Benefits to Individuals and Society: Issues

Simple comparisons of earnings between individuals with different educational backgrounds can be misleading if earnings differentials are due to other factors which also correlate with educational attainment. What is known as the issue of “ability bias” is the possibility that the earnings premium observed for college graduates is partly a reflection of the fact that people who are successful in school are those with high innate abilities and that these abilities also help them to be successful in the job market. They go on to earn high incomes not because of what they learned in college, but because they are smart. The current consensus among scholars is that the true average return to education probably is not much below the estimate suggested by simple education-earnings correlations.

When state appropriations are used to subsidize higher education, it is important to know whether and for how long graduates remain employed in the local economy. Graduates who leave the state will no longer pay state taxes to defray the costs of the education subsidies. If there are spillovers from education to other workers, these will not be realized locally if the graduate moves out of state. Potential mobility of graduates is a major issue for universities, especially for those in states without large urban areas, markets for skilled labor, or natural amenities that graduates find attractive.

While societal benefits are significant, evidence does not exist that local production of graduates, in isolation, will be an effective economic development strategy. A local area cannot emphasize the production of college graduates exclusively because labor force participants with university degrees are highly mobile in terms of their residence. Thus, the number of university graduates from local institutions of higher education is not necessarily highly related to the number of college graduates living in a community.