The Cost of an Uneducated Workforce

Posted on

The Guinn Center appeared yesterday on Ralston Reports to address, among other topics, Ralston’s question of the day: “Is a flawed business tax to fund education better than no tax at all?” Essentially, Ralston asked the Guinn Center and his viewers to weigh how the tax functions against what the tax is meant to do (direct money into our K-12 education system so that we can improve educational outcomes for the young people of Nevada). 

To date, much of the attention around The Education Initiative has focused on the potential magnitude of the impact of the tax.  The Guinn Center’s analysis suggests that the margin tax revenue estimate is around $460 million (with an upward bound of $690 million).  At the end of the day, however, there is tremendous uncertainty around how much The Education Initiative, if passed, will bring to our state’s coffers.

Regardless, this is a tax. So, yes, if voters agree to support The Education Initiative, businesses with more than $1 million in gross receipts will be asked to pay this cost, with the goal of injecting millions into our K-12 education system.  Businesses subject to the tax are understandably concerned about the impact of the tax on their business as well as whether the tax revenue will actually generate better educational outcomes.

While the Guinn Center takes no position against or in support of the tax, we do think there are important questions to ask when thinking about whether to implement this tax.

One of the important questions (that the Guinn Center raised during its appearance on Ralston Reports) is what are the costs to businesses of not having an educated workforce?  During the economic boom, Nevada was a net importer of workers most of which were low-skilled workers (e.g. construction jobs).  If you look at Governor Sandoval’s Economic Development plan, most of the priority sectors (e.g. aerospace and defense) require a significant number of high skilled workers and laborers with STEM (science, technology, engineering, and mathematics) backgrounds. Given Nevada’s students’ poor performance on math and reading exams (not to mention our low graduation rate), it is highly likely that employers will have to import the highly skilled workers they need. Businesses, either existing ones, or ones we hope to attract, will thus have to bear significant costs to either import the highly skilled workers that they need or retrain their existing workers that lack the appropriate skill set and training.

How big are these potential costs?

A recent article may provide some insight. At Nevada based National Security Technology (NSTec), which manages the Nevada National Security Site, jobs are available, but “not many Nevada-trained scientists” fill them. NSTec reported that it costs the company $120,000 to hire and relocate its highly skilled worker and that “only 15 percent of NSTec employees in Nevada live in the state before they’re hired.”  In other words, NSTec has to import roughly 85 percent of its highly skilled workforce. This suggests that there are direct costs to businesses in Nevada of having an unskilled and uneducated workforce.

There is also the opportunity cost (admittedly harder to measure) of having high-tech companies, which tend to pay higher wages and would help diversify our economy, bypass Nevada entirely. Just today, an opinion piece suggested that Tesla will most likely not building a battery plant in Nevada. Why aren’t they coming, you ask? “The schools,” the source said. “I don’t think we realized how bad they were. I can’t say anything definitive, but it’s not looking likely.”

Regardless of Tesla’s decision, the Guinn Center thinks it’s time to begin more rigorously quantifying the full costs to business and Nevada for our educational deficit.  Look for forthcoming analysis on this topic (and more).