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Posted at 11:11 AM ET, 01/18/2011

Who does higher education spending help?

By Ezra Klein

Let's say Mississippi decides to spend a lot of money to help its four-year colleges graduate more students ready to join the cutting-edge of technological research. Who does that help?

Well, the students, of course. And those of us who benefit from their innovations. But, contrary to popular belief, Mississippi might not reap many of the benefits:

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.

In other words, if Mississippi graduates more students who can compete in cutting-edge jobs, those students will move to the states where those cutting-edge jobs are located, and those states will get their tax dollars, and a lot of the jobs their innovations create, and so forth. Now, that's not the end of the world, as America is one country and not merely 50 states, and so a major innovation in Silicon Valley is also good for Mississippi. But it's not a perfect alignment of incentives.

By Ezra Klein  | January 18, 2011; 11:11 AM ET
Categories:  Education  
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Mississippi will also be disappointed to learn (h/t @kaysteiger ;source: ):

"•45 percent of students "did not demonstrate any significant improvement in learning" during the first two years of college.
•36 percent of students "did not demonstrate any significant improvement in learning" over four years of college.
•Those students who do show improvements tend to show only modest improvements."


Posted by: chrisgaun | January 18, 2011 11:40 AM | Report abuse

Mississippi will probably be wasting the money.

"Indeed, 60 percent of the increased college graduate population between 1992 and 2008 ended up in these lower skill jobs, raising real questions about the desirability of pushing to increase the proportion of Americans attending and graduating from four year colleges and universities. This, along with other evidence on the negative relationship between government higher education spending and economic growth, suggests we may have significantly “over invested” public funds in colleges and universities."

We're spending a lot of money on higher education, which pushes up enrollment and prices, without getting much back in terms of results.

Posted by: justin84 | January 18, 2011 11:48 AM | Report abuse

While it's true that some students will migrate from their state, it's also true that some will want to stay near the campus. Ann Arbor Michigan has a lot of startups because of the presence of the University of Michigan and it's students and research facilities. Another good example is the biotech industry that grew up around the University of California at San Diego. Graduates who want to start cutting-edge business startups want to remain close to the cutting-edge research facilities at the college. However, there's more to creating the right atmosphere than just spending more on university research programs, but that's where you need to start. Another good step is to set up facilities where upperclassmen and graduate students can start a business while still at school and arrange for startup capital. It's not easy or simple to create that kind of synergy, but it needs to start with supporting advanced research at the university. That's the core.

Posted by: marvyT | January 18, 2011 12:00 PM | Report abuse

marvyT, that was basically what I was going to say. I'm sure that in the short term states with established industries will benefit more than other areas if more graduates in related fields are produced, but if there's a groundswell of new talent in an area that doesn't already have presence near the school, there's a chance that either those students will form businesses near their school or smaller firms will relocate nearer to the school to take advantage of the school's talent.

Posted by: MosBen | January 18, 2011 12:34 PM | Report abuse

This post is unduly pessimistic about the possibility of state investments in education paying off for the state. Other research contradicts the cited research.

For example, research shows that about 70% of Americans spend most of their working career in the state where they spent their childhood, and about 55% will live in their childhood metro area. These percentages do not dramatically dip for metro areas with more troubled economies. Even among college graduates, over half spend most of their working careers in their state of birth.

I elaborate on this more in a post at my blog. This blog and its related book is focused on a different but related issue: how much do a state's investments in early childhood programs pay off for that state. I find substantial payoffs.
(I don't know how the Post's software allows for direct links, but if you're interested, search for "bartik" and "investing in kids", and you'll get the blog, and then search the blog for "stayers", and you'll find the post I am referring to.)

Tim Bartik, Senior Economist, Upjohn Institute

Posted by: bartik | January 18, 2011 12:53 PM | Report abuse

Another follow up in the "no not really" category...

Why is it that certain places become places that have cutting edge jobs? People are actually rather wont to move around. We do so more now, but mostly we still don't. It's nice to live near family and friends.

If a state starts doing a very good job of educating its populous, then it may see a short term drain, but if the state keeps at it, then it will have a well educated population that will start businesses right there. It will also be an impetus for large companies to move or setup a branch there to take advantage. RTP between Raleigh and Durham isn't there because of the weather. It's there because there are 4 very good universities within half an hour.

Posted by: jakek | January 18, 2011 1:05 PM | Report abuse

I have two free degrees courtesy of Ohio taxpayers, and have lived/worked in NC since graduating. So this does indeed happen.

Posted by: mutterc | January 18, 2011 1:09 PM | Report abuse

"Put another way, Massachusetts, California, or New Jersey may benefit more from an investment in Mississippi’s research universities than Mississippi does. "

This has actually been happening the other way around.

States like CA and NJ dump money into higher education. People graduate and then head to VA, NC, TX where the jobs are.

Posted by: krazen1211 | January 18, 2011 1:50 PM | Report abuse

The United States has an industrial policy whereby it establishes research laboratories and sends money to government contractors in states like Mississippi for the specific purpose of keeping the smart and talented students in-state rather than requiring them to move to where the jobs would otherwise be.

That is why they have the Stennis Space Center in MS and the aerospace industry in Huntsville, AL. It's not a lot, but there are plenty of smart people who grew up in MS that would want to stay there if they could, and the government is willing to promote that.

Posted by: constans | January 18, 2011 1:56 PM | Report abuse

A willingness to facilitate the theft, and then the expenditure, of other people's money is in no way evidence of a great wisdom in directing said expenditure.

I think only of the value stolen from the fair citizen, and the things he or she might have spent that money on, in service to his or her own needs, technologically oriented or otherwise.

Posted by: msoja | January 18, 2011 2:16 PM | Report abuse

On the other hand, if Mississippi created great research universities and research centers around those universities, the state could probably lure companies involved in that technology, etc., to locate there.

Isn't that what happened around MIT and Stanford?

Thus, the graduates wouldn't have to move.

Posted by: valkayec | January 18, 2011 3:09 PM | Report abuse

Just ran across these apropos quotes:

"for each effective government intervention, there have been dozens, even hundreds, of failures, where public expenditures bore no fruit."


"the myth that 'green jobs' are a boon to the economy keeps getting pierced by failed green jobs boondoggle after failed green jobs boondoggle."

It's difficult enough for people to weigh the risks of investing when it's their own money. It's another matter altogether when one is playing with other people's money and there are no real consequences for guessing wrong.

Posted by: msoja | January 18, 2011 4:45 PM | Report abuse

Another point is that MS does not necessarily need to invest in education to promote high technology research. They can invest their education dollars on the "cutting edge" of whatever their local industries are. No one is going to move up to Boston or Silicon Valley if they're specialists in local agriculture issues or gulf-coast oil drilling.

States make a mistake in thinking they have to compete head-to-head with other states who have high-profile industries, when in fact they should probably concentrate at promoting whatever they have a local advantage in or attracting industries that other states don't compete in at all.

Posted by: constans | January 18, 2011 6:31 PM | Report abuse

--*Another point is that MS does not necessarily need to invest in education [...]*--

They could just allow their citizens to keep their own dough and do what they want with it.

But, of course, the busybodies and meddlers can never allow that to happen. They've got to further their own interests, via the force of the state.

America has become a swell place.

Posted by: msoja | January 18, 2011 11:32 PM | Report abuse

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