THE NH ADVANTAGE:WHAT HAS IT BEEN

AND WAYS TO SUSTAIN IT

Ross Gittell

Chancellor. Community College System of New HampshireJames R Carter Professor. University of New HampshireNew England Economic Partnership. Forecast Manager. Vice President

THE NH ECONOMIC ADVANTAGE

High per capita income (from 25th to 8th over last 3 decades)

Lowest Poverty Rate in Nation

Technology and Science, 7th in the nation

Strongest economy in New England and Northeast over lastquarter century

Low Unemployment (10th lowest in US, was 4th)

But there are signs of decline of NH Advantage• Slower growth in employment coming out of recession than US average

and than in other New England states

• Narrowing of difference in NH and US unemployment rates• Declining position in technology concentration

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THE KEY ECONOMIC ADVANTAGE FACTORS IN

NEW HAMPSHIRE

People

Clusters

Supporting these

• Cost Advantages

• Innovation Edge

Skilled and educated workforce is the most important factor

in economic advantage and increasingly so

• "An average workforce is not good enough any more"...

• "The country/state with the best educated and skilled will be themost competitive" (Thomas Friedman, 2012)

People are the source of:

• Skilled workers

• Innovation

• Entrepreneurship

- Productivity gains and income growth

• "Magnets" for firms considering moving to NH

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PEOPLE (1980-2000+) IN NH

u Low Cost to the state

• Domestic In-Migration - Skilled and well educated populate NH atlow cost to the state ...

• The Attraction - Quality of Life and Low Costs relative to placespeople are moving from (MA, CT, NY, NJ)

• Great place to raise a family, recreational (mountains and waterfronts),low crime, health care, cultural and historical amenities

" Only state besides Alaska w/o broad based income or sales tax

Baby Boomers moving to NH

' Well timed to transformation of US economy.. From industrial toknowledge- and innovation- based economy...

• Domestic in-migrants help to transform NH economy

• As the young, mobile, recently educated moved into NH with advancededucation and latest technology and other skills and training they lead theinnovation and growth in the state

THE NEW HAMPSHIRE SKILLED LABOR

ADVANTAGE AND MAGNET

The People (ranking among 50 states):Third highest among 50 state percentage of baby boomers

% of Adult Population with Associates or Bachelors Degree, 3rd (ND and MN higher)% of Adult Population Graduated from High School, 3rd% of Adult Population with Associate Degree, 9th% of Adult Population Graduated from 4-yr College, 8th

The Attraction: (rankingamong 50 states):

Most Livable State (CQ Press), 3rd

Safest State (Crime per 100,000 people), 1stChild and Family Weil-Being (Annie E. Casey), 1stHealthiest State (CQ Press), 2ndFavorable Business Tax Climate, 6th

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POPULATION BORN OUT OF STATE IN NH - MUCH HIGHER THAN USAND HIGHER THAN NEIGHBORING STATES. IN 2000 NEARLY 3/4

OF ADULTS IN NH WITH BA+ HAD BEEN BORN IN OTHER STATE

In-Migration of Skilled Labor Significant Factor inProductivity Leadership... NH Growth in Output

Per Employee, 1977-99,2nd in US

NEW ENGLAND

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Annual Average Growth Rate (%)

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HAS HAD STRONGER EMPLOYMENT GROWTH THAN SINCE1980. KEY TO LONG TERM GROWTH IS DIFFERENTIAL GROWTHCOMING OUT OF RECESSIONS HELPED BY AN APPROPRIATELY

SKILLED LABOR SUPPLY FOR GROWING INDUSTRIES

NH and Border States & US Total Employment Percent Change 1980-2009

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CLUSTERS: 2nd MAIN SOURCE OF

NH ECONOMIC ADVANTAGE

Advantage/Value of Clusters:• Large skilled labor pool with skills closely tied to cluster

needs

" Shared infrastructure and resources.

" Sophisticated consumers (e.g.. wine in France, design inItaly, high tech and biotech in Boston metro area)..

