Revised Alabama Per Capita Income Growth in 1995

• August 6th, 2019

Revised Alabama Per Capita Income Growth in 1995

Alabama’s per capita income rose a moderate 5.1 percent in 1995, slightly below the U.S. average increase of 5.3 percent. At $19,181, the state’s per capita income was 82.6 percent of the national average of $23,208. In its September 24, 1996 release, the Bureau of Economic Analysis (BEA) also revised Alabama’s 1994 per capita income upward from $17,922 to $18,256, or 82.8 percent of the 1994 U.S. average.

In 1995, Alabama ranked thirty-eighth among the 50 states on per capita income. Among the twelve states in BEA’s Southeastern region, Alabama was sixth, just ahead of South Carolina, Louisiana, and Kentucky, and trailed by Arkansas, West Virginia, and Mississippi. However, Tennessee, ranked fifth in the Southeast with a 1995 per capita income of $21,038 seems securely ahead of Alabama.

Users can access the BEA tables of state per capita and total personal income for a complete report.

**10/96

An Alabama Lottery: What Could We Expect?

• August 6th, 2019

An Alabama Lottery: What Could We Expect?

Could Alabama support a state lottery, and how much would it add to the state’s economy? Some believe a lottery could make significant contributions, but what monies are likely from a lottery?

Per Capita Revenues Are Misleading

One way to estimate potential lottery revenues is to use an average from other states with lotteries. In 1993 the per capita net income to states with lotteries was $47.42. With a population of approximately 4.2 million, Alabama would net an estimated $198 million. However, the range among lottery states is considerable, with a high of $96 in Massachusetts and a low of $19.63 in Missouri.

It would be a mistake to assume that the national average would apply to Alabama when the variance among states is so large. Many factors determine lottery sales-income, relative size of the tourist industry, proximity to other states with legalized gambling, age of population, etc. We are left with the strong belief that national averages are simply not applicable.

Look at two lottery states which are similar to Alabama in per capita income ($17,925 in 1994). The two are Idaho ($18,403) and Montana ($17,824) where revenues per capita averaged $27.52 and $20.17, respectively, for an average of $23.84. Based on this average, Alabama might expect total revenues of approximately $100.1 million, nearly $100 million less than the revenue projected using a national per capita figure. Broadly interpreting these results, it appears that Alabama could expect somewhere between $85 million and $115 million in revenues from a lottery. That is between 1.8 and 2.5 percent of total state tax revenues.

A Very Inefficient Tax

Some people argue that a lottery would provide needed state revenues. Essentially, a lottery is a voluntary tax, since only those who choose to purchase a ticket contribute to the revenue base. That argument is fine as far as it goes, but it fails to point out the very high administrative burden associated with this tax. If Alabama followed Florida’s and Georgia’s examples, the gross lottery revenues would be broken down in the following manner: 50 percent in prizes, 2 percent to the ticket providers, 6 percent to retailers, 1 percent for advertising, 3 percent for lottery employees, and 38 percent for state revenues. Clearly a tax which costs 62 percent of revenues to administer is not very efficient.

What Will Determine the Outcome?

In spite of the high administrative costs and the extremely low probability of winning (in Florida, the odds of winning typically run 1 in 14 million or more), 66.8 percent of Alabamians say they support a state lottery. The Birmingham News reported a 1993 survey in which nearly a third of those surveyed claimed to have bought a lottery ticket with the past 12 months. Indeed, five of the ten busiest ticket outlets in Georgia are in towns near the Alabama border.

The odds are poor and the costs are high, but lotteries are politically expedient. And that is probably the best explanation why 72 percent of the states (plus the District of Columbia) now have legalized lottery sales.

James G. Youmans
William D. Gunther

**01/97

Want to Earn A Million Dollars? Go to College !

• August 6th, 2019

Want to Earn A Million Dollars? Go to College !

