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Archive for Wednesday, March 16, 2005

State’s productivity slacking

Kansas economic, population growth slows

March 16, 2005

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Are Kansas workers falling down on the job?

Are workers in South Dakota spending less time at the water cooler than their Kansas counterparts?

"We are not as prosperous a state as we once were," said David Darling, an agriculture economics professor at Kansas State University. "What were once the bright spots in our economy -- agriculture, value-added products, manufacturing -- are not as bright as they used to be. We need new engines for growth."

In a recent study, Peter Orazem, Koch Visiting Professor of Economics at Kansas University's School of Business, found that the state's labor productivity growth -- that's total product divided by total number of workers -- isn't what it used to be.

The same is true for most Great Plains states, but for some as yet unexplained reason, South Dakota and Minnesota have managed to post better-than-average growth in population and labor productivity.

"We need to be looking at what Minnesota and South Dakota are doing, especially South Dakota," Orazem said, noting that South Dakota and Kansas are more similar in their demographics.

At first glance, Orazem said, South Dakota's tax structure may explain part of difference.

South Dakota does not tax corporate or personal incomes, business inventories or personal property.

"That's been consistent throughout our history," said Jafar Karim, director of the Governor's Office of Tourism and Economic Development in South Dakota.

"And what we do collect in taxes is spent very wisely," Karim said, noting that South Dakota's ratio of computers to students is first in the nation. "For every two students, we have a computer with Internet access."

In recent years, Karim said, several credit card companies have set up processing centers in South Dakota.

Kansas hasn't fared as well. Orazem noted that while statistics show the U.S. economy grew 121 percent between 1977 and 2001, Kansas' economy grew 78 percent. Only 13 states recorded growth at a slower rate.

Oftentimes, lack of economic growth is a sign of an undereducated work force. But that's not the case in Kansas, Orazem said.

"We're 10th in the proportion of the population with a college degree," he said. "We're atypically well-educated."

For some reason -- he's not sure why -- Kansas employers have been slow in using technology to get more out of the state's workers.

"Our productivity lags in virtually every sector of the economy," Orazem said. "In 1977 we were 7 to 8 percent ahead of U.S. average output in terms of labor costs per dollar of output. Now, we're 2 to 3 percentage points behind the average. That a pretty significant decline."

Asked to explain how technology affects productivity, Orazem explained: "If you had a manufacturing plant in the 1970s and into the 1980s, you monitored quality by hiring a bunch of people to examine your product before it left the plant.

"Now, using computers and optics, you can achieve the same result with fewer people. You increase your productivity in proportion to your costs."

While Kansas' productivity has fallen below the national average, its workers' wages have remained steady, Orazem said.

Between 1977 and 2001, Kansas workers' wages have been at or near 82 percent of the national average.

Orazem's findings are the subject of a front-page article in the latest issue of KU's Kansas Policy Review.

Orazem grew up in Manhattan, earning a bachelor's degree in economics at KU in 1977, and doctorate at Yale University in 1983. He's an economics professor at Iowa State University.

His findings, he said, may be a key factor in understanding why Kansas' growth in population hasn't kept pace with that of other states.

During the past 25 years, Kansas' population has grown 2.4 percent annually. The national average is 3.1 percent.

"That may not sound like a lot, but it adds up over time," Orazem said. "It's significant."

Population growth has stalled throughout the Great Plains, he said, but it's been especially slow in Kansas, which trails Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.

K-State's Darling praised Orazem's study. "When I read (Orazem's) paper, I nodded my head the whole time."

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