Report Details Importance of Education, and Risks of Inflation, on Kentucky’s Economy

LEXINGTON, Ky. (Feb. 7, 2023) — After years of increasing educational progress, Kentucky is losing ground to other states. This is one of the key findings in the 2023 Kentucky Annual Economic Report, which was released today by the Center for Business and Economic Research (CBER) — the applied economic research branch here at the Gatton College of Business and Economics.

“While the pandemic has likely contributed to our stalled K-12 progress, this trend appears to predate COVID,” according to Dr. Michael Clark, director of CBER, when describing Kentucky’s lack of educational progress in recent years. Clark noted that “there are many factors affecting economic success, including a culture of innovation and entrepreneurism, widespread internet access, favorable tax policies, and infrastructure development—but education is the most important factor for the state’s future economic prosperity.”

The report is one of the many ways CBER fulfills its mandated mission as specified in the Kentucky Revised Statutes to examine various aspects of the Kentucky economy. CBER performs research projects for federal, state and local government agencies, as well as for private sector and nonprofit clients nationwide.

The report covers a variety of issues ranging from an economic outlook for the Commonwealth in 2023 to a comprehensive presentation of agricultural, community, economic, economic security, education, energy, environment, equity, health, infrastructure, innovation, population and public finance factors affecting Kentucky’s future economic prosperity.

With more than one hundred trends, forces and factors affecting Kentucky’s economy presented in the volume, Dr. Clark said that “many people, from business leaders to politicians to citizens, will find relevant information in the annual report.”

Besides the state’s educational status, a number of other issues, such as the possibility of a recession and nagging inflation, promise to attract growing attention of state leaders.  “In the short- and medium-term, the path of inflation and the possibility of a recession represent serious and immediate challenges for the economy,” said Clark. “However, systemic challenges such as workforce development, labor force participation, health security, and racial, gender, and ethnic disparities represent long-term economic challenges for the Commonwealth.”

Most economic sectors have recovered from the pandemic downturn. By mid-2022, Kentucky’s private employment totals equaled their pre-pandemic levels according to the report. However, many workers who left their jobs during the pandemic, particularly parents of young children and those close to retirement, have not returned to the labor force. For example, Kentucky’s employment-population ratio declined from 56.2 percent to 55.4 percent, a decrease of 0.8 percentage points, from February 2020 to November 2022. “This is troubling,” said Clark, “because Kentucky already had one of the lowest labor force participation rates among prime working-age adults in the country.”

In addition to statewide data, the report provides regional comparisons across the Commonwealth. These comparisons show that some areas have suffered disproportionate economic hardships—before, during, and after the pandemic’s peak. "One of the priorities of the Gatton College is to help promote economic growth throughout the state of Kentucky," Dean Simon Sheather added. "Our goal with the 2023 Economic Report is to help inform Kentucky business leaders, politicians, and citizens with relevant information that assists in the decision-making process that can aim to improve Kentucky's economic prosperity."

Digital copy of the 2023 Kentucky Annual Economic Report.