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Why college matters — and not just to the students who go

In the last century, the United States in general, and Minnesota in particular, was able to depend on agriculture and manufacturing to meet the supply of low- and mid-skilled labor. However, the changing economy, with its move toward high-tech jobs (including those in agriculture and manufacturing), is making higher education an increasingly necessary prerequisite to the Minnesota’s capacity for continued competitiveness, productivity and innovation.

Education has traditionally been the primary means for developing human capital in the United States, and economists and policymakers alike tend to agree that the key to a successful economy is a workforce that can fill high-skill jobs.

Promoting higher education provides other economic benefits in addition to developing a skilled workforce for our state.  Recent national research by H.J. Holzer and R.I. Lerman demonstrated that individuals who obtain an associate’s degree make 33 percent more, on average, than do individuals with only a high-school diploma; a bachelor’s degree brings, on average, 62 percent more than a high-school diploma.

Economists have also developed models to quantify some of the social benefits that spill over in urban areas with high concentrations of postsecondary-educated individuals. For example, interpersonal interactions are a means for passing information and skills between workers, thereby increasing productivity and producing economic benefits.  A.B. Krueger and M. Lindahl found that higher levels of education also reduce costs in an area via reductions in crime rates and lower welfare participation. It has also been argued that a higher proportion of postsecondary education attainment leads to positive indirect economic effects because a well-educated population makes better policy choices that affect the economy.

But, after wading through the theory, how might these economic spillover effects actually affect the average Minnesotan?

Spillover benefits
Higher education spillover benefits may be producing higher wages for all Minnesotan workers. In a 2004 paper, Enrico Moretti modeled the impact of density of individuals having obtained a postsecondary degree on wages in metropolitan areas. His model indicates that a 1 percent increase in the share of college-educated workers raises the wages of high-school dropouts by 1.9 percent, of high-school graduates by 1.6 percent, of individuals with some college by 1.2 percent and of college graduates by 0.4 percent. For example, if the share of college graduates in the Twin Cities metro area increased by 1 percent, the predicted increase in wages for a worker making $30,000 a year would be $114 for a high-school dropout, $96 for a high-school graduate, $72 for an individual with some college and $24 for a college graduate.

That may not sound like an incredible amount of money, but what if we increased the share of college-educated individuals in the Twin Cities area by 5 percent? Or, as Growth and Justice has suggested, 25 percent over the next 10 years?

That’s a lot of money.

Moreover, for Minnesota businesses, more money means more disposable income, which, at least theoretically, means more discretionary spending on goods and services to fuel the local economy. The extent of the local economic impact, of course, assumes that wages can rise faster than inflation, and that the beneficiaries of higher wages spend their money in Minnesota — or, even better, on Minnesota-made products.

Widespread, if hard to quantify, effects
Moretti’s isn’t the only model, and may even overestimate the increase in wages due to the external effects of postsecondary education density in the population. However, most researchers seem to agree that at the very least, a higher proportion of postsecondary-degree attainment in the population still correlates with higher wages for those who have earned the degrees, a marked reduction in crime rates and the development of a workforce that is more suited to the skilled jobs of the 21st century — all of which benefit the state and local economy.

It may be difficult to quantify the exact local economic benefit of higher education, but it doesn’t take an economist to realize that when people make more money, they spend more money. Spending money, in turn, supports local businesses, allowing them to hire more employees, creating more jobs.

In the end, as we think about ways to build up Minnesota’s economy coming out of this economic downturn, we should think about the ways that postsecondary education provides social benefits. Ultimately, an investment in higher education is an investment in jobs and the economy, not a drain on public resources providing benefits only to the few.

Lauren Benditt is a higher education policy associate at Minnesota 2020, a nonpartisan progressive think tank based in St. Paul. This article was originally published on its website.

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