Source: Author’s calculations based on data from the Bureau of Labor Statistics, Tax Foundation, and the U.S. Bureau of the Census.
An organization calling itself "Michigan Future" gained a lot of
press attention recently with a report by its president, Lou Glazer, and
University of Michigan economist Don Grimes implying a causal relationship
between states having high income levels and also having a greater-than-average
proportion of college graduates.
A closer examination strongly suggests that this relationship is
spurious. Indeed, when one looks at rates of economic growth — not static
snapshots of current income levels — the evidence is mixed at best, and some
data even appears to suggest a negative relationship between growth and having
Clearly, if one is looking for the cause of economic growth or decline, the relative number of bachelor’s degrees in a state is a weak indicator at best.
For example, of the 10 states with the highest proportion of
college graduates, none were also among the 10 states with the fastest growing
per capita personal income between 2001 and 2006 (a useful period to examine
because it more or less covers the recent economic expansion). Only one of those
states with more graduates, Vermont, was also among the 10 states with the
fastest growing per capita state gross domestic product.
Turning that relationship over, only two of the 10 states with
the fastest growing per capita incomes also had a higher-than-average number of
college grads, and only four states with higher than average grads were in the
top 10 with the fastest growing per capita state GDP.
On the other hand, in research incorporating thousands of
observations over 46 years, Ohio University professor and Mackinac Center
adjunct scholar Richard Vedder did find a very weak correlation between a
state’s economic growth over longer periods (rather than the static income level
snapshots that are all Glazer and Grimes described) and having a
higher-than-average proportion of college degrees among the over-age 25
Before the university lobbyists go running with that information
to the Capitol, though, Vedder also discovered that higher spending from state
and local governments is correlated with lower per capita personal income growth
in a state.
For example, the proportion of personal income spent by Michigan
on higher education in 1980 exceeded that spent by Illinois by around one-third,
and exceeded Ohio’s spending by 15 percent. By 2000, Michigan had increased its
spending by nearly double the rate of Illinois, and by half again as much as
Ohio. Yet per capita income in Illinois grew much faster than Michigan, and Ohio
also grew a bit faster. Many similar examples could be provided.
Clearly, if one is looking for the cause of economic growth or
decline, the relative number of bachelor’s degrees in a state is a weak
indicator at best.
Glazer and Grimes didn’t say whether they examined other
variables. Had they done so, they might have focused on per capita state and
local tax burdens, because here the association with economic growth is much
more pronounced. Of the 10 fastest growing states in per capita personal income
between 2001 and 2006, only three had higher-than-average tax burdens and only
two of the fastest-growing per capita GDP states had high taxes. Two of those
exceptions in the first batch — Florida and Nevada — compensate by having no
state income tax. Nevada also has no state business tax. And unlike the number
of grads working in the state, tax burdens are something that Lansing directly
None of this is to say that individuals can’t improve their life
chances by acquiring a higher education. But the public policy implications of
that are by no means as pat as Glazer and Grimes suggest.
Here’s the gaping logic-gap that undercuts all the claims that
increased state higher education spending will "save" Michigan from its current
decline: If, because of a hostile business climate, employers can’t make money
and so don’t create jobs here — meaning that once they graduate, young people
must go elsewhere to find work — how does this state benefit from educating the
next generation of high-earners in fast-growing, low-tax states like Florida,
Alabama and North Carolina?
Michigan Future and the state university lobbyist corps put the
cart before the horse: Until Michigan’s tax, labor and regulatory policies are
repaired so that we become a place that attracts, not repels, investors and
entrepreneurs, all the new bachelor’s degrees in the world won’t do a thing to
restore our economy.
Jack McHugh is the senior legislative analyst and James M.
Hohman is a research assistant for the Mackinac Center for Public Policy, a
research and educational institute headquartered in Midland, Mich.
Permission to reprint in whole or in part is
hereby granted, provided that the authors and the Center are properly cited.