While once focused on the “Big 3,” the region is now producing a much more diverse set of products, such as foods, computers and electronics. And, the manufacturing companies that remained are leaner and have an even higher-skilled workforce than in the past. Fortunately, Rochester has also experienced significant job growth outside of the manufacturing sector. The regional economy added over 44,000 non-manufacturing jobs since 2000, keeping its overall employment fairly steady. The vast majority of these jobs are in the education and health sectors, which together have grown by more than 40 percent over the past 15 years in Rochester. Many of the jobs added in these sectors are high-paying jobs. And, importantly, these sectors tend to be less susceptible to cyclical downturns than other parts of the economy, which helps make the region more stable. There has also been solid growth in business services, leisure and hospitality and even construction. The importance of workforce development With today’s economy going through such enormous change, what people do in the workplace and how they do it is also changing significantly. It is no longer the case that people can easily find good-paying, career-oriented jobs with a high school diploma. The jobs of today typically require more knowledge, skill and flexibility. Often, this means that today’s workers must invest more in education and training than earlier generations. In addition, the depreciation rate for many skills is much higher now than in the past. This requires workers to continuously reinvest in skill development.

To put it very simply, incentives drive behavior, and behavior establishes the social norms that drive culture. If the incentives are wrong and accountability is weak, we will get bad behavior and cultures. This implies a role for both firms and supervisors. Firms need to continually assess their incentive regimes so that they are consistent with good conduct and culture. When they are not consistent, the incentives need to be changed. Supervisors should also play a role in assessing firms’ incentive structures. For example, they should evaluate: 1/3  BIS central bankers' speeches  How is compensation determined? In particular, is questionable conduct―such as compliance violations―consistently reflected in decisions about compensation and promotion? Do risk managers have the appropriate authority to challenge frontline revenue producers and prevent activity that is questionable? When that occurs, are there appropriate negative consequences for the frontline revenue producers? When people speak up to point out potential conduct issues, how are they treated? Are they held up as examples to emulate, or are they discouraged or even penalized? The answers to these questions should indicate whether incentives must be changed in order to foster the appropriate behaviors and culture. The primary responsibility for reforming culture—and changing incentives—belongs to the industry. However, the industry does not act alone. The public sector can play an important role as well. I’ll discuss that issue this morning with my colleagues Norman Chan, chief executive of the Hong Kong Monetary Authority, and Minouche Shafik, deputy governor of the Bank of England.