The popularity of state lotteries, sweepstakes, and casinos attests that many people dream of becoming millionaires. Each year, Americans spend more than $10 billion on state lotteries. But there is a way to acquire a million dollars that has less risk than playing the lottery: invest in higher education.

The Cost of an Education

Of course there is price for obtaining a degree, just as there is a cost for playing the lottery. Let’s see if the cost is worth the benefit. Suppose that a high school graduate who did not go to college could earn $6 per hour and worked 40 hours a week. That is an annual income of $12,480. What does it cost for him to go to college instead?

Suppose that college tuition and books amount to $3,000 per year. His food, clothing, and lodging may not amount to much additional expense, since our hypothetical student needs clothing, lodging, and food whether he is working or going to college. Moreover, research has shown that most college students actually work 20 hours a week in a part-time job. Thus, what the high school student is giving up by going to college is the opportunity to work the other 20 hours a week, not 40 hours per week. Finally, suppose it takes five years to complete the degree requirements. Under these assumptions, the cost of a bachelor’s degree, including the opportunity cost of not working 20 hours a week for five years, is $46,200. What can our student expect from such an investment?

The Financial Benefits of a Degree

In 1995 the average starting salary for all University of Alabama bachelor’s degree recipients (no matter what field of study) was $25,500. Let’s assume that our graduate is 23 years old upon graduation and will work until age 65 (42 years). If earnings, adjusted for inflation, grow at 1.17 percent a year (based on national averages), our student could expect to earn $1,415,000 over his or her work life. That’s 41.5 percent more than a million dollars. And, of course, some graduates may even earn more!

The Return on Investment

Now it is true that this income is received over a person’s lifetime, but that does not diminish the value of this investment. First, consider that student would have had some income even if he never went to college. We assumed that without a college degree the student would begin earning $6.00 per hour. Let’s say his salary would grow at an inflation-adjusted rate of 1/2 percent. (Actually, the data show real incomes falling for workers with only a high school diploma.) The student would have earned $675,000 over his 48 year working life. So the gain in lifetime income from obtaining a bachelor’s degree amounts to $739,384 in nominal dollars. Using the difference in the present values of these future income streams ($548,707) and dividing the gain by the cost of the education ($46,200), our student will earn the equivalent of a 24.7 percent average annual real rate of return on his investment in education.

Where can you find a better deal?

**01/97

What Does It Mean To Be “Middle Class”?

• August 6th, 2019

What Does It Mean To Be “Middle Class”?

When asking Americans how they would describe their families’ wealth and social status, most will answer with the non-descriptive label of “middle class.” But what exactly does this mean? While there is no clear definition of who belongs in this group, there are a few guidelines for a rough sketch of an American middle class household.

First, on the basis of annual household after-tax income, most studies agree that the “middle class” is grouped around the national average, in the range of $21,300 to $63,300 (in 1996 dollars). The lower and upper ends of this range represent the 20th and 90th percentile of the population, accounting for 70 percent of U.S. households. This definition includes all sources of income, from wages to Social Security to food stamps.

Some authors propose that 75 percent and 125 percent of the national median should be used as the extremes. In 1994, the median income in the United States was $32,264, therefore the “middle class” range would be from $24,198 to $40,330. Using the 75/125 method means almost 25 percent of the U.S. population is middle class.

Other methods for categorizing the middle class include social criteria (based on factors such as educational level and occupation) and certain income indices. One of these indices rates households on an income-to-needs basis, where a score of one signifies household income that borders on the poverty level. Using this ratio, middle class can be defined as scores ranging from 2 to 5, which was approximately 50 percent of American households in 1989.

Is the Middle Class Shrinking?

Many studies have shown a significant reduction in the size of the middle class over the past decade. Using the broader definition of middle class (household income of $18,000-$55,000, that is, 70 percent of American households), there has been a five to seven percent drop during the last 10 years. Some households leave the middle class as a result of newfound prosperity, which most owe to the increase earning power of a college degree. In American Demographics, Elia Kacapyr argues that education continues to be the most important weapon for providing upward mobility. However, an equal number of households have slipped into lower-income brackets, mainly due to stagnation of real earnings.

