Does higher education spending spur growth?

February 8, 2012

Conventional wisdom says that to boost economic growth, the nation needs more workers who are highly educated. A 2011 study from Georgetown University’s Center on Education and the Workforce stated:

Over the past century, economic growth in the United States has been tied to technological change. First, it was the assembly line machines of the manufacturing age, and now it is computers and the Internet that have revolutionized skill needs in the workforce. America’s relentless engine of technological development, fueled by increasingly fierce global competition, has required an ever-growing pool of workers savvy enough to integrate these sophisticated new tools into their work routines. The growing need for technical sophistication has been coupled with a reduced need, often the result of automation, for unskilled labor. As an outcome of these technological changes, there has been a persistent and ongoing demand for more postsecondary education and training.

Many studies have proved that higher levels of education lead to higher incomes for workers. But I wonder if any studies have been done that prove economies grow more rapidly when more government resources are spent on education. As a quick check I mashed up data for the percentage of state budgets that are spent on higher education versus the growth of the state economies. There really doesn’t seem to be a direct correlation.

This chart only maps one year of the relationship between spending and growth, and doesn’t account for spending by private colleges and universities. There is a need to dig deeper into the data and verify the lack of relationship between state spending and growth. But the Council on State and Local Governments suggested in a February report that colleges should focus on increasing accountability rather than increasing their budgets. The report stated (emphasis mine):

States can adopt policies to assist college-goers obtain high-quality degrees and credentials. In addition, policies can be enacted to help institutions increase their capacity to serve more students and increase system productivity. Efforts to increase degree attainment can include:  An emphasis on programs that help more students succeed in college by containing costs, reducing credit hours or offering credit for past experiences.

It’s not clear that more higher-education funding is the solution to creating more economic growth. Smarter education spending and more community college capacity, as suggested by President Obama, may be the way for states to spur economic growth.



White House: Building American Skills Through Community Colleges

BEA: Economic Recovery Widespread Across the States in 2010

Many Eyes: State Spending By Function as a Percent of Total State Expenditures

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Feifan Chang
The only way to help the students get a decent education from the public school system and not bankrupt the state any more is to eliminate the teachers union. End of story!

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