Report: Long-term education investments lead to higher wages

By Reid Wilson, Washington Post, August 22, 2013

This article first appeared on the Washington Post's GovBeat blog

Legislators looking for the best returns on budget investments should focus their efforts on education spending, which in turn leads to higher productivity and higher wages, according to a new report released Thursday morning.

The report, composed for the Economic Analysis and Research Network at the Economic Policy Institute, a liberal-leaning think tank, shows a strong correlation between a well-educated workforce, higher productivity and higher wages. States where higher percentages of the workforce have attained bachelor's degrees, like Massachusetts, Connecticut, Maryland and New Jersey, have much higher average hourly wages than states with fewer college graduates, like Nevada, Arkansas, Louisiana and Mississippi, the study shows.

"It becomes very clear, when you look at the higher-wage states, they have one thing in common: They have a well-educated work force," said Noah Berger, president of the Massachusetts Budget and Policy Center and one of the study's lead authors. "The states that have poorly educated workforces have low median wages."

In the 22 states where less than 30 percent of the workforce has a bachelor's degree, the median wage stands at around $15 an hour. In the three states where more than 40 percent of the workforce has a college degree, the median wages are higher than $19 an hour.

The only exceptions, according to the study's analysis of the Census Bureau's Current Population Survey, are in sparsely-populated states rich in natural resources. Wyoming and Alaska both have lower-than-average shares of the workforce with bachelor's degrees, but their average hourly wages are much higher than other states with similar education levels.

In a near-term effort to compete with neighboring states to attract businesses and jobs, states routinely offer tax breaks and other incentives. Those tactics, the study's authors said, rob a state's coffers of resources that could be used instead to invest in long-term educational priorities. In fact, the authors found no correlation between state and local taxes as a share of personal income and a state's median hourly wage.

And the cost of attending college continues to spike. The published cost of tuition at a four-year public institution has risen from $3,810 a year during the 1992-1993 school year to $8,660 during the 2012-2013 school year, according to the College Board's Annual Survey of Colleges.

"The focus on tax cuts and incentives has actually eroded [states'] ability to finance education," said Peter Fisher, research director at the Iowa Policy Project and the EARN study's other lead author.

Higher education rates and higher wages mean more state and local tax payments, the authors said. Fewer college graduates use the social safety net, and a much smaller percentage of their children end up in poverty.

"States can...use their resources in a zero-sum battle with each other to provide incentives to lure companies to one state or another," Berger said. "But all the resources that states waste on those efforts are resources they don't have to make their people more productive."