The disparity is even clearer when using the “Gini index”, a tool of the U.S. Census Bureau that indicates which groups of the population possess what share of the country’s wealth. The index scores on a scale from zero (perfect income distribution) to one (one person has all the money). In 1994, the index was .456, a 17 percent increase over 1969’s level. The main reasons for this shift were the rises in aggregate income controlled by the highest fifth of the population (from 43 percent to 49.1 percent) and, more specifically, the change in the share of the top 5 percent (from 16.6 percent to 21.2 percent). This trend adds credibility to the old adage, “the rich get richer while the poor get poorer. ” The middle class seems to be shrinking but, as Kacapyr says, it has definitely “emerged as a vital part of the 20th-century American psyche”.

James G. Youmans

**03/28/97

Average Annual Pay

• August 6th, 2019

Average Annual Pay

Average annual pay is one way of gauging economic differences among areas of the country and within the state. By this measure, Huntsville ranks the highest of all Alabama metro areas, above the state average, and even above the national average. In 1995 average annual pay in the Huntsville metro was $31,233. The average for all workers in Alabama was $21,287; the national average was $24,575.

Average annual pay is not the same as average annual income. Income accrues to people from sources other than pay. Pensions and other retirement benefits contribute substantial income to some people, but this income is not pay. Dividends, interest, rentals, royalties, and profits provide income to many people, but neither is this income considered pay. Tips, payments-in-kind, and commissions are earned income, but are not counted as pay. Transfer payments are another big source of income that is not wage income. Transfer income includes such things as state unemployment insurance benefits, Medicare benefits, veterans’ benefits, and many forms of public assistance.

Other major exclusions from the series include most agricultural workers on small farms, all members of the Armed Forces, elected officials in most states, most employees of railroads, some domestic workers, most student workers at schools, and employees of certain small nonprofit organizations. Altogether, wage and salary disbursements account for only about 55 percent of all personal income.

Average annual pay in an area is affected by high- and low-wage jobs, the ratio of full-time to part-time workers, and the frequency with which individuals change employers. For example, retailing employs a greater proportion of part-time workers and seasonal workers than other industries. An area that depends very heavily on the retail trade industry is not likely to have an annual pay average that is as high as an area whose major industries depend on a stable, permanent, highly skilled, long-term work force. In Alabama, the average pay for retail trade is $13,271. Beware of the word “average”–it is not necessarily reflective of “typical” annual pay. The average, in this case, is profoundly affected by part-time workers, temporary workers, and personnel turnover.

Even knowing these limitations, we can notice interesting differences among areas of our state. In Alabama mining is the industry that has the highest annual pay. However, mining accounts for less than one percent of employment in the state. Not every part of the state has commercial mining potential and therefore could never attract a mining industry with its high wages. Transportation, communication, and public utilities (TCPU) is the second highest paying industry in Alabama. But again, TCPU accounts for less than five percent of the state’s employment. Manufacturing, services, trade, and government are the big employers, and these are industries with very wide-ranging pay scales.

For example, some occupations within manufacturing pay minimum wage or only slightly more, while other manufacturing occupations pay extremely high wages. Proportionately, nondurable goods industries do not have as many highly paid employees as durable goods manufacturing firms. Huntsville has a significant durable goods manufacturing sector and high wage rates. The nearby Florence metro area depends more heavily on nondurable goods manufacturing, and Florence’s annual pay average is lower.

A similar story unfolds within the services industry. Some services industries are composed of highly skilled occupational groups (health services, engineering, research, or other business services) and others require workers with fewer credentials (laundry and cleaning services, hotels and motels, or security services). Birmingham is a metro area that has attracted many of the high-wage services industries, bringing up the average for the area’s annual pay.

