Can States Use Higher Education as an Economic Tonic?

Politicians in three Midwestern states – Michigan, Indiana, and Wisconsin – have lately been working on plans that are based on the idea that higher education can spur state economies along to better performance. While the details differ somewhat, all are rooted in the concept that increasing the number of residents with college educations is an investment for the government. Put some money in now, get much more money back later.

Will it work?

In Michigan, Governor Jennifer Granholm calls the new Michigan Promise scholarship a cornerstone of her economic plan to revive Michigan’s lagging economy. The program provides a $4,000 scholarship to students who complete two years of post-secondary education at a two- or four-year school in Michigan, public or private, provided that they have a GPA of at least 2.5. In her press release, Governor Granholm stated, “A $4,000 scholarship makes earning a college degree or technical certification a real possibility for every student. It’s an amazing opportunity for our students and a critical necessity for our economy.” This new scholarship is part of an effort by the state to double the number of college graduates within the next decade.

Indiana’s legislation creates “Hoosier Hope Scholarships” which will give annual stipends in the form of forgivable loans to “outstanding” students who attend a college or university in Indiana and agree to work in the state for three years after they graduate. Governor Mitch Daniels said, “(W)e must keep more of the graduates of (Indiana’s higher education) system here at home, helping build our future.”

Politicians in Wisconsin are considering a proposal that would grant free tuition to students who attend one of the Dairy State’s public colleges or universities, providing that they agree to work in the state for ten years after graduation. According to a story in the Milwaukee Journal-Sentinel, proponents say that “a captive work force of college graduates would attract new industry to Wisconsin, along with higher-paying jobs.” They point to Ireland as a case where a similar policy has brought about an economic boom.

Now, it’s true that on average, people who have college degrees earn substantially more than do people who don’t. It’s also true that many businesses prefer to hire people who have more formal education than less, often making it a requirement that applicants for all but menial jobs have college degrees. So doesn’t it stand to reason that if a state has a large number of college graduates – especially if they’re “captive” – it is going to enjoy higher income and more business growth? Could all those earnest politicians of both parties be mistaken?

I think they are. Trying to pull a state’s economy up by putting a somewhat larger number of students through some post-secondary schooling and keeping them in-state afterwards will have far more cost than benefit. It will be an un-investment.

The first and most important point to understand is that just because on average people who have college degrees earn more, it does not follow that everyone who gets a college degree will enjoy a big earnings boost. The average for the college-educated group is pulled way up by very successful business and professional people, many of whom went to college decades ago when academic standards were higher and the curriculum more rigorous. Instead of looking at such meaningless statistics, we should ask whether there is reason to believe that marginal students necessarily benefit from getting a college degree.

In 21st century America, about 70 percent of high school graduates already enroll in some post-secondary education, a figure that includes virtually all of the students who have moderate to strong academic ability. Therefore, increases in the number of students will come from those of rather weak academic interest and ability. So these states will be giving away a lot of money – most of it to students who would have paid the full tuition at state schools – in quest of a few additional students who aren’t academic whizzes. For such students at the low end of the educational totem pole, a college degree is apt to give them little or no benefit, as I argued in my paper The Overselling of Higher Education.

What about the idea of trying to keep college educated students in the state? Won’t it help to stem the “brain drain” if graduates know that if they leave, they’ll have to pay a large amount back to the state?

No, because the condition of the economy will be the same no matter whether jobs are filled by “natives” or “foreigners.” If a firm in Michigan, for example, needs to hire someone new in information technology, it doesn’t make the state any better off if the person hired earned his college degree in Michigan or in some other state. Except for business entrepreneurs and self-employed people, nearly everyone is employed in jobs provided by companies, government, or non-profit organizations. Neither the total amount of employment nor the kinds of jobs available are going to be affected by policies to subsidize college attendance and to try holding people in-state.

The mirage these politicians are chasing is that a “smarter” workforce will give a big boost to productivity, thereby pulling the economy upward. But instead of an upward pull on the economy, the result is downward pressure on workers who don’t have college degrees and now find themselves competing with college graduates for low-level jobs that don’t call for any particular academic preparation. In their book Who’s Not Working and Why, economists Frederic Pryor and David Shaffer point out that the glut of college graduates is spilling over into “high school jobs” and worsening the employment prospects for workers lacking in formal education credentials.

Britain has had the same experience. The Blair Government’s policies of encouraging more and more students to go to college hasn’t led to an economic surge. Instead, it has led to a great many new graduates who are underemployed, as British education expert Tom Burkard explained in a Clarion Call from last October.

All right, but what about Ireland? Indeed, Ireland has been experiencing an economic boom, but its education policies aren’t the reason. Capital and labor have been attracted to Ireland because of its low taxes and comparatively laissez-faire approach to business. If Michigan, Indiana and Wisconsin want to enjoy similar prosperity, they need to transform themselves into places that will attract investors. Without that, it won’t matter what education policies they follow.

Trying to promote higher education more than it currently is will only have the result of further depressing academic standards. Since any expansion of the student body will overwhelmingly come from those who have at best marginal academic skills and interest, the pressure to keep them in school will lead to courses being watered down and easier grading. Government policies almost always have hidden costs and the field of education is no exception.