Prosperity growth generally comes from one thing: sound investment. Although there are many types of wise investments, the single largest is human capital, and the largest type of investment in human capital is education. There is overwhelming evidence that greater educational attainment means a higher level of prosperity — in terms of income and in terms of better health, less crime, greater civic involvement, and so on.
Despite the abundant evidence, and despite having a relatively high level of investment in kindergarten through 12th grade education, we continue to underinvest in tertiary education in Maine. After taking per capita income and the potential number of college students into account, Maine ranked 44th in the nation in public in-vestment in postsecondary education from 1980 through 2005. Consequently, despite having three prestigious private colleges here, we are a significant net exporter of college students. And, despite many economic advantages here in Maine, prosperity growth has lagged.
A crucial obstacle to greater investment in college education, and hence greater prosperity growth, is a widespread misunderstanding about labor markets. There is a common misconception that because there are not enough jobs for college graduates here, greater public investment in college education will only lead to more graduates leaving Maine for opportunities elsewhere.
This notion ignores two fundamental aspects of labor markets. First, jobs are created, and destroyed, all the time. The job market in a modern economy is constantly evolving. Second, job creation does not happen randomly. The jobs that are created in a particular place and time are generally those that best match the skills of the local work force. It is not a coincidence that high-tech clusters are located near important universities. Although those with more education tend to migrate toward higher-paying regions, it is also true that high-wage jobs migrate toward regions with higher-skilled workers.
In a nutshell, a highly educated work force to a large extent attracts and creates its own jobs. Thus, what matters for judging our interests in supporting college education is not emigration, but net emigration. It is not the number of leavers that matters for our economic development; it is the difference between the number of leav-ers and the number of newcomers.
Interstate migration occurs for many reasons, and to focus on the gross emigration of graduates mixes these reasons with the specific effect of new graduates on the labor market. Moreover, job matching is an important aspect of labor markets. Hence, the lowest rate of emigration of college-educated labor is not necessarily desir-able. What is desirable is the thickening of the labor market for educated labor. A state with a thick supply of highly skilled workers has a significant competitive advantage in attracting and creating high-wage jobs.
I recently conducted a study quantifying the net impact of new college graduates on states’ job markets for graduates. Contrary to the widespread perception, the results clearly indicate that the effect of producing college graduates in a state on the state’s college attainment is close to proportionate. More specifically, the within-state effect of new college graduates on college attainment appears to be at least 90 percent, and most likely higher. For graduates from public colleges, the effect appears to be fully proportionate. On average, states graduating relatively high numbers of college students experience only a minimal net loss of graduates. Evidently, states graduating lots of college students also create lots of jobs for college graduates.
Thus, perhaps the most cost-effective way for Maine to ensure its future economic vitality is to substantially increase its investment in college students. In doing so, we will make a college education in Maine attractive to more of our young people, which in turn will halt the net exodus of our best and brightest.
Philip Trostel is a professor of economics and public policy at the University of Maine. This is the final of four weekly columns on subjects covered in the University of Maine’s Building a Vibrant Maine Economy online conference. To view the conference, visit www.umaine.edu/vme.