Trade is another industry with wide differences in pay. The average annual pay for retail trade is very low, but the wholesale trade group averages $30,212. Montgomery MSA has recently expanded its wholesale and distribution sector, a good move for the area’s economy.

The statewide average pay takes into account all covered workers in the state, not only those in metro areas. Some nonmetro counties have high wage rates because they have attracted industries requiring high-paying occupations. It is mistaken to think of all rural counties as poor and unsophisticated.

Five of the ten Alabama metro areas, Gadsden, Mobile, Dothan, Florence, and Anniston, had pay averages that were lower than $23,719. Montgomery’s average annual pay of $23,798 was almost exactly the same as the statewide average. Tuscaloosa, Decatur, Birmingham, and Huntsville MSAs had averages higher than the statewide figure. All Alabama MSAs have trade, services, manufacturing, and/or government as their dominant industries. The pay differences come from different concentrations of certain industries in an area, and the particular types of businesses within those industry groups.

Understanding the differences in the industrial make-up of Alabama’s metro areas helps explain the differences in annual pay averages. But pay levels don’t tell everything about an area that is important to know. For more information about Alabama’s metro areas, or any other aspect of Alabama’s economy, contact the Center for Business and Economic Research at The University of Alabama.

Average Annual Pay in Alabama MSAs, 1995

                                 Percent Percent
                                 of U.S.   of AL
                                 Average Average

       U.S. avgerage     $27,440  100.0%
       Alabama average    23,719          100.0%
 Rank
    10 Anniston           22,024   80.3%   92.9%
     2 Birmingham         27,337   99.6%  115.3%
     3 Decatur            24,853   90.6%  104.8%
     8 Dothan             23,094   84.2%   97.4%
     9 Florence           22,310   81.3%   94.1%
     6 Gadsden            23,558   85.9%   99.3%
     1 Huntsville         31,233  113.8%  131.7%
     7 Mobile             23,318   85.0%   98.3%
     5 Montgomery         23,798   86.7%  100.3%
     4 Tuscaloosa         24,487   89.2%  103.2%

Source: U.S. Dept. of Labor, Bureau of Labor Statistics

Average Annual Pay by Industry Group in Alabama, 1995

 Rank  Total             $23,719
     1 Mining             44,043
     2 TCPU*              33,365
     3 Wholesale Trade    30,212
     4 FIRE*              29,226
     5 Manufacturing      27,451
     6 Government         27,399
     7 Services           23,566
     8 Construction       23,546
     9 Retail Trade       13,271

*TCPU - Transportation, communication, and public utilities
*FIRE - Finance, insurance, and real estate

Source: U.S. Dept. of Labor, Bureau of Labor Statistics

**03/28/97

Total Federal Expenditures Rise Slightly in Alabama in FY 1996

• August 6th, 2019

Total Federal Expenditures Rise Slightly in Alabama in FY 1996

In fiscal year 1996, the federal government spent $23.409 billion in Alabama. That amounts to an average of $5,478 for every resident of the state, well above the $5,180 U.S. average. Federal expenditures in Alabama rose 3.04 percent over 1995, while, for the nation as a whole, spending was up 2.24 percent.

Spending by the Department of Defense totaled $4.083 billion in FY 1996, 17.4 percent of all federal spending in Alabama and higher than the 16.7 percent U.S. average. Defense spending was down from the 1995 total of $4.136 billion, paralleling a national decline.

Federal expenditures are broadly grouped into four main areas: salaries and wages, procurement, direct payments, and grants. From fiscal year 1995 to 1996, federal spending in three of the four categories fell, even when expressed in current dollars. The overall picture was helped by a 7.6 percent increase in direct payments for individuals. Direct payments totaled $13.616 billion in 1996, or 58.2 percent of all federal expenditures in the state. This includes $5.758 billion in social security payments for retirement, survivors insurance, and disability. Medicare payments in Alabama totaled $3.470 billion, while federal retirement and disability payments approached $1.689 billion.

