In the midst of serious state fiscal challenges, it is understandable that cutting costs is the focus of the governor and state legislature. I want to share some thoughts with my former colleagues, for whom I have great respect after spending two decades as a state legislator and state executive officeholder and now serving in higher education.
Smart budgeting is about making difficult choices and wise strategic investments, with a primary focus on return on investment to further the state government’s central mission of advancing economic growth and prosperity.
Ohio simply can’t cut its way to prosperity. We should be mindful of the adage, “If all you have is a hammer, everything looks like a nail.”
We must ask, how can the state best link and leverage its human capital assets to promote the short- and long-term economic growth of Ohio? What is the single public policy investment that offers the greatest bang for the buck? Put another way, what is the secret sauce to a city, state or a nation’s economic success?
Surprisingly, the answer is remarkably clear. Among most economists, it’s not in dispute. The clear answer — educational attainment. The best long-term public policy investment is early childhood education, and the best near- and mid-term investment is higher education.
The national organization that I led for six years, CEOs for Cities, conducted research that showed 64 percent of a city or region’s economic success, as measured by the single most important metric of economic growth — per capita income — can be attributed to the percentage of the adult population with a two-or four-year college degree. A college degree is just one point along the cradle-to-career educational continuum, but it is the single best proxy for the overall educational attainment of a city or region.
Raising the nation’s college attainment rate by just 1 percent means a dividend of increased per capita income of $111 billion per year for the nation. Each percentage-point increase in degree attainment in Northeast Ohio has a positive $2.8 billion increase in the per capita income for the region.
But wait, there’s more. A postsecondary degree is the tide that lifts all boats. Cities with higher levels of education not only have higher incomes but also faster rates of income growth. As Enrico Moretti notes in The New Geography of Jobs, a worker’s education has an effect not just on their own salary but on the entire community around them. In a sense, your neighbor’s education affects your salary.
As the share of college graduates in a region increases by 10 percent, the earnings of a worker with a high school education rise by about 7 percent, and per capita gross metropolitan income rises by 22 percent. Research also shows that a region’s highest-educated workers are more likely not only to get jobs but to create them.
College graduates are increasingly settling in cities where many other college graduates already reside, creating what Moretti calls the “great divergence.” At the same time that American communities are desegregating racially, they are becoming more segregated in terms of education and earnings.
Seventy percent of college students get their first job in the state in which they go to school. Once they start work in another state, they may never return home. So the implications for Northeast Ohio’s talent retention and attraction efforts are enormous.
At a time when cities and metro regions have become the economic engines of the nation and when the most valuable currencies of the new economy are knowledge and ideas, earning the talent dividend never has been more important.
For a person who obtains a college degree or above, they will earn, on average, a dividend of an additional $974 each year in income. Studies show that those with college degrees earn roughly $1 million more than those with a high school degree. According to a Brookings Institution study, a college degree returns 15.2 percent a year, more than double the return to stock market investments since the 1950s, and five times more than the return to bonds, gold or government bonds.
In Ohio, 64 percent of all jobs will require some postsecondary education by 2020. Today, however, just more than 43 percent of working-age Ohioans have a postsecondary certificate or degree, and Ohio ranks 40th in state fiscal support for higher education per capita.
Our higher education institutions must do a better job of educating students for the 21st century and providing more need-based financial aid to students who cannot afford the cost of college. However, we cannot afford to treat our colleges and universities as cost centers whose budgets should be further cut. Rather, they are economic engines and talent magnets in which we must invest.
If I learned anything during my 20 years of public service, it can traced back to the words of one of my law school professors: “A fence at the top of the cliff is better than an ambulance below.” Ohio must make the choice that has the greatest return on investment by further building the higher education fence at the top of the cliff.