Higher education has long been associated with better individual labor market outcomes, but there is also a strong body of evidence that increasing higher education rates in an area improves the labor market conditions of all workers in the area, including those with minimal education. Thus, higher education benefits those who invest in it, but the benefits also spill over to society more broadly. College graduates educated in science, technology, engineering, and mathematics (STEM) fields appear to create especially large labor market benefits for other workers in the same local labor market.
Why do highly educated workers benefit their less educated neighbors? There are at least three leading explanations. First is that individuals learn useful knowledge and skills from interactions with co-workers, friends, and neighbors. Living in a more educated area allows an individual to learn more, whether intentionally or unintentionally. The knowledge and skills gained make them more productive so they can earn more. A second explanation is that highly educated workers develop new ideas and innovative production processes that create new jobs for other workers in the area, including less educated workers. A third explanation is that highly educated workers achieve high income themselves and then use their higher incomes to purchase more locally produced consumer goods and services, which creates jobs for less educated workers. All of these mechanisms involve a spatial component such that individuals benefit primarily from highly educated workers in the same labor market. The gains decrease with distance, and disconnected workers in remote areas benefit the least.
There is still some debate about the size of the labor market benefits that flow from highly educated to less educated workers. The majority of the studies find at least moderately large positive effects, and some studies find especially large effects. There is probably some variation in the impacts across countries and over different time periods. Improvements in communication technology and increased globalization may increase the spatial footprint of benefits from highly educated to less educated workers, but there are expected to be significant labor market benefits of physical proximity and face-to-face interactions for the foreseeable future.
The existence of labor market benefits of highly educated workers for their less educated counterparts suggests that public policies should continue to encourage more investments in higher education, especially in STEM and other fields that have significant labor market benefits for both the individual graduates and the rest of society. For countries and regions that are attractive to highly educated immigrants, lowering barriers to skilled immigration would help grow their educated workforce. For many other areas, improvements in education policy and practice are needed to expand their own college-educated workforce. This likely involves an increased emphasis on primary and secondary STEM education, including more instructional time and additional resources outside the class. These investments are likely well worth the costs.
© John V. Winters
Read John V. Winters's IZA World of Labor article “Do higher levels of education and skills in an area benefit wider society?”
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