Salaries and wages brought almost $2.898 billion into the state in fiscal year 1996, lower than the $2.960 billion spent in 1995, as federal employment in Alabama declined by over 2,000 from 1995 to 1996. Procurement contracts added $2.937 billion, with 62.6 percent of purchases made by the Department of Defense. Procurement totaled $3.059 billion in FY 1995.

Grants to state and local governments in Alabama amounted to $3.325 billion, down from $3.419 billion in FY 1995. The biggest component was Medicaid payments totaling $1.455 billion. In addition, expenditures by the Department of Health and Human Services included $254.2 million for social services block grants, child and family services, and AFDC. And the child nutrition, food stamp, and WIC programs of the Department of Agriculture sent $292.6 million to the state. Alabama governments also received $308.9 million for community development and housing programs from the Department of Housing and Urban Development.

As a state, Alabama ranked thirteenth in 1996 on federal expenditures per capita and fifth in the category of direct payments for individuals. While the state average per capita federal expenditure in 1996 was $5,478, six Alabama counties received over $7,000 per person. These included Calhoun, Coffee, Dale, Macon, Madison, and Montgomery counties.

**06/97

The Many Faces of Tomorrow’s Employees

• August 6th, 2019

The Many Faces of Tomorrow’s Employees

Three keys to economic growth are increases in capital investment, a growing labor force, and rising productivity. One of these, a growing labor force, is becoming a “tossed salad” ingredient in Alabama. Increasing numbers of women, immigrants, minorities, and returning retirees are becoming part of Alabama’s work force. How has this happened?

In the 1950s Alabama’s population was growing rapidly, and those “baby-boomers” are an important part of the work force today. However, from the early 1960s through the 1980s, the fertility rate declined. Children born in the 1970s and 1980s constitute the entry level labor pool for the 1990s and the early part of the next century. Because the supply is not as large of young, full-time, educated workers as in years past, businesses are becoming creative about filling their jobs.

Businesses realize that changing family structures and changing labor force participation rates affect their hiring practices. In the coming century we will see more women doing more different kinds of work and minorities will be less of a “minority” than ever before. Baby boomers will remain on the job in full force, and as they age the average age of the work force will increase. The U.S. Department of Labor reports that “close attention to the needs of working women, and especially of women with families, is no longer just a matter of legal requirements, or corporate ‘social conscience,’ or even simple fairness, but rather, competitive necessity in the scramble for high-quality, productive and dedicated workers.”

Alabama’s economy is still undergoing a structural shift away from manufacturing toward services. The Alabama Department of Industrial Relations forecasts that “Service” occupations will increase their share through 2005, while the number of jobs for “Operators, Fabricators, and Laborers” is expected to drop from 20.8 percent of jobs in 1990 to 18.9 percent in 2005. Part of this industrial shift has to do with global competition. Occupations that are easily replaced by automation are endangered as Alabama businesses are forced to become more competitive in a global economy. The other side of that coin is that businesses, in both the manufacturing and services industries, will need more and more skilled, well-educated employees.

Most of the fast-growing occupations will require some post-secondary education, whether technical, vocational, or advanced degree. In order to attract the quality of workers they need, employers will be willing to develop flexible schedules, to offer specialized training, and to hire nontraditional workers. They will spend more human resource time addressing diversity issues. In return for these changed business practices, they expect employees who are capable and intelligent. Businesses want to keep their turnover rates low and their productivity high.

A diverse work force is actually an advantage to the state because many kinds of workers bring many kinds of skills. Recruiting and managing this diverse work force will require innovative practices in the coming years, but the results will be worth the effort.

Annette Jones Watters

**06/97

How do People Spend Their Money?

• August 6th, 2019

How do People Spend Their Money?

