreneurship in micropolitan areas. Regional economic growth is largely shaped by entrepreneurship, especially in more rural areas, and Weiler observed that there are actually more Americans self-employed in rural areas than in urban regions. However, entrepreneurial efficiency requires fuller information markets than are found in micropolitan areas. The university can play an important role in reducing this informational void and can help level the information playing field. Universities are well-placed, according to Weiler, to generate, synthesize, and share information. Weiler agreed that local banks and small business loans are particularly important in non-metropolitan areas where small business lending can help transition new entrepreneurs into becoming employers.

IMPROVING THE TALENT PIPELINE

Steven Jones and Mark Frohlich (Indiana University) discussed Indiana’s manufacturing employment, noting that a new survey of Indiana manufacturers showed employers are seeking to automate more production facilities in response to a lack of talented workers. Concerns about addiction were also expressed by employers, with half of the surveyed employers expressing concerns that workers could not pass drug tests.

Mario Katsch (German American Chamber of Commerce of the Midwest) highlighted the role that industry partnerships can have in talent development. Economic growth and cluster development are critically dependent on having a skilled workforce. Apprenticeship programs could help fill in the gap where firms can’t find the talent they need. Highlighting the low turnover rates and high tenure rates for students who complete apprenticeship programs (compared to the firms’ costs for recruiting talent, overtime costs, or costs of downtime) can help employers understand the economic case for apprenticeship programs. Apprenticeships can help train workers and also reduce turnover of employees because workers are given the opportunity to improve and increase their skills. More information on talent development was provided by Jennifer McNelly (180 Skills), specifically on the use of online training modules to teach manufacturing-related skills. McNelly also highlighted that lifelong learning is needed in the manufacturing workforce, more now than was the case in the past. This point was reiterated by Joan Wills (Cummins) who also emphasized the importance of apprenticeships, which are used by Cummins.

Universities can play a critical role in improving social conditions that will foster economic development. Lauren Robel (Indiana University) emphasized that Indiana University Bloomington approaches this problem from three distinct areas of strength: its ability to leverage the volunteer power of its 40,000 students; its research and teaching strength; and its ability to provide flexible academic programs, such as a master’s of social work program that focuses on mental health and addiction issues in rural areas. Universities can leverage their knowledge into recommendations and successful collaborations. The university is often one of the largest employers in a micropolitan region and one of the largest purchasers.

Manufacturing Extension Partnerships (MEP) can also help with talent development. David Snow (Purdue University) discussed the role that Purdue’s MEP plays in increasing sales, reducing costs, and providing talent development. MEP focuses on adult learners who need to quickly gain skills to get a job. Rather than providing high school equivalency certificates, MEP focuses on blueprint reading; critical thinking and effective communication; problem solving and root-cause analysis; and principles of lean manufacturing. And as mentioned by Governor Holcomb, MEP also provides classes in correctional facilities.

Nonprofit foundations play an important role in talent development. Ace Yakey (Lilly Endowment) highlighted some of the Lilly Endowment initiatives, such as the GIFT initiative (Give Indiana Funds for Tomorrow), a state-wide community foundation initiative that encourages the establishment and strengthening of community foundations in local communities as vehicles to improve the quality of life in their communities. In addition to this, the Lilly Foundation provides many significant investments to increase the educational and training gains for residents in the regions. These programs help launch new high-tech schools, fund equipment purchases, and provide program upgrades for schools teaching advanced manufacturing. These grant programs leverage the opportunities already present in certain com-

munities to help provide cultural and other quality-of-life amenities and educational opportunities to make the community attractive to the workforce and allow industries to thrive.

BENEFITS OF NETWORK CONNECTIONS

Many of the panelists highlighted the need for strong network capacity for regions to leverage their existing assets and provide long-term growth, especially in micropolitan regions. Among other actors, universities may be able to connect their resources with rural and micropolitan communities to improve social conditions that foster economic development.

Ryan Smith (Economic Development Administration [EDA]) highlighted that these networks are important because economic development happens when everyone works together, not just academics, industry representatives, or local or state leaders working alone. According to Smith, it takes these “symbiotic relationships all at once to cook the stew” of economic growth.

