Study: Georgia’s shortcomings threaten to undermine economic growth

McKinsey flags transportation, education, healthcare weaknesses
A study by McKinsey argues that Georgia’s economy has weaknesses that could someday dampen growth. The study also cites strengths that have propelled it to the forefront, like Hartsfield-Jackson Atlanta International Airport. (AP Photo/David Goldman)

A study by McKinsey argues that Georgia’s economy has weaknesses that could someday dampen growth. The study also cites strengths that have propelled it to the forefront, like Hartsfield-Jackson Atlanta International Airport. (AP Photo/David Goldman)

Despite decades of sometimes spectacular growth, Georgia cannot afford to ignore some dangerous trends often masked by good economic news, a study by the global consulting firm McKinsey & Company warns.

The growth propelled Georgia to become the ninth-largest state economy by 2017, up from 17th in 1977. Atlanta has fueled most of that expansion in recent years as one of 11 U.S. “superstar cities,” with 3.4% average annual economic growth between 2012 and 2017.

The study highlights several weaknesses that threaten that growth, the most pressing revolving around transportation, education and healthcare.

“The past is not a guaranteed guide to the future,” said Steve Reis, a senior McKinsey partner in Atlanta who co-authored the study. “So, we are just calling attention to things that we think need to be addressed.”

Transportation, education and healthcare are all linked to what McKinsey flagged as the biggest threat to Georgia’s long-term growth: a workforce unready for the future. Too many people don’t have the right skills, don’t have transit they need to reach jobs or lack access to good healthcare.

“There are thousands of jobs that are unfilled,” Reis said in an interview. “The state is doing great things. But if we don’t find a way to pull more people into the workforce, this growth will eventually stall.”

McKinsey shared the study with The Atlanta Journal-Constitution before it was published Thursday. The consulting group did the study on its own, then presented it to the state, which did not pay for the work, McKinsey said.

Pat Wilson, commissioner of the Georgia Department of Economic Development, said through a spokeswoman that he had been partially briefed on the study but declined comment until he read it.

Among the study’s findings, Georgia had unfilled job openings in several sectors last year:

— 28,800 in transportation and logistics

— 22,300 in sales

— 22,200 in computing

— 20,300 in healthcare

— 16,700 in office and administration

At the same time, there was a significant number of people who had worked in some of those sectors in the past but were unemployed. For example, the study estimates that Georgia had 10,200 unemployed logistical workers and 12,600 unemployed office workers.

That is a sign of either a mismatch in skills or in location – that is, either workers don’t have what employers need or they can’t easily get to the jobs. Or both.

Georgia’s economic growth would be stronger if there were more people in the workforce, Reis said.

McKinsey found a dramatic gap between the well-off and the poor in Georgia. Even around Atlanta — the state’s economic powerhouse — the poverty rate exceeds 30% in many zip codes.

It also highlighted a stark urban-rural divide in the state.

“Metro Atlanta accounts for 50% of the population, two-thirds of the GDP and 80% of the growth in Georgia. It is disproportionate,” Reis said.

McKinsey estimated in its study that Georgia could generate 380,000 additional jobs and $68 billion or 0.9% annual gross domestic product growth over the next decade by expanding the workforce and attracting more types of companies across more of the state.

The consulting group declined to weigh in on how to pay for policies the state should pursue.

The Metro Atlanta Chamber, the area’s highest-profile business group, sees the McKinsey report as “a validator” rather than a critique of the state’s current policies, said Katie Kirkpatrick, the chamber’s chief policy officer.

“I think it’s fair to say we have been working on these issues they’ve highlighted,” she said. “This is a call to action to not let up.”

More spending through higher taxes would be counter productive, she said. “I think we’ve budgeted conservatively and that type of leadership has allowed us to maintain our advantage over other states.”

But Alex Camardelle, senior policy analyst at the Georgia Budget and Policy Institute, a think tank, said the weaknesses cited by McKinsey cry out for state action. He argued Georgia’s long history of luring companies with low taxes and taxpayer-backed incentives has been wildly successful at adding jobs, but not as good at producing high wages for all.

“We’ve got to do a better job in evaluating the kinds of economic development incentives that we use to draw people to our state,” Camardelle said. “There’s a way to strike a balance here. It just requires more transparency.”

Mark Muro, policy director of the Metropolitan Policy Program at Brookings Institution, another think tank, said the state needs “transit linkages, decentralized training and more support for second-tier universities” to bolster the workforce and economy outside Atlanta.

Many counties have never recovered from the 2007-09 recession – or even from the manufacturing decline that preceded it.

“It shows you the dynamic of a ‘superstar’ city and the places left behind,” Muro said. “It’s important to preserve some balance. It’s simply hard to maintain the success of the superstar economy if there’s a mutiny in the rest of the state.”

Last year, Georgia added more than 90,000 jobs. So far this year, the pace is only a little slower.

Yet the share of working-age people who are not in the workforce is far lower than it was at its peak in the late 1990s or even just before the recession started in 2007. If the share of people with jobs now were the same as in 2007, the workforce would be more than 300,000 larger.

Experts have argued about the shortfall, attributing it to a mix of factors, including flawed schools, the opioid epidemic, an aging population, overhang from the Great Recession and a lack of affordable childcare.

Georgia also has the nation’s highest number of people under the control of the justice system, either through incarceration, probation or parole. The state could make it easier for those people to re-enter the workforce and keep a job, which can mean improving training and transit, Carmadelle said.

The McKinsey study highlighted Georgia has aggressively and successfully recruited big companies, with an estimated 21 Fortune 500 headquarters. Those “mature” or older and larger firms are doing very well.

But startups have been a mixed bag. Georgia ranks 11th among states in birthing new firms, yet only 45th nationally in startup survival rate, with fewer than half surviving five years, according to the study.

McKinsey also flagged troubling numbers when it comes to transportation, education and healthcare.

Atlanta ranked 99th out of 100 global cities in terms of physical mobility, with the third-longest average commute behind only New York and Los Angeles, according to one estimate.

McKinsey said Georgia’s state education ranks 31st nationally, trailing neighbors like North Carolina and Tennessee. There are up to 10 times more openings than employees looking for work in high-skill positions, according to the study.

In healthcare, 13% of Georgia’s population is uninsured, 47th nationally. The state also ranked 47th in infant mortality and 50th in children’s mental health services.

“These things are hard. And they are all related,” Reis said.

See the full McKinsey study

Four decades of Georgia economic growth

McKinsey’s view: the good

— From 17th largest state economy to 9th

— 11th nationally in new business start-ups

— Doubled pace of U.S. population growth

— Hartsfield-Jackson became world’s busiest airport

— Savannah now the nation’s fourth-busiest seaport

— Headquarters of 21 Fortune 500 companies

McKinsey’s view: the bad

— Estimated 400,000 people who could work do not

— Unemployed workers without skills needed for job openings

— 8% of workforce unemployed or underemployed

— Growth in working population insufficient for sustained growth

— 42nd among states for health outcomes

— 45th among states in survival of start-ups

— 30th among states in start-ups reaching 50 employees

— Overly dependent on Atlanta, with 65% of the economy

— Among 100 global cities, Atlanta ranks 99th for physical mobility

— Share of state GDP spent on infrastructure down

Source: McKinsey & Co.