Expanding the economic pie in the Peach State

By most metrics, the Peach State is economically vibrant. Georgia is the ninth-largest state economy in the United States, seventh for its share of woman-owned firms, and third for its share of black-owned firms.1Superstars’: The dynamics of firms, sectors, and cities leading the global economy, McKinsey Global Institute, October 2018. This economic activity is supported in part by its transportation infrastructure, including the world’s busiest airport, two major container ports, and a rail network that ranks third nationally in accessibility. Meanwhile, the state's stable fiscal policies have garnered a AAA credit rating.

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While growth in Atlanta has been strong, the rest of the state has struggled to keep up.

The star of the state is Atlanta, which now generates 65 percent of state GDP and is also the cultural and economic capital of the Southeastern United States.2 And while Atlanta creates many opportunities, it also reaps most of the benefits. In fact, evidence suggests that Atlanta’s performance obscures impediments to future growth that must be addressed.

Outside the most prosperous areas of Atlanta, economic growth is constrained by low workforce participation and a lack of access to opportunities in high-growth sectors, which in turn leads to low growth in areas such as population and GDP (Exhibit 1).

In a new report, Expanding the economic pie in the Peach State, McKinsey’s Atlanta office, with support from the McKinsey Global Institute, identifies the need to include a greater portion of Georgia’s workforce, regions, and firms in the state’s economic success. If challenges in these areas are not addressed, especially outside of the northern Atlanta metro area, they will inhibit future growth for the state and its residents.

A new growth formula for Georgia

According to the research, sustainable growth will hinge on three objectives (Exhibit 2). First, restoring Georgia’s workforce participation to prerecession levels could draw almost 400,000 individuals into the workforce. Second, invigorated and strengthened regions that tap into industry- or sector-specific advantages could spur more than $13 billion of growth outside Atlanta. Finally, helping young, smaller firms could yield an additional 15,000 firms sustaining themselves past the five-year mark and 1,000 more firms growing to more than 50 employees.

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A new growth formula must address the needs of Georgia’s workforce, regions, and firms.

Workforce

Despite Georgia’s strong top-line economic performance, the state’s full working-age population has not reaped the benefits. For starters, the state’s workforce participation rate is lower than that of the average state, and residents in the workforce are working fewer hours compared with ten years ago.3 In fact, high-skilled jobs are difficult to fill, lower-skilled workers experience high rates of unemployment, and unhealthy workers struggle to engage in the labor market. At full employment, and with net migration well below historic peaks, Georgia’s economy needs more workers to sustain growth. Expanded healthcare access and increased participation in workforce training can help bridge these gaps.

Georgia ranks 42nd in the United States for health outcomes and its ability to meet the healthcare needs of residents.4 Such challenges in access are more acute in rural areas, which can lack traditional healthcare infrastructure such as clinics and healthcare providers. Investment in healthcare infrastructure, such as health centers, virtual healthcare, and healthcare professionals of varied skill levels, can help address the shortages holding back potential workers.

Investments in education will continue to be important. But to help realize long-term gains, directing candidates into training programs that teach and reinforce the skills that are projected to be in high demand can be especially valuable. Vocational training programs have already been proven to increase workforce participation, decrease unemployment, and upskill workers. Since Georgia’s vocational programs already lead the nation, the key will be to engage employers, families, and students in outreach, curriculum design, mentoring, and ongoing development.

Indeed, reskilling programs can help workers develop the skills that match employer demand, and Georgia has an opportunity to reskill about 19,000 unemployed workers through programs that target employer demands. In fact, reskilled workers can fill about 86,000 open positions in industries such as healthcare, where the need for workers is significantly higher than the number of qualified job seekers.5

Regions

Growth outside Atlanta lags behind comparable regions in other states. Since regions typically prosper when they are easily connected to major economic hubs, investing in high-potential sectors and connecting them to both in-state and wider markets can create positive economic effects.

For instance, while manufacturing nationwide is on the decline, Georgia can use its existing strengths in infrastructure to attract and nurture manufacturers—including ones from emerging sectors, such as additive manufacturing, or 3-D printing.

Putting people at the heart of public-sector transformations

Putting people at the heart of public-sector transformations

Healthcare is an industry that doesn’t need to be coaxed into growth, but Georgia stakeholders can help the sector expand even more quickly, especially outside the Atlanta metro area. Investments in healthcare—specifically, connecting rural residents to healthcare resources—can improve health outcomes and create employment opportunities at every skill level throughout the state.

Firms

Georgia excels in new company creation but lags behind national averages on small firms surviving and scaling to more than 50 employees. Research-backed initiatives that support R&D, scale-up funding, and mentorship can help these companies survive and thrive.

Economic clusters, networks of companies and institutions that amplify the effects of innovation and business activity, can also increase productivity, attract talent, and fuel additional economic growth. Georgia has enjoyed success targeting industries for which it is well positioned to create economic clusters. Film production provides a clear example, generating an indirect impact of $9.5 billion and creating more than 90,000 jobs in 2018. The state can support other economic clusters of high-growth industries, such as cybersecurity and fintech, both of which can benefit from Georgia’s workers, physical infrastructure, and location.


These are complicated, nuanced issues that require sustained, long-term efforts and investments. But the benefits are clear—up to $68 billion in incremental GDP growth over the next decade (nearly 0.9 percent in incremental annual growth) and the next phase of Georgia’s economic success story.

Download Expanding the economic pie in the Peach State, the full report on which this article is based (PDF–1.7MB).

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