Regional prosperity increasingly linked to four-year degrees

In my last post we look at the growing wage premium for those who have a four-year degree or more. Debunking the conventional wisdom that our kids are now better off foregoing a four-year degree to go into the skilled/professional trades.

In this post I want to explore the importance of four-year degrees to state and regional prosperity. A core finding of our research is that states with high per capita income––except for energy-driven states––share four characteristics

  • They are over concentrated in knowledge-based industries
  • They have a high proportion of adults with a four-year degree
  • They have at least one big metropolitan area with even higher knowledge-based industry and college-educated adults concentrations
  • They have a vibrant central city that anchors their big metro(s)

In 2015 of the top fifteen states in per capita income, three were energy driven. Of the other 12 all were in the top 15 in the proportion of adult with a BA or more. Michigan was 32nd in per capita income and 32 in college attainment.

Joe Cortright of Impresa, Inc. has been researching for decades the common characteristics of prosperous metropolitan areas. He has found that, just like states, the single best predictor of regional prosperity is the proportion of adults with a four-year degree or more.

He recently updated the data. He writes:

The data presented here imply that a 1 percentage point increase in the four-year college attainment rate is associated with about a $1,250 per year increase in average incomes in a metropolitan area, an increment we refer to as the Talent Dividend.  This cross-sectional relationship suggests that if a metropolitan area were to improve its educational attainment by one percentage point on a sustained basis, that it would see a significant increase in its income.

Over time, the strength of this relationship, and the size of the talent dividend effect has been increasing.  When we computed the relationship using 2010 data, the correlation coefficient was .60 (.67 in 2016) and the size of the talent dividend was $860 (in current dollars).  These data suggest that educational attainment has become even more powerful in determining economic success than just a few years ago.

The most prosperous region in the Great Lakes is Minneapolis. Its college attainment rate is 40.5% with a per capita income of $56,723. By contrast metro Grand Rapids has a college attainment rate of 31.7 percent and a per capita income of $46,519. Metro Detroit has a college attainment rate of 30.4 percent and a per capita income of  $48,692.

Cortright  describes the bottom line this way:

This chart tells you the most important thing you need to know about urban economic development in the 21st century: if you want a successful economy, you have to have a talented population. Cities with low levels of educational attainment will find it difficult to enjoy higher incomes; cities with higher levels of educational attainment can expect greater prosperity. As Ed Glaeser succinctly puts it: “At the local level fundamentally the most important economic development strategy is to attract and train smart people.” And critically, because smart people are the most mobile, building the kind of city that people want to live in is a key for anchoring talent in place. And, importantly, the economic research shows that the benefits of higher educational attainment don’t just accrue to those with a better education: people with modest education levels have higher incomes and lower unemployment rates if they live in metro areas with higher average levels of education.

Exactly! No Michigan does not have too many residents with a BA. No metro Detroit does not have too many residents with a BA. No metro Grand Rapids does not have too many residents with a BA. The exact opposite is the case. The state and its two biggest regions need to get more college educated to be high prosperity. End of story!

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