$58.25 a Barrel Versus $25.87 Per Hour

According to the latest Bloomberg report, oil is priced at $58.25 a barrel. According to the Economist, it isn't terrorism in the Middle East at this point driving the surge in oil prices, it's gangsterism in Nigeria. Either way, I paid $2.29 per gallon yesterday to fill up my tank and I wasn't happy about it. (And please don't trouble me with the story about how world market energy prices are catching up with America.)

Last week the Bureau of Labor Statistics released its latest estimates on total worker compensation costs. The overall average, across all occupations and industries, is $25.87 per hour worked, with 70% of this total being accounted for by wages and salaries and the other 30% by benefits. Some economic developers will read these numbers and say: "My God, that's the problem!" I would reply: "No, that isn't the problem."

Total compensation costs were lowest in the East South Central region at $20.15 per hour worked, and they were highest in the Pacific region at $27.84 per hour worked. Total compensation costs were estimated at $24.95 per hour worked in the East North Central region where I live. No great surprise here in terms of the regional differences, but it is instructive to have the actual numbers.

Sound like a lot of money? Not really when you consider the overall economic picture. Business advocates will ask: "But what about the impact of labor costs on productivity? Businesses must achieve higher levels of productivity to compete globally. True, but how much productivity can we stand if we are committed to building a more prosperous society? The reality is that productivity growth remains healthy on a national and regional basis.

Here's my question: "Which is hurting economic development more: oil prices or labor costs?" In my estimation, oil prices represent a greater threat to America's local economic development efforts than labor compensation costs, which business executives and managers love to rant about. What do we do when oil prices reach $80 a barrel?


For additional background on the income and prosperity issue, read the Economic Policy Institute's latest figures on real personal income growth (decline?). Meanwhile, read what is happening to executive compensation. I read with great interest Crain's Cleveland Business list of Greater Cleveland's Highest Paid CEOs and noted that local CEO compensation continues to climb nicely, while the vast majority of local companies continue to reduce local employment. What does that say about local economic developers' ability to stimulate local job creation? It says that employment growth is probably not a good indicator of economic development organizations' success in markets like Cleveland.

I've been in the economic development business for 30 years. Frankly, I am deeply concerned about our failure in economic development to bring about greater prosperity for citizens. The traditional model of economic development focused on increasing "earned income" in local areas. As I look at the numbers, transfer payments (investment dividends and retirement payments) are growing sources of income, and not earnings (except for certain categories of workers).

So, what do we do? Here is my suggestion. Maybe economic developers should turn their attention from being job developers to become personal financial advisors. With all the talk about "economic development contributing to wealth formation," maybe we should tell people the truth about how they can get rich. They can't get rich by "working for a living!" Even if you wanted to work your way to riches, you can't. Globalization (offshore outsourcing) is taking that option off the table.

Perhaps personal financial investing and entrepreneurship should be two new required courses that every high school students must complete to graduate. Does it really make any sense for young people today to get trained up for occupations that: 1) will not make them reasonably prosperous; or even worse 2) may not even exist in the future.

As economic developers, we need to dig deeper into these very difficult economic issues affecting our ability to do our job. I don't believe we are giving them enough attention. As a result, we don't know that we need to shift to new strategies that enable people to become more prosperous in the context of global economic realities. Let's tell folks the truth: You have to invest and entreprenuer your way to prosperity!