CBER Publications Research Reports

wo basic points come from our analysis of Kentucky’s tax system: a broader tax base is needed so that revenue can keep pace with future economic growth, and changes are needed to improve Kentucky’s economic competitiveness.

Without fundamental reforms Kentucky could face a $1 billion shortfall by 2020, and could find itself at a competitive disadvantage to neighboring states for business growth, retention, and recruitment.

The options we present below can improve future revenue growth and economic competitiveness—which are evaluated with respect to other important factors, such as fairness and simplicity. The Commission should view these options as alternative routes to a different tax system, but with varying implications for adequacy, elasticity, competitiveness, fairness, and simplicity.

Good policy is dependent upon good data. This is especially true in health policy. Here we provide data on the number of Kentucky Medicaid beneficiaries who have received a mental or behavioral health diagnosis from 2000 to 2010. A Profile of Kentucky Medicaid Mental Health Diagnoses, 2000‐2010 provides information on the total number of individuals who have been diagnosed with a mental health disorder as well as a year‐by‐year count of the 15 broad categories used to classify these diagnoses. Presented for children (age 18 and younger) and adults (19 and older), these data are organized at the state, regional, and county levels—which should enable leaders and citizens to compare mental health diagnoses between different communities. These comparisons should provoke important public policy and public health questions, such as what accounts for the different patterns across the state overall, between genders, and among races with respect to, for example, ADHD, developmental disorders, and substance‐related disorders. Moreover, used in conjunction with a companion report on Medicaid pharmaceutical utilization, the Kentucky Medicaid Pharmaceutical Utilization Guide, 2000‐2010, the strategic allocation of resources dedicated to improving health literacy can be advanced—among patients, health care providers, and the community at large.

This work is a collaborative effort between the Foundation for a Healthy Kentucky, the University of Kentucky College of Communication and Information, and the Center for Business and Economic Research (CBER) in the Gatton College of Business and Economics.

Understanding Medicaid pharmaceutical utilization in Kentucky is important: over $6.6 billion was expended in the state from 2000 to 2010 on outpatient medication; it has the potential to fundamentally transform the health and well‐being individuals, and by extension wider communities; and there is a continuing trend in the nonmedical use (and abuse) of prescription drugs, exacting a heavy toll on individuals, their families, and the wider community. The Kentucky Medicaid Pharmaceutical Utilization Guide, 2000‐2010 provides information on the 50 most utilized pharmaceuticals in Kentucky with respect to prescriptions, costs, and total grams—and presents this information for children (age 18 and younger) and adults (19 and older). These data are organized at the state, regional, and county levels—which should enable leaders and citizens to compare pharmaceutical utilization between different communities. These comparisons should provoke important public policy and public health questions, such as what accounts for the vastly different pharmaceutical utilization patterns across the state over‐ all, between genders, and among races with respect to, for example, pain medication, ADHD drugs, or antipsychotic medication. Moreover, this report can facilitate the strategic allocation of resources dedicated to improving health literacy—among patients, health care providers, and the community at large.

This work is a collaborative effort between the Foundation for a Healthy Kentucky, the University of Kentucky College of Communication and Information, the Center for Business and Economic Research (CBER) in the Gatton College of Business and Economics, and the College of Pharmacy’s Institute for Pharmaceutical Outcomes and Policy (IPOP).

The Bluegrass Economic Advancement Movement region encompasses the Louisville and Lexington MSAs and the corridor between them. It is an area with much of the manufacturing, medical and transportation & warehousing industries of Kentucky contained within. Over 36% of the population and 38% of the Kentucky labor force live and work in this region. This report analyzes the labor market structure within the region. We also examine the labor market structure in five Workforce Investment Act Regions: Bluegrass, Lake Cumberland, Lincoln Trail, Kentuckiana Works, and Indiana Region 10. We examine employment at the industry and occupation level and project employment growth for the regions. We examine important inter-industry linkages, and how these linkages may be important for attracting and maintaining the manufacturing base, in spite of a 30 year decline in manufacturing employment. We also examine the educational attainment of the regions and consider whether the workforce has the mix of education best suited to growth. Finally, we examine the age structure of occupations important to the regions. As is well known, the baby boomer generation is approaching retirement age. While the impact of the aging population will be felt across all occupations, we examine general characteristics which point to certain types of occupations as having a preponderance of workers in these age categories.

Our main findings:

• Manufacturing employment will continue to grow at a slower rate than employment in other sectors. The predicted growth in the level of manufacturing employment is a change from the last decade, but consistent with the overall trend in manufacturing as a decreasing proportion of employment.
• Two key inputs to manufacturing in the BEAM region, and particularly Auto Manufacturing, are the Transportation & Warehousing and the Wholesale Trade industry. 2 The BEAM region has an important cluster in these industries, and this strength could be used to attract additional manufacturing to the region.
• The Health Care industry, already a primary employer in the region, is projected to grow quite rapidly during the next decade. While health care is not generally an input into manufacturing or other industries, access to high quality health care can be used to attract firms in other industries to the region.
• In many of the manufacturing industries, the BEAM region has a relatively high concentration of production workers and a low concentration of management. This raises concerns that these industries are not attached to the region. Attracting management requires a highly educated labor force. Without this, attracting large firms will be difficult.
• Employment of production workers is likely to grow slowly over the next decade. In contrast, while starting from a small base, transportation and materials handling employment is likely to grow quite rapidly.
• Two types of medium skill occupations are likely to have high growth. All medical technology and technologist occupations and nursing are projected to experience rapid growth. We focus on these two as they require less education (typically an associate’s degree) than many of the other high growth occupations (physicians for example). Similarly, skilled workers in transportation and manufacturing, including truck drivers, welders, computer control programmers and similar occupations are predicted to grow (although at a slower rate). Again, these are occupations with medium skill and education levels.
• We find that higher paying medium skill occupations (again, truck drivers are an excellent example) are highly skewed toward baby boomers, and thus likely to experience even higher demand.
• Kentucky continues to lag behind competitor states in its production of highly educated workers. Much of the employment growth will be concentrated in occupations requiring a minimum of a bachelors degree. As noted above, attaching large firms to the region requires an educated work force. Kentucky is failing to produce a large enough pool of these workers to sustain the growth predicted.

There is growing concern over the emissions of greenhouse gases in the United States. Policymakers at both the state and national levels have discussed, and in some cases enacted, policies with the goals of reducing energy demand and encouraging the use of more efficient energy technologies. Because these policies will have an effect on the cost of energy, a quantitative examination of the energy demand is warranted.

In this project, we estimate the likely effects of increased electricity prices on the demand for electricity, production as measured by Gross State Product (GSP), and employment.

Kentucky officials are being encouraged to expand the availability of Kentucky’s state-funded preschool program. The current program restricts eligibility to three- and four-year-old students with disabilities and four-year-old students with family incomes up to 150 percent of the federal poverty level.

The rapid rise in housing prices that occurred between 1990 and 2006 led many communities, including Lexington, Kentucky, to become concerned about whether individuals who hold “typical” jobs—such as teachers and police officers—could continue to live in the communities where they worked. Unfortunately, given the lack of recent detailed studies examining the affordability of housing in Fayette County (which contains Lexington), it is hard to know whether concerns about affordable housing are justified. In response to this lack of information, the Home Builders Association of Lexington and the Lexington-Bluegrass Association of Realtors (LBAR) requested that the Center for Business and Economic Researcher (CBER) at the University of Kentucky examine the issue of housing affordability in Fayette County. This report contains the results of our investigation.

The passage of the Kentucky Educational Reform Act (KERA) in 1990 had a dramatic impact on the funding of primary and secondary education in the state. The amount of money spent on education increased significantly with the passage of KERA with districts in rural areas of the state experiencing the largest growth in spending (Hoyt, 1999). This has led to a decline in the disparity between rural and urban districts in education spending. However, despite the increase in educational spending, Kentucky still lags behind the typical state in the U.S. in spending per student (Troske, 2008).

Although several studies examine the impact that KERA had on the level of spending, very little work has been done on the impact of KERA and on how the increase in education money is being spent. What evidence there is suggests that KERA may have impacted the allocation of education dollars in Kentucky. In 1996 Kentucky had the lowest ratio of teachers relative to total public school staff of any state in the country, so Kentucky appears to be spending a much larger share of its educational budget on administrative staff compared to other states (Hoyt, 1999). In addition, the share of money spent on teachers appears to have increased after KERA, particularly in rural areas which tend to receive a larger portion of their funding from the state (Hoyt, 1999). In Kentucky state dollars make up a much larger share of a district’s educational budget than in other states, and this lack of control over funding could lead to less efficient uses of resources.

Kentucky has consistently been one of the poorest states in the country between 1939 and the present. On top of this already low level of income, Kentucky has experienced fairly slow growth in output in recent years. Between 1997 and 2004, Kentucky had an average annual growth in real gross state product (GSP) of 1.6 percent, ranking 43 rd in terms of growth in GSP relative to the rest of the states.

In contrast to Kentucky’s relatively stagnant growth, many of Kentucky’s neighbors, especially to the south, have experienced relatively rapid growth in average earnings in recent years. In 1969, Georgia, Kentucky, North Carolina and Tennessee all had levels of average earnings that were 77-82 percent of the average earnings in the U.S., while Alabama had average earnings that were approximately 70 percent of the national average. By 2004, Kentucky’s average earnings remained at approximately 80 percent of the national average while average earnings in Georgia, North Carolina and Tennessee had grown to 90 percent of the national average, and average earnings in Alabama had grown to over 85 percent of the national average. In other words, while relative average earnings in Kentucky has been flat for the past forty years, average earnings in a number of southern states similar to Kentucky have experienced fairly rapid relative growth since 1969.

In this report, we examine whether there are identifiable factors that can explain why Kentucky remains mired at the bottom of the income distribution. We start by first estimating a standard growth regression using data from all the states in the continental U.S. to examine what factors are most important in explaining why some states have grown faster. For this part of the report, we draw on data from a number of sources covering the period from 1969 to 2004. Next we compare the growth of these factors in Kentucky with the growth of these factors in our comparison states: Alabama, Georgia, North Carolina and Tennessee. This comparison will allow us to identify which of these factors explain why these other states have grown faster than Kentucky. Finally, we examine various policies in our comparison states to see if we can identify specific policies that can explain why a given state experienced differential growth in one of these factors.