One View of State Budgets and Higher Education

I start out with the belief that investment in higher education is in general a good thing. However, I’ve been worried by the decline in real college grad wages.

 I came upon this 2009 Brookings paper, “The Causal Impact of Education on Economic Growth:Evidence from U.S.”, by P. Aghion , L. Boustan , C. Hoxby, and J. Vandenbussche. Let me take two excerpts from the beginning and end of the paper: 

Should countries or regions (generically, “states”) invest more in education to promote economic growth? Policy makers often assert that if their state spends more on educating its population, incomes will grow sufficiently to more than recover the investment.

 //giant snip//

We find support for the hypothesis that some investments in education raise growth. For the U.S., where all states are fairly close to the world’s technological frontier, we find positive growth effects of exogenous shocks to investments in four-year college education, for all states. We do not find that exogenous shocks to investment in two-year college education increase growth.

This suggests that the money would used equally productively elsewhere. We find that exogenous shocks to research-type education have positive growth effects only in states fairly close to the technological frontier. In part, this is because research-type investment shocks induce the beneficiaries of such education to migrate to close-to-the frontier states from far-from-the-frontier states. Put another way, Massachusetts, California, or New Jersey may benefit more from an investment in Mississippi’s research universities than Mississippi does. Finally, we show that innovation is a very plausible channel for externalities from research and four-year college type education. Exogenous investments in both types of education increase patenting of inventions.

What conclusion should I draw from this paper?  Should we put more money into research-related education spending and four-year schools, and less into two-year colleges? Or are we missing something important here?

Who Got the Wage Gains, 2000-2009

This weekend I’m writing a draft of my new paper, “Biosciences and the Long-Run Economic Recovery.” Along the way I came up with three charts that I thought I’d share with you. I’m not going to put much gloss on these, because they are pretty much self-explanatory, and because I need to get back to the paper.

This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from 2000 to 2009 (all in 2009 dollars). Next biggest was state and local government, which generated $151 billion in real wage gains. (The exact numbers change a lot if I change the end dates, but the pattern stays the same).

On the other hand, the big losers were manufacturing (-$245 billion), information (-$56 billion), retail trade (-$24 billion), and transportation and warehousing (-$6 billion). It’s interesting that the industries in the global supply chain were the big losers in real wages, but I’m not sure quite what to make of it.

Now I’m going to take the same data and cut it by federal govt, state and local govt, and private sector. The short answer is that the public sector accounted for 55% of real wage gains between 2000 and 2009, while the private sector only accounted for 45%. Once again, this is not necessarily a surprise, but it’s still interesting.

Now we get to the third chart (having fun with 3D pie charts–like it?). What we see is that health and education (public and private) accounted for an amazing 75% of real wage and salary gains between 2000 and 2009. The rest of the economy–only 25%.  Make that what you will.

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