November 20, 2015

What do colleges do for local economies?

People who complete a college degree generally earn more than those who have not attended college, but this earnings advantage is not the only benefit of a college education.

The college earnings premium also leads to greater economic activity, fueling prosperity at the regional and national levels, says a new research paper by Brookings author Jonathan Rothwell.

The paper finds that:

—The average bachelor’s degree holder contributes $278,000 more to local economies than the average high school graduate through direct spending over his/her lifetime.

—College quality greatly affects the size of these benefits. High value-added four-year colleges contribute $265,000 more per student to local economies than low-value-added four-year colleges.

Forty-two percent of alumni from four-year colleges remain in the area of their college after attending.

State and local governments, as well as their taxpayers, therefore have a very strong incentive to boost college attendance and completion, especially at higher quality institutions.

IZA World of Labor author John V. Winters has also explored whether higher levels of education and skills can benefit wider society. He feels that the “societal benefits of education may exceed individual benefits.” Winters argues that public policies that increase the numbers of college graduates—particularly STEM graduates who appear to have especially strong external effects due to their role in stimulating innovation and economic growth—through both higher domestic production of graduates and increased inflows of highly educated foreigners are likely to strongly benefit other workers in the same local labor markets. He recommends “improving primary and secondary maths and science education” and “relaxing or eliminating employment restrictions for [skilled] workers and streamlining the administrative process for both foreign workers and firms wishing to hire them.”

The Brookings paper can be read in full here

Related articles:
Do higher levels of education and skills in an area benefit wider society?, by John V. Winters

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