• Ensures ROI to public investment in cluster supportinginfrastructure

• Education and training of workforce• Technological infrastructure, e.g., broadband• Transportation, that lowers costs of accessing cluster

Fosters innovation

• Close proximity heightens competition and cooperation anddrives innovation ... doing things differently to create extravalue and serve sophisticated customers

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CLUSTERS IN NH

Low Cost Advantage• Legacy/history of manufacturing and technology in NH.. Not starting

from scratch

• Drawing labor and businesses from Boston/Cambridge because ofrelatively low tax and business costs and w/o the costs associatedwith density., e.g., social problems, crime

• DEC presence and legacy based on low costs for production andproximity to headquarters.. DEC alumni founded many NH firms

Proximity• Physically close to world class Original Equipment Manufacturers

(OEMs)

• NH manufacturers specialize as innovative (problem solving) OEMsuppliers.. Close to customer with fast response to new design andperformance/tolerance requirements.. Still holds.. R&D proximity tomanufacturing an enduring source of competitive advantage

ADVANCED MANUFACTURING AND HIGH TECH

KEY TO NH ECONOMY (nh public policy center)

New Hampshire Total Compensation Paid by Selected Industries(Thousands of Dollars)

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ADVANCED MANUFACTURING CONTRIBUTION

THROUGH MULTIPLIERS (nh public policy center)

Increase in New Hampshire Personal Income fromAdding100 Jobs in:

$13,400,690

Source: Connect

Economic

$6,748,506

Northern New EnglandScenario Model, 2011

$3,850,114

Manufacturing Healthcare Tourism

HIGH TECH INTENSITY AND PER CAPITA

INCOME - THE RELATIONSHIP ACROSS 50

STATES .. NH IN THE LEADING GROUP

>so

• ME • Mb • Ml»MT »TN **3t±, "

>AL

"MS

• SC

• 1*VT

OR

• AZD >NM

• UT

High Tech Intensity. 200810 12

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DECLINING FORTUNES: THE CURRENT

ECONOMIC, LABOR MARKET ANDDEMOGRAPHIC CONTEXT

•Demographic change

•Tech position in decline and paucity of highgrowth firms

• Slow recovery from recession and slowgrowing US and NH economy

•Unemployment• relatively high and "sticky" for NH

NET DOMESTIC MIGRATION AS % OF POPULATION. THEN

AND NOW. NH FROM TOP 10 IN 1989 TO 45™ IN 2010

1989 1999 2010

Rank % Rank % Rank %

CT 43 -0.77 41 -0.37 35 -0.1

Maine 9 0.93 18 0.13 41 -0.19

Mass 35 -0.41 31 -1.7 36 -0.14

NH 5 1.23 7 0.7 45 -0.28

Rl 34 -0.4 27 -0.09 48 -0.58

VT 8 0.96 22 0.01 31 -0.02

Top FL 3.25 NV 2.33 ND 0.86

Bottom WY -2.01 HI -2.2 Michigan -0.78

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NH'S HIGH TECH ECONOMY IS BEING CHALLENGED

BY INCREASING COMPETITION FROM OTHER

STATES AND INTERNATIONALLY

High-technology employment in NH is lower than it wasin the early 1990s

NH has been steadily dropping in high-technologyconcentration since the mid-1990s (ranked 9th in 2010compared to 4th in 1995)

During the "technology bust" in the early 2000s, NHwas the worst performing state in employmentpercentage change

Recovery of NH's high-technology industry since thebust has been relatively weak and below the median ofstates

LACK OF HIGH-GROWTH COMPANIES

Gazelle Jobs forthe

Six New England States% of Employment In

Gazelle Firms

Most Recent

Rank

Massachusetts 7.9% 17

Connecticut 7.4% 23

Rhode Island 7.8% 19

32

Maine 4.1% 45

Vermont 3.7% 49

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SLOW RECOVERY FROM RECESSION

•After decline in employment less than US average inrecession, NH slow to recover jobs lost duringrecession

• Usually a leader coming out of recession, now alaggard

•State ranked 42nd of 50 states over last year in jobgrowth on percentage change basis, .2%

NH UNEMPLOYMENT RATE GETTING CLOSER TO US

AVERAGE. 3rd WORST OF 50 STATES PERFORMANCE IN

CHANGE IN UNEMPLOYMENT OVER LAST 12 MONTHS

US &. NH Unemployment Rate, Seasonally AdjustedPre<immary November 2012 Rates: US 7.7°o; NH 5 0"«

Source: Economic & LMxt Ma-feet Ir^cmwtion Bureau. HUES l8-Oec-12f*».t Scr*JJ«fl update: ItrvlJ

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.

WORKFORCE SKILLS OUT OF ALIGNMENTWITH THE ECONOMY

Northeast Hires/Openings Ratio is lowest of allregions - implies relatively pronounced labormismatch.

