What region wouldn't want to be the next Silicon Valley or Research Triangle? It's not an impossible goal with the right policies and investments in higher education. While it's intuitive that an educated population, good jobs, and prosperity go hand-in-hand, this study proves the strong relationship between educational attainment and a region's economic performance. The research is also unique: We created the first-ever data set of educational attainment by occupation and industry to examine these relationships, as measured by metropolitan statistical area (MSA) real income and real gross domestic product (GDP) per capita. The purpose is to provide a blueprint for policymakers, educators, business executives, and civic leaders to follow in boosting education and skills training in their regions.
What Did the Analysis Reveal?
Our analysis clearly demonstrates that a region's economic fortunes are closely tied to the quality of its workforce. Our major findings are:
- Education increases regional prosperity: Adding one extra year to the average years of schooling among the employed in a metropolitan area is associated with an increase in real GDP per capita of 10.5 percent and an increase in real wage per worker of 8.4 percent. Take Danville, VA, for example. Average years of schooling in the metro rose 1.1 years to 13.18 from 1990 to 2010. This boosted real GDP per capita by 12.2 percent or $3,440.
- Better educated, bigger benefits: The benefits of additional schooling to regional economies are even higher for better-educated workers. Adding one year of schooling to the average educational attainment among employed workers with at least a high school diploma is associated with an increase in real GDP per capita of 17.4 percent and an increase in real wage per worker of 17.8 percent. In contrast, an additional year of education for workers with just nine or 10 years of schooling has little effect on real GDP per capita and real wage per worker.
- Certain industries lead to higher returns: The returns to investment in education appear to be higher in some industries than in others. Given the same average years of schooling among the workforce, the returns to one more year of education are the greatest in metros with a large employment share of business and IT services industries, which involve high-skilled jobs.
- Clusters count: In metros with clusters of high-skilled occupations, the share of workers holding at least a master's degree is much higher than in metros without significant clusters, perhaps because of the intense competition for employment. In metros with clusters, we also found that skilled occupations are highly concentrated in a handful of industries. Combined, these findings demonstrate that a region's mix of industries contributes to differences in educational attainment within occupations.
How Does Education Drive Economic Prosperity?
Controlling for other factors such as the age composition of the workforce, industry mix, R&D intensity as measured by patents per capita, and other structural differences, we were able to estimate the marginal rate of return of an additional year of schooling to the regional economy. The result? The overall explanatory power of the relationship is strong and robust. Over 70 percent of the variation in real GDP per capita across the 261 metros from 1990 to 2010 is explained. (For details about the methodology, see the full report.)
What Policy Changes Do We Recommend?
Our findings provide a compelling argument for strategic investments in higher education to enhance regional economic competitiveness and, by extension, U.S. competitiveness overall.
Our five key policy recommendations for governments, educational institutions, and businesses include:
- Make higher education more affordable.
- Make higher education more accessible.
- Increase higher education graduation rates.
- Strengthen coordination between higher education institutions and industries.
- Promote research and development.