A Well-Educated Workforce Is Key to State Prosperity

Posted by on September 02, 2013

Investing in Education Will Build a Stronger PA Economy

The best way for Pennsylvania to grow its economy is by investing in a well-educated workforce, according to a new study from the Economic Analysis and Research Network (EARN), a network of 61 state/local and 25 national economic think tanks coordinated by the Economic Policy Institute.

As college students return to campus and children head back to the classroom, this new report finds a strong link between the educational attainment of a state’s workforce and both productivity and workers’ pay. Expanding access to high-quality education will create more economic opportunity for Pennsylvania residents and do more to strengthen the state’s overall economy than anything else.

“To paraphrase James Carville, ‘it’s invest in education, stupid,’” said Dr. Stephen Herzenberg, economist and executive director of the Keystone Research Center, a member of the EARN Network. “The powerful evidence that states making investments in education have more robust economies raises fundamental questions about recent Pennsylvania policies.”

The report, Education Investment is Key to State Prosperity, was authored by Noah Berger, president of the Massachusetts Budget and Policy Center, and Peter Fisher, research director at the Iowa Policy Project.

At the heart of the paper is evidence that states with larger increases in college-degree share from 1979 to 2012 enjoyed faster productivity growth

– For example, the top 10 states (measured by change in education levels) increased their share of adults (25 and over) with a bachelor’s degree by an average of 18 percentage points, twice as much as the 9 percentage points in the bottom 10 states.
– The top 10 states also experienced productivity growth nearly twice as large: 82% versus 44% in the bottom 10 states. Investment in education by a state is also associated with higher living standards for typical workers. Top 10 states (measured by the increase in college-degree share) saw median compensation (pay plus benefits) rise by about 20% compared with barely any increase in bottom 10 states (4%)

The relationship between education and pay was much weaker before 1979, in part because large numbers of high-paid manufacturing jobs lifted up the wages of non-college workers. “It is more important now than ever that we invest in education, to boost the strength of the economy and for the sake of future generations of Pennsylvanians,” said Dr. Herzenberg.

Pennsylvania had the 12th-biggest increase in college-degree share since 1979 but still ranks in the middle of the pack, 26th, based on 2009 Census data. The large share of Pennsylvania adults with no education beyond high school also holds back the state’s productivity and wage levels, helping to explain why Pennsylvania had only the 28th largest increase in productivity since 1979, and the 33rd largest increase in compensation.

Of Pennsylvania’s neighbors, New Jersey and Maryland enjoyed top 10 increases in college-degree share and top third increases in productivity and median compensation. At the opposite end of the spectrum, West Virginia and Ohio finished 30th and 43rd, respectively, for the change in college degree attainment and 43rd and 46th measured by change in median compensation.

According to the new study, Pennsylvania can increase the educational attainment of its population by investing in quality K-12 education, working to slow the growth of college tuition, and offering universal preschool programs. However, recent trends in Pennsylvania have gone in the opposite direction, with state budget cuts to higher education and K-12 schools, including funds that were used for full-day kindergarten and pre-K programs.

Meanwhile, the research evidence shows, cutting taxes to recruit employers from other states is shortsighted, promoting a race to the bottom that undermines states’ ability to invest in and attract an educated workforce. The paper finds no consistent relationship between a state’s tax rates and its wages.

The EARN study is available at http://www.epi.org/publication/states-education-productivity-growth-foundations/. Additional resources on education funding in Pennsylvania are available from the Pennsylvania Budget and Policy Center at http://pennbpc.org/PA-education-funding.

The Keystone Research Center is an independent, nonpartisan research organization that promotes a more prosperous and equitable Pennsylvania and U.S. economy. Learn more at http://keystoneresearch.org.

The Economic Analysis and Research Network (EARN) consists of 25 national and 61 state and local economic think tanks coordinated by the Economic Policy Institute. The Keystone Research Center is a member of the network.