Opening rate the same as US average but hiring rateone-third lower.

Opening rates highest in professional & businessservices and information

EDUCATION OUT OF ALIGNMENT

WITH ECONOMY

National and NH surveys showing that about 40

percent of the college graduates available toemployers do not have the necessary applied skills to

meet their needs

Nearly one-third of manufacturing companies aresuffering from some level of skills shortages

Need to better align both emerging and seasonedworkforce with the workforce that industry needs to

compete effectively

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PEOPLE ADVANTAGE LOOKING FORWARD

Strong Base to Build From. In better position thanmost states..

Should change the focus from importing in skilledworkers to educating our own because of changing

demographics in the region from which the statedrew many of its skilled workers

Each and every young person and incumbent workeris a valuable NH economic resource and we need to

treat them as such

STRENGTHEN THE CONNECTION BETWEEN POST-

SECONDARY EDUCATION AND THE ECONOMY

Important for the economy, the competitiveness of NH industriesand for NH students and workers ...

Focus on

• STEM fields critical for economic advantage to support high tech,advanced manufacturing and other industries. NH currently ranks 45,h of50 states in percentage of Bachelors degrees in Science or Engineering.This is down from 20th a decade ago

• The largest group of job opportunities over the next decade will be in"middle-skilled" jobs (about 40%) these workers have more than HS lessthan Bachelors degree

• Need to re-skill and re-educate incumbent workforce, re-employing thoseunemployed for extended periods .. Over Va of NH adults have no collegeexperience, 1/5 with some college but no degree

- 64% of NH jobs will require post-secondary education by 2018 andcurrently only 46% of NH adults have post-secondary degree (GeorgetownCenter on Education and the Workforce)

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COMMUNITY COLLEGES AND

NH'S ECONOMIC FUTURE

• CCs are important bridges to workforce and to Bachelorsdegree for increasing number of learners... foraffordability and economic alignment

• CCs are community centered and community serving ..Positioned to support industry clusters

• Serve traditional student population, and thoserealigning their education with the economy

• Strengths of CCs - Low Cost, Agile and Market andCommunity Driven

• CCSNH is flexible and responsive to the needs of NHstudents and workers and the economy/market

• Earnings in NH for Associate Degree holders ($51K onaverage). 28 % higher than HS (AA to BA is 20%) . 25%of Bachelors holders earn less than average Associates

• Articulation agreements with USNH and SNHU enabletransition to Bachelors. Focused on STEM fields

CLUSTER ADVANTAGE LOOKING FORWARD

Clusters ... Strong Foundation. Build on strengths in regionsacross NH with support of industry clusters and innovation

• Seacoast: Biotech, Advanced Manufacturing, High Tech

• 1-93 Corridor - Advanced Manufacturing, Defense, High Tech

• Lakes Region - Energy, Hospitality

• Hanover/Dartmouth - Bio-Tech, Medical, Advanced Manufacturing

• White Mountain - Hospitality, Manufacturing

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LOOKING FORWARD:

COSTS AND INNOVATION

Relatively low costs are part of the NH advantage..• relatively is an important word... need to try to maintain lower tax and

other costs compared to other Northeast and High Tech states..- do not have to be no cost or the lowest cost on taxes and other costs

Improving the current position in innovation will require publicinvestment with the highest ROI for the innovation economy..• Aligning education and training with innovating industry needs

• Increasing post-secondary matriculation rates, targeting below stateaverage high schools and displaced workers

• Transportation and technology infrastructure investments that supportclusters and also R&D-to-Manufacturing clustering across the state and toBoston/Cambridge

• Ensuring that innovating fast growing firms are attracted to and stay in NH• providing an appropriately skilled workforce

« having appropriate business tax structure and incentives... taxing wagesand profits from venture capital investment are disincentives

FINAL THOUGHTS

Do least harm. In determining how to increase revenueconsider revenue generators with least negative impact onskilled workforce, cluster, and cost and innovation advantages- For example, high business profits taxes on gazelle firms and income

tax on entrepreneurs reduces NH innovation and cost advantagessignificantly.

Maximize ROI to state expenditures.- Ensure expenditures consider ROI towards NH economic advantage ..

i.e., how expenditures impact skilled workforce, cluster development,costs and the state's innovation capacity

Think about the Future. Doing "least harm" in revenuegeneration and ROI considerations on expenditures can helpto ensure that state tax/revenue increases and stateinvestment-expenditures can increase revenue base and theNH advantage over time

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