Expert Commentary

Do colleges and universities increase their region’s human capital?

2011 study from the Federal Reserve Bank of New York published in the Journal of Economic Geography on the dynamics between higher education and local economies.

Retaining college graduates is widely thought to be an important part of how cities and regions maintain their competitive edge — the theory is that more educated workers means greater human capital, which leads to economic growth. Although data has been compiled on educational attainment by many states and regions, there has not been sustained research on the impact that colleges and universities have.

A 2011 study from the Federal Reserve Bank of New York published in the Journal of Economic Geography, “Do Colleges and Universities Increase Their Region’s Human Capital?” utilizes Department of Education data from 1999 to 2000 and 2006 on the volume of university degrees earned in metropolitan areas, National Science Foundation data on academic research and development expenditures over the same periods. It also uses Census and American Community Survey data to estimate human capital levels.

Key findings include:

  • In 2006, the metropolitan area that spent the most on academic research and development was New York, with roughly $2.7 billion in expenditures, followed by Baltimore, Los Angeles and Boston.
  • The New York metropolitan area produced the most degrees, with 143,971 awarded in 2006, followed by Los Angeles, Chicago and Boston, respectively.
  • There is only a small positive relationship between the level of human capital in a metropolitan area and the volume of degrees of produced. This may result from the “key role migration plays in redistributing human capital across space.”
  • Metropolitan areas with higher levels of degree production tend to have higher numbers of people in human capital intensive occupations. In particular, the share of people working in the life, physical and social sciences in a metropolitan area is positively associated with degree production. This is also true of metropolitan areas that spend significant amounts of money on research and development.
  • On average, areas with high volumes of degree productions have lower shares of people working in manufacturing and goods distribution industries, along with other low human capital occupations.
  • Metropolitan areas which focused primarily on degree production as opposed to research and development tended to have more workers in “both ‘high’ and ‘low’ human capital occupations, but smaller shares of many of the most human capital-intensive occupations.”
  • Some of the most highly skilled professional fields, such as engineering, and business, have a negative relationship with degree production but a positive relationship with specialized degree production. “These patterns suggest that access to field-specific human capital and proximity to specialized knowledge is important for these groups, as opposed to access to generic pools of human capital.”
  • The findings suggest that “policies aimed at increasing a region’s human capital through the expansion of local colleges and universities will be most effective if they target both the supply and demand sides of local labor markets, as doing so can help to retain and attract human capital.”

The authors note that, because of the small positive relationship between degree production and human capital in a region, policy makers “focusing on the generic expansion and retention of local graduates” may have limited success increasing human capital. But knowledge spillovers from academic research and development may have a positive impact on the local economy by increasing the demand for skilled labor. Additionally, the types of degrees produced in a metropolitan area will affect the level of human capital present in the area; for example, the presence of more degrees in the sciences is associated with more science-oriented, high human capital workers.

Tags: science, small business, entrepreneurship, municipal

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