Spending patterns vary by age, region of the county, the size of the household, and income, among other things. Some things are purchased infrequently, others on a regular basis. The Bureau of Labor Statistics conducts the Consumer Expenditure Survey to quantify some of these observations. The seven major categories in the Survey are food, housing, apparel and services, transportation, health care, entertainment, and an “other” category that is mostly taken up by personal insurance and pensions, but also includes personal care products, reading, education, tobacco products, cash contributions, and miscellaneous items. Although the dollar amounts vary with every Survey report, some trends have been in place for many years.

Health Care. Health expenditures vary considerably by age. U.S. households, on average, spend five or six percent of their after-tax income on health care. The youngest householders, those under 25, spend less, both in total dollars and as a percent of all their expenses. As the age of the householder rises, so does the amount of the budget devoted to health insurance, drugs, medical supplies, and services such as doctor’s visits, lab tests, X-rays, or therapy. Householders age 65 or older devote, on average, 12 percent of their budget to health care.

Food. Everybody who has shopped in a grocery store has marveled at how much of what we buy there is not food. The Consumer Expenditure Survey counts the food items purchased in the Food category, and things like toilet tissue or scouring powder in the Housing category. American households spend about 14 percent of their budget on actual food items. However, these are not only grocery store food purchases. This category also includes food from vending machines, in restaurants, and special catered affairs. Two groups are spending a little more of their budget than average on food, but for different reasons. Households headed by someone under 25 spend more than average on food in restaurants; households headed by someone over 65 spend more on food eaten at home.

Housing. This category is more than shelter. It also includes utilities, household furnishings, household operations and domestic services, and other housekeeping expenses such as pest control, appliance repair, reupholstering or furniture repair, or rental or repair of lawn and garden tools. The average expenditure for this category seems to be about 32 percent of the American household budget. Householders aged 25-44 average a little more, possibly because this is the most common age to buy a house. Single-person households are also spending a bigger percent of their income on housing, possibly because larger households frequently have more than one earner, therefore the percentage of all their household money spent on housing is lower, even if the dollar amount is not.

House Furnishings and Equipment. We might expect young householders to spend a bigger percent of their budget on house furnishings because they are just setting up housekeeping. Or that middle-aged householders would spend relatively more because they are at the height of their earning power. Or that seniors might spend less because they have already furnished their homes. However, every age group seems to spend between five and six percent of the budget on furniture, floor coverings, and appliances. Furniture breaks; rugs wear out; and appliances quit working no matter how old you are.

Consumer Expenditure Survey 1995 Annual 1995 Percent Expenditures of Total Income before Taxes $ 36,948 Average Annual Expenditures $32,277 100% Food 4,505 14% Food at home 2,803 9% Food away from home 1,702 5% Housing 10,465 32% Apparel and services 1,704 5% Transportation 6,016 19% Health care 1,732 5% Entertainment 1,612 5% Other expenditures 3,274 10% Personal insurance and pensions 2,967 9% Pensions Note: Details do not sum to total due to rounding. Source: U.S. Department of Labor, Bureau of Labor Statistics

**07/97

Consumer Bankruptcy on the Rise: Some Possible Explanations

• August 6th, 2019

Consumer Bankruptcy on the Rise: Some Possible Explanations

As bankruptcy filings across the country exceeded the million last year, Alabama’s consumer bankruptcy is also on the rise. Statistics from the American Bankruptcy Institute show that between 1994 and 1995 consumer bankruptcy filings in Alabama increased 19.0 percent. The filings from 1995 to 1996 increased 13.7 percent.

Many opinions have been voiced over this trend, but the finger cannot be pointed at any single factor. Some have suggested that the increase in consumer bankruptcy is because of an increased use of credit cards. Consumers are keeping higher balances with higher interest rates while accounts continue to open. In 1990 there were approximately 120 million credit card accounts. By 1994 this number had grown to 165 million. Families are finding that the convenience associated with the card is not free.

