Universities improve the stock of human capital, which results in higher wages — of those who attended the universities and of other workers in the community. The heightened educational attainment results in other societal benefits, including enhancing the ability of the community to compete for economic development.
The contributions universities make to a local economy differ fundamentally from those of a typical export-base industry in that the customers (the students) acquire skills and become more productive as a result of their education. The effect of education on productivity is measured by the increase in earnings that the education makes possible. The discounted value of the increase in lifetime earnings measures the private economic benefit of education, against which must be weighed the full cost of education.
The private returns to individuals furthering their educational attainment are significant:
- Individual earnings are strongly related to educational attainment. For example, average annual earnings of individuals with a bachelor’s degree are more than 75 percent higher than the earnings of high school graduates.
- The differential in earnings based on educational attainment has increased over time.
- The benefits of a college education are more than three times as large as the costs.
- If the value of a college education is expressed on the same basis as the return on a financial investment, the net return is on the order of 12 percent per year, over and above inflation.
Social returns also accrue when individuals increase their educational attainment:
- Social benefits of a workforce with greater educational attainment and skills can be traced to the enhanced worker productivity associated with greater educational attainment, which in turn translates into higher output and incomes for the economy.
- Nonmonetary societal benefits in regions with high proportions of college graduates include lower crime rates, greater and more informed civic participation, and improved performance across a host of socioeconomic measures.
- Intergenerational social benefits may be very large as degree attainment today translates into higher probabilities of degree attainment in future generations.
- Empirical work in econometrics suggests that after controlling for differences in amenities and individual wages, an increase in the share of college graduates in the labor force leads to significant increases in productivity and wages for all workers.
- A portion of this significant wage effect is attributable to spillovers that result from productivity gains.