College Attainment and Prosperity

By Richard Vedder

There is absolutely no doubt that richer states have a large proportion of adults who are college graduates. Tom Mortenson in the last issue of Educational Opportunity has a nice scatter diagram that demonstrates that point, and notes, no doubt correctly, that the correlation between per capita income and attainment of a bachelor's degree or more has grown over time. In my own statistical work using somewhat more sophisticated statistical procedures, I obtain very similar results.

But then Tom and I part company. Mortenson says "If a state were interested in increasing its per capita personal income...then it should focus on increasing the share of its population age 25 and over with at least a bachelor degree." He then asks the question, "So why have states reduced their investment efforts in higher education by 32 percent since FY1980?"

Implicit in Mortenson's question is an assumption that, it turns out, is completely erroneous. He assumes that increasing state appropriations for higher education (his "investment") leads to a greater proportion of the population with bachelor's degrees. Yet using the Mortenson simple correlation approach, Whiz Kid Matt Denhart finds no such relationship exists. The simple correlation in 2005 between per capita state appropriations and the percent of the over 25 population with at least bachelor's degrees is -0.246 --more appropriations, a lower proportion of graduates among the adult population. You could argue that "today's adult college graduates were educated in previous years -- what is relevant are appropriations at earlier points in time. So we took the average of appropriations over 4 years (1975, 1985, 1995, and 2005) and correlated them with BA or greater attainment --again, we obtain a slightly negative result.

Matt did some other interesting things, which I am encouraging him to put in future blogs, op-eds, etc. We see North Carolina, with high levels of per capita spending (thanks largely to former governor Jim Hunt) with relatively low levels of BA attainment (compared with neighboring states. Several New England states and Colorado, with very high levels of educational attainment, have relatively low spending levels. Fairly high spending Iowa has lower educational attainment than most of its lower spending neighbors, and so on.

One factor at work may be migration. States that have high taxes to finance high university expenditures may have lackluster economies that drive recent college graduates to move to other states, for example. Our research shows that higher tax burdens are associated with lower income growth. In states with traditionally high emphasis on private higher education - New England -states like Massachusetts, New Hampshire, Connecticut and Vermont, for example, people use private funds to finance their children's higher education investment in private school more than in states without that tradition. Also, as state appropriations grow, so do university bureaucracies and the salaries of employees --money goes from the pockets of taxpayers who work in the efficient private sector and into the pockets of those in the far less efficient public sector. My reading of the evidence is clear: the reduction in higher educational effort by state governments is rational behavior, and rather appropriate --indeed, it needs to go farther.