Recent Research: How College Attainment and Occupational Skills Impact Metro Area Wealth

While not the subject of the paper, community and regional policymakers may expect if they couple this fact with the other benefits associated with having a more educated populace - such as lower crime rates, lower vacancy rates, higher property values, and more entrepreneurship - that subsidized higher education programs should "pay" for themselves through higher tax revenues and lower costs to the public.

In Human Capital and Economic Activity in Urban America, Jaison Abel from the Federal Reserve Bank of New York and Todd Gabe from the University of Maine explore the relationship between various measures of human capital and the economic activity within a metro region. Their work contributes to the discussion of why public policy intervention for ameliorating a region's education and knowledge base makes sense, especially in the intention of increasing per capita wealth.

Abel and Gabe examine not only how the amount of education, but also how the strength of certain knowledge-based skill sets impacts the level of economic activity within a metro area. After aligning knowledge skills with certain types of occupations, they find metros with collections of information technology employees, and "producer services" employees - those involved with management, accounting, law and government - are the top drivers of GDP per capita.

Additionally, the authors examine the impact of the relative size of certain occupation groups. They find, keeping all else equal, increasing the size of a metro's executive and management positions by one standard deviation from the mean increases GDP per capita by 10.4 percent. However, increasing the size of a metro's educator, librarian, and writer positions by one standard deviation is associated with a 12.5 percent decline in GDP per capita.

Abel and Gabe's research utilizes the fairly recent practice of the U.S. Bureau of Economic Analysis of estimating the GDP in each of the U.S. metro areas. After averaging the GDP per person from 2001 to 2005, the authors first performed regressions using 290 metro areas to test the influence of college degree attainment while controlling for factors such as annual investment in capital equipment and software, annual investment in capital structures, the metro's population, and regional geographic effects.

Keeping all other variables constant, they found improving the amount spent on capital equipment by $1,000 per worker in the metro increases GDP per capita by 20 percent, and expanding a metro area's population by one million people results in a 3.3 percent increase in GDP per person. However, when comparing these variables to each other, college attainment outperforms the others. By changing by one standard deviation from the mean the percentage of college attainment, the amount spent on capital equipment, and the population, the GDP per capita is altered by 17 percent, 11 percent and 5 percent, respectively.