To help inform Wisconsin decision-makers, community economic development practitioners, and concerned citizens about the Wisconsin economy and policy options, we have undertaken a series of studies which are reported here. These are a joint effort of the Department of Agricultural and Applied Economics, University of Wisconsin-Madison, the Center for Community and Economic Development, University of Wisconsin-Extension, and the EDA University Center at the University of Wisconsin-Extension.
Economic growth and development hinge on how firms conduct business. For firms striving to maximize profits there are two broad approaches: (1) minimize the costs of operations or (2) bring new products to market through innovation. Joseph Schumpeter casts these two approaches to firm profitability by thinking in terms of “ordinary” and “quality” competition. Ordinary competition focuses purely on pricing the good or service offered by the firm. These firms focus on reducing costs. Quality competition emphasizes consumer satisfaction through new innovations and quality products/services. Economists generally agree that the engine of long-term sustainable economic growth and development is driven not by Schumpeter’s ordinary competition but rather quality competition. In other words, economic growth and development is driven by innovation.
Firms that focus on developing innovations and bringing those innovations to market, or “quality” competition, will define business climate differently. For these firms, a positive business climate focuses on access to a diverse pool of highly educated and skilled people, strong networks facilitating the flow of information, and public investment in research and development (R&D). Because innovation comes from things people do, the quality of the workforce comes to the forefront: investments in education, a culture of invention, risk-taking, adaptation, a culture embodied in the spirit of entrepreneurship.
In this study we review the link between human capital, investments in innovation measured by spending on research and development (R&D), and economic performance measured by income. We find all three move in unison. The key take-away from our study include:
- Innovation, which is driven by the ideas of insightful, talented, and creative people, is vital to economic growth and development.
- Wisconsin ranks 20th in the nation for innovation, measured by spending on research and development (R&D), but is lagging behind neighboring states.
- While the majority of spending on R&D in Wisconsin comes from businesses, the University of Wisconsin – Madison accounts for about 27% of all R&D expenditures in the state. Spending levels at the UW-Madison have been declining over the past several years.
- Compared to the nation, Wisconsin is less active in the most innovative industries. This could limit the potential for sustained economic growth and development.
- Policy options must take a long-term perspective.
Data Analysis: Innovation and Economic Performance: R&D within Wisconsin
Fact Sheet One: Innovation and Economic Performance
Fact Sheet Two: Innovation and Economic Performance: Research and Development
Fact Sheet Three: Innovation and Economic Performance: How Does Wisconsin Compare?
Fact Sheet Four: Innovation and Economic Performance: Policy Options
The state of the Wisconsin labor market remains at the center of policy discussion. Concerns are expressed both in terms of shortages of quality workers as well as shortage of quality jobs. In this study we review the current trends with a focus on educational attainment and nature of employment opportunities. Particular attention is paid to the notion of the “brain drain” where it is believed that Wisconsin is disproportionately loosing more highly education people. We find that Wisconsin suffers from the lack of a “brain gain” or more highly educated people are not moving into Wisconsin at rates comparable to our neighboring peers. We also note that the bulk of the jobs expected to be created tend to be lower skilled requiring lower levels of formal education and have corresponding lower wages.
Our key summary points include:
• Wisconsin faces a potential labor shortage driven primarily by an aging demographic.
• As technological advancements change production, job growth is changing in a process of “job polarization.” Projected job growth in Wisconsin is occurring at the high and low end of the skill distribution—jobs requiring either a high school diploma or less at one end and a bachelor’s degree or higher at the other end.
• The projected job growth in Wisconsin considered alongside the education of the workforce suggests a potential skill mismatch.
• Projected job openings requiring a high school diploma or less exceed the number of appropriately skilled workers to fill them.
• Despite the high growth of jobs requiring a college degree, there is a shortage of jobs available relative to the number of college-educated workers.
• Wisconsinites must ask themselves if the current trajectory of job growth is desirable. Any policy option at the state-level should consider the long-term
goals for the future.
Fact Sheet: Education and Income
Fact Sheet: Wisconsin’s Education Pipeline
Fact Sheet: Is Wisconsin Experiencing a “Brain Drain”?
Fact Sheet: Changing Gender Profiles
The pace of the Wisconsin recovery from the Great Recession has been slow. There has been significant attention paid to which industries are generating jobs and which remain lagging. What has not received any attention is the sources of job growth by type of business: newer or older, larger or smaller. While the importance of small “Main Street” businesses receives widespread acknowledgement as a vital part of the economy, most of the economic growth and development attention is paid to larger existing businesses. The question that we address in this study is what are the sources of employment dynamics in Wisconsin: newer or existing businesses, larger or smaller businesses.
