The long-term health of each state's economy rests on the state's ability to educate and eventually employ citizens who contribute to its economy by filling jobs in a variety of sectors. With the globalization of the economy and shifts in supply and demand for a wide variety of occupations, students in public schools need effective teachers and effective principals to achieve at higher levels and to compete both nationally and internationally. Teacher effectiveness is the primary influence on student achievement, followed by principal effectiveness. Given this reality, state efforts to improve student achievement should focus on workforce policies and practices, and on workforce funding decisions that improve the quality of the education workforce. To do this, governors should consider a comprehensive human capital approach that strategically invests in teachers and principals and that, in turn, can improve student outcomes. Governors should consider two approaches when adopting a comprehensive human capital approach to build a high-quality education workforce. The first is a cost-neutral approach that includes the redistribution of funds from ineffective human capital investments that do not result in student achievement gains to investments that are more strategic in nature and that show promise in terms of their effectiveness. This approach requires an examination of state policies, regulations, and legislation that pertain to the public education workforce. The second approach requires new and sustainable investments in the way teachers and principals are recruited, trained, and compensated. In the current economic situation, this approach may encounter resistance in terms of the costs associated with the investments. However, connecting new and sustainable investments in human capital with larger economic initiatives within a state may diminish such resistance. Research on effective teaching and school leadership points to three areas of concern in the education workforce: how teachers and principals are recruited into the profession, how teachers and principals are trained and licensed, and how to retain effective teachers and principals once they enter the profession. These three problems serve as the basis for each of the guide's three strategies for states: (1) Selectively recruit prospective teachers to the teaching profession and effective teachers to school leadership positions through more rigorous admissions standards to preparation programs and through investments in compensation models to change market conditions; (2) Improve the preservice training of prospective teachers and principals to ensure that teachers and principals are prepared to improve student achievement; and (3) Work to retain the most effective teachers and principals by developing pay for contribution compensation models; monitoring and improving working conditions; providing teachers and principals with feedback about their effectiveness; and developing data systems that provide states with valuable information about the recruitment and retention of effective teachers and principals as well as about teacher and principal effectiveness. The guide includes recommendations for state action on each strategy. It includes examples of both cost-neutral strategies and strategies that require new and sustainable investments to provide states with a range of options as they consider improving the education workforce. (Contains 4 footnotes and 80 notes.)