Roland Stephen and Nikhil Kalathil (SRI International) discussed their work on connecting economic development initiatives to tangible long-term benefits in terms of employment and wage growth. They have found that inventiveness and creativity of micropolitan regions (as evidenced by patent activity, presence of a creative group of people, and the number of high-tech entrepreneurial firms) were important indicators for economic growth in the future. In contrast, the level of activity and business churn was a better predictor of future economic growth in metropolitan areas. Their findings suggest that regions with strong network capacity are more likely to benefit from investments and interventions and that investments that foster these networks and capacities, such as EDA’s non-infrastructure grants, are particularly useful in micropolitan regions.

Jim Schellinger (Indiana Secretary of Commerce) discussed recent investments to ensure that Indiana can network with the rest of the world and emphasized the increase in foreign direct investment in Indiana in recent years. These investments include the $250 million Next Level funds to invest in innovative entrepreneurship. Indiana is looking strategically to provide an entrée into international markets. The state has improved the highway system and increased international and national direct flights, including a new direct transatlantic flight from Indianapolis to Paris.

Kyle Werner (NSWC Crane) highlighted the efforts undertaken by Crane to grow the innovation ecosystem in Martin County, including providing space for civilian incubators just outside of the Crane fence. Crane has made tremendous investments, in part with funds provided by the Lilly Endowment, to provide engagement with firms outside of the secure perimeter of the base. Crane’s 3,400 civilian scientists, engineers, and highly skilled technicians are complemented with hundreds of contractors and tenants in two technology parks—the WestGate Tech Park having 15 buildings, 35 tenants, and about 450 employees, and the East Gate Tech Park having 2 buildings, 9 tenants, and about 250 employees. Werner pointed out that Crane has leveraged its innovation with external strategic partnerships to help transfer technology out of the lab and into the marketplace, increasing economic growth and job opportunities in a micropolitan area, and making it an important economic engine in the region.

CONCLUSION

The workshop offered an opportunity to gain insights into the policy instruments and frameworks that may best support economic development and workforce readiness in micropolitan areas. Although no one identified a one-size-fits-all approach to improving economic development and opportunities in micropolitan regions, most participants agreed that efforts that improve talent development, strengthen social capital, and leverage existing resources are key to productivity, growth, and employment in micropolitan areas. Metropolitan areas hold the vast majority of the U.S. population, have fared better than more rural areas in the past decade, and possess many of the attributes associated with economic resilience. This event highlighted the importance of focusing attention on micropolitan areas, both for their still significant portion of the population and physical spread, and highlighted how such regions can capitalize on their strengths.

DISCLAIMER: This Proceedings of a Workshop-in Brief has been prepared by Gail Cohen as a factual summary of what occurred at the meeting. The committee’s role was limited to planning the meeting. The statements made are those of the author or individual meeting participants and do not necessarily represent the views of all meeting participants, the planning committee, or the National Academies of Sciences, Engineering, and Medicine.

PLANNING COMMITTEE: Luis M. Proenza (Chair), The University of Akron; David B. Audretsch, Indiana University; Maryann P. Feldman, The University of North Carolina at Chapel Hill; Thomas Guevara, Indiana University; and Jennifer McNelly, 180 Skills.

STAFF: Gail Cohen, Director, Science, Technology, and Economic Policy; David Dierksheide, Program Officer; Frederic Lestina, Senior Program Assistant; Clara Savage, Financial Officer; Paul Beaton, Senior Program Officer (through August 2018); and Sujai Shivakumar, Senior Program Officer (through May 2018).

REVIEWERS: To ensure that it meets institutional standards for quality and objectivity, this Proceedings of a Workshop—in Brief was reviewed by Maryann Feldman, The University of North Carolina at Chapel Hill, and Donald Siegel, Arizona State University. Marilyn Baker, National Academies of Sciences, Engineering, and Medicine, served as the review coordinator.

SPONSORS: The workshop was supported by the Indiana University Public Policy Institute and the Economic Development Administration.

For more information, visit http://www.nas.edu/step.

Suggested citation: National Academies of Sciences, Engineering, and Medicine. 2018. Advancing Economic Development and Workforce Readiness in Micropolitan Areas: Proceedings of a Workshop—in Brief. Washington, DC: The National Academies Press. doi: https://doi.org/10.17226/25339.

Policy and Global Affairs

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