Some of our key findings include:
* Just 29% of businesses in Wisconsin have payroll employees. The remaining 71% are nonemployers, sole proprietorship or partnerships with no payroll employees. This does not include farmers which if included would significantly increase the share of non-employer businesses.
* Since 2000, the number of nonemployer businesses has increased 25%. At the same, the number of payroll employer businesses has decreased slightly.
* New business start-ups create the largest share of jobs compared with businesses of any other age group. In Wisconsin, over 25% of gross job creation comes from new business start-ups.
* Nationally, and in Wisconsin, the shares of job creation from small and new businesses has slowly decreased over the last two decades.
*In Wisconsin 62.3% of new start-ups survive through three years of operation and 51.6% survive five years, which is slightly better than the U.S. average.
These findings suggest that economic policies should be focused on new business start-ups and the all-important first five years of operation.
* It is important to have a continuous flow of new businesses in order to replenish the firms and jobs that are lost to decline and failure.
* Given the importance of new businesses to job creation, policies that support entrepreneurship may prove effective strategies for employment growth. Such policies can target:
- Community Attitudes
- Mentorship and Networking
- Educational Programming
- Available Financing
* A long-term view of economic grown is necessary to reap the job creation benefits of entrepreneurship and small business policies.
A series of shorter fact sheets summarizing the work are available here:
Fact Sheet #1: Is self-employment becoming more important to the Wisconsin economy?
Fact Sheet #2: The smallest of businesses in Wisconsin and the nation.
Fact Sheet #3: Wisconsin job creation: Small or big businesses?
Fact Sheet #4: Wisconsin job creation: Small or new businesses?
Fact Sheet #5: Wisconsin small business survival rates.
Fact Sheet #6: Rethinking how we view economic growth and development in Wisconsin.
Pattern of Women Owned and Managed Businesses in Wisconsin.
The key findings of this study are:
» In 2011, women owned or managed nearly 19% of businesses in Wisconsin.
» The number of women-owned or managed businesses more than tripled between 1990 and 2011 growing significantly during the 1990s and then stabilizing between 2000 and 2011.
» In 2011, women owned or managed 80,000 Wisconsin businesses, employed over 550,000 workers, and earned $45 B in sales.
» Women-owned or managed establishments employ fewer workers on average than the typical Wisconsin business regardless of industry sector.
» Women-owned or managed businesses are most common in educational, health care and social assistance services.
» Communities may not be taking full advantage of their women-owned businesses as a source of economic growth and development.
» Access to capital, education, networks, and work-life balance appear to be key issues for women business owners.
» Policies and strategies that support start-up and growth opportunities for women-owned businesses include:
o Organizing networks both inclusive of and specifically for women business owners. Connecting women with bankers, venture capitalists, and others in small business finance may be especially productive.
o Continuing to encourage women in STEM in order to increase their business prospects across all sectors of the economy, including high-performing industries where women are especially underrepresented.
o Facilitating work-life balance for men and women by ensuring available and quality childcare as well as promoting workplace policies such as paid family leave and flexible work schedules.
Bottom-line Policy Implication: Women as business owners may be an underutilized resource for economic development and growth. Policies aimed at equitably enhancing business ownership should consider the unique nature of women-owned and managed businesses. These policies should reflect the unique manner in which women approach entrepreneurship.
The Migration or Relocation Patterns of Wisconsin Businesses.
The key findings of this initial study are:
o The number of establishments that move or relocate in Wisconsin is quite small. Over the period 2000 to 2011 only about one percent of establishments moved in any given year. An even smaller share (0.4%) either moved in or out of Wisconsin.
o Most establishments that do relocate move only a short distance: 10 miles or less.
o The typical establishment that moves is a service-related firm with four or fewer employees and under $250,000 in annual sales.
o The net change in state-level employment from establishment relocation is less than 0.05% of total state employment.
o Migration of establishments into and out of Wisconsin track very closely resulting in small net changes in the number of establishments from relocation each year.
o The limited number of establishments that move to or from Wisconsin tend to be linked to Illinois and/or Minnesota. Florida may be the one exception and that movement is likely tied to retirement migration.
Bottom-line Policy Implication: Devoting limited resources to recruiting establishments to Wisconsin may be an inefficient use of those resources.