On the other hand, some groups believe that bankruptcy filings and credit card debt are only minimally connected. A report by SMR Research Corporation found that Hawaii has the highest ratio of debt to disposable income, yet they have one of the lowest bankruptcy rates of all 50 states. In fact, Hawaii had 4.6 annual filings per one thousand households (4th lowest) in 1995; Alabama was third highest with 15.5.

Medical insurance, or the lack of it, may be linked to bankruptcies. Within the states with the highest number of bankruptcy filings, some researchers have seen a high number of people not covered by medical insurance. In 1995 Tennessee had the highest number of consumer bankruptcy filings with 18 filings per one thousands households. The people without medical insurance totaled 14.8 percent of Tennessee’s population, with 814,000 people not insured. For Alabama, the number of people not covered by medical insurance in 1995 was 595,000, or 13.5 percent of the population. On the other hand, Hawaii had only 8.9 percent medically uninsured and was fourth lowest in filings. One problem with this correlation of medical insurance and bankruptcies is that it does not explain how states like South Carolina and West Virginia had low bankruptcy filings, yet 14.6 and 15.3 percent of their populations were not covered by medical insurance.

Another possible explanation for the increase in consumer bankruptcy is that filing under Chapter 7 may appear to be an “easy way out.” People can file under Chapter 7, have all their debts wiped clean, and still keep possession of their home and car. (Non-exempt property is given up.) Filing under Chapter 7 also allows those who live in apartment complexes to delay an eviction.

Although there is not sure explanation about why consumer bankruptcy is on the rise, it is easy to see that many factors that may contribute. There is an organizational push for tighter bankruptcy laws, and it may become harder for Americans to file for bankruptcy in the future.

Kelly Johnson
Graduate Research Assistant

**08/97

Co-op Programs in Higher Education

• August 6th, 2019

A Partial Solution to Alabama’s Labor Shortage:
Co-op Programs in Higher Education

An old idea, integrating work experience into the formal education process, may be just what is needed to solve the labor shortages building in Alabama’s metropolitan areas. With unemployment rates between 3.3 and 4.7 percent in the state’s four largest metropolitan areas, labor shortages are the biggest single problem facing economic expansion. These shortages have occurred because the nation’s birth rate leveled off following the explosive “baby boom” period. Relying upon new workers coming to Alabama from other places is an unlikely short-run solution because other states have their own shortages of qualified workers.

Growing the State’s Labor Force without New Residents
The labor force is made of the people aged 16 and over who are employed or actively looking for work. This means retirees, students, and others not actively looking for work are not in the labor force. Retirees who take a part-time job to avoid boredom increase the size of the workforce. So do students who seek part-time jobs. Seniors and full-time students who work increase the size of the labor force without any change in the size of the population. While retirees often return to the labor force for non-financial reasons, students are increasingly motivated by rising college costs.

Higher Education Costs and Part-time Employment
Declining state support for higher education results in rising tuition. Nationally, college tuition rose 5.6 percent in 1996, compared to consumer price increases of 3.3 percent. Higher costs motivate students to supplement their incomes while attending college. Students generally prefer part-time to full-time employment in order to make steady progress toward graduation. A student who takes a job for pay, even 10 or 15 hours per week, constitutes an increase in the labor force.

Creating Partnerships: A Win-Win-Win
Many firms are becoming creative in human resource management to solve their labor shortages. Finding skilled full-time employees is a greater and greater challenge. Yet, at the same time, increasing numbers of college students need to work to offset rising tuition rates. A solution is to create jobs relevant to the students’ career objectives and at the same time relevant to a firm’s employment needs. If firms can offer such opportunities and students can obtain “credit” for the work experience, there will be a win-win-win situation. Yes, win-win-win. The student obviously wins by earning extra income, relevant on-the-job experience, and appropriate academic credit. The company benefits from adding a productive employee to the workforce and solving a labor shortage problem. And society benefits through a growing economy and lowered inflationary pressures created by scarce labor.

**09/97