Higher Education and Economic Growth

Higher Education and Economic Growth

Higher Education and Economic Growth Edited by William E. Becker Professor of Economics Indiana University and Darrell R. Lewis Professor of Education Policy University of Minnesota Springer Science+Business Media, LLC

Library of Congress Cataloging-in-Publication Data Higher education and economic growth/edited by William E. Becker and Darrell R. Lewis. p. cm. Includes bibliographical references and index. ISBN 978-90-481-5792-1 ISBN 978-94-015-8167-7 (ebook) DOI 10.1007/978-94-015-8167-7 1. Economic development - Effect of education ono 2. Higher education-economic aspects. 1. Becker, William E. II. Lewis, Darrell R. HD75.7.H54 1992 92 6291 338.9-dc20 CIP Copyright 1993 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1993 Softcover reprinl of Ihe hardcover 1 si edilion 1993 AII rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any torm or by any means, mechanical, photo-copying, record ing, or otherwise, without the prior writlen permission of the publisher, Springer Science+Business Media, LLC. Printed an acid-free paper.

Contents Contributors About the Editors Preface vii viii ix Preview of Higher Education and Economic Growth William E. Becker and Darrell R. Lewis 2 Higher Education and Economic Growth Stephen A. Hoenack 3 Higher Education, Economic Growth, and Earnings John Pencavel 4 Is Public Education Productive? David Alan Aschauer 5 The Contribution of Higher Education to R&D and Productivity Growth Walter W. McMahon 6 The Effects of Higher Education on Unemployment Rates Wayne J. Howe 21 51 87 105 129 v

Vl 7 Quality of Higher Education and Economic Growth in the United States Lewis C. Solmon and Cheryl L. Fagnano 8 Higher Education, Business Creation, and Economic Growth in the American States Bryan D. Jones and Arnold Vedlitz CONTENTS 145 163

Contributors David Alan Aschauer, Elmer W. Campbell Professor of Economics, Bates College William E. Becker, Professor of Economics, Indiana University Cheryl L. Fagnano, Vice President, The Milken Institute for Job & Capital Formation Stephen A. Hoenack, Professor and Director, Management Information Division, Hubert H. Humphrey Institute of Public Affairs, University of Minnesota Wayne J. Howe, Statistician Clinical Audit Consultant, Aetna Life & Casualty Insurance Company Bryan D. Jones, Professor, Department of Political Science, Texas A&M University Darrell R. Lewis, Professor of Educational Policy, and Professor of Education, University of Minnesota Walter W. McMahon, Professor of Economics, and Professor of Education, University of Illinois John Pencavel, Professor of Economics, Stanford University Lewis C. Solmon, President, The Milken Institute for Job & Capital Formation Arnold Vedlitz, Professor of Political Science, Texas A&M University vii

About the Editors William E. Becker is a professor of economics at Indiana University. He is editor of the Journal of Economic Education and serves on the editorial board of the Economics of Education Review. His research appears in the American Economic Review, American Journal of Agricultural Economics, Econometric Theory, Journal of Finance, Journal of Human Resources, Journal of Risk and Insurance, Monthly Labor Review, Review of Economics and Statistics, and other journals. He is also the co-author of Business and Economics Statistics, and co-editor of The Economics of American Higher Education, Academic Rewards in Higher Education, and Econometric Modeling in Economic Education Research. Darrell R. Lewis is professor of educational policy and higher education at the University of Minnesota. His research interests have been in the economics of education with a current focus on issues relating to educational efficiency and postschool outcomes. He is the author or co-author of numerous articles, monographs, and books. He has co-edited The Economics of American Higher Education, Academic Rewards in Higher Education, and Faculty Vitality and Institutional Productivity, and coauthored And on the Seventh Day: Faculty Consulting and Other Supplemental Income Activities, and Assessing Outcomes, Costs and Benefits of Special Education Programs. viii

Preface After decades of effortless growth and prosperity, America's postsecondary institutions of education have come under increasing financial stress and waning public support. In part, this stress reflects a slowdown in the real rate of national economic growth and the loss of federal and state revenues for education generally. It also reflects a trend of state legislatures simply giving higher education an ever lower ranking on the list of funding priorities. Postsecondary educational institutions in the United States will continue to face increasing financial stress and waning public support as critics question the contribution of higher education to economic growth, which historically has been a major rationale for funding. Unless the trends in education financing can be changed, higher education can be expected to stagnate. What, if anything, can be done? As a starting point, advocates of higher education need to more fully recognize the important ways in which higher education influences technological change and also is influenced by that change. As demonstrated by the chapters in this book, higher education is not a neutral or passive player in economic growth. This volume addresses topics related to the role of postsecondary education in national economic development within