As Michigan attempts to rebound from what some observers have
called a "one-state recession," many have called for more government spending at
colleges and universities, in hopes that more college graduates will equal
higher personal incomes. The evidence, however, does not support this theory,
according to one expert.
Richard Vedder, distinguished professor of economics at Ohio
University, spoke at an Issues and Ideas forum hosted by the Mackinac Center for
Public Policy, explaining that there is a weak correlation, at best, between
spending more tax dollars on higher education and any increase in a state’s
Vedder has extensively studied the relationship between economic
growth and state appropriations to universities. In a series of empirical
analyses, he found that there was, if any, a
relationship between a state’s spending on higher education and the growth of
its personal income.
In comparing similar states, Vedder stated that even though
Michigan’s higher education appropriations have historically been higher than
those of its neighbors, Illinois and Ohio, Michigan devoted a much higher
portion of its personal income to higher education than the other two, and yet
it grew the least out of the three states. The same holds true for other states:
North Dakota and South Dakota, New Hampshire and Vermont, Kentucky and
"In every case, the state with the smaller higher education
commitment had higher rates of economic growth," Vedder observed.
Vedder explained a few reasons why spending more money on higher
education will not lead to greater economic growth. The first is that spending
more money on higher education does not mean that more students graduate from
college. In his analysis of the relationship between state higher education and
economic growth, he did find that a 20 percent increase in state appropriations
leads to a 1 percent increase in students attending college, a large cost for a
"What is important is not getting the kids into college so much
as getting them out, making them graduates," Vedder said.
Vedder found that there was no relationship between state
spending on higher education and the percent of the state population with a
Second, he argued that getting students to college does not
necessarily make them better workers.
"In fact, much of the higher earnings of college grads come not
from what they learn in college, but from positive traits they had before
entering," he said. "Employers are largely prohibited by law to test applicants
in various ways, so a college degree is a legal way for employers to get
information to screen out unproductive workers from productive workers."
Because of this, Vedder argues that spending money on higher
education would be an ineffective way to grow the economy. While there is not
much evidence to suggest that state appropriations lead to higher growth, there
is a huge body of evidence to suggest that lowering personal income taxes does,
Vedder observed. If policymakers were deciding between the two methods of
growing the economy, the evidence falls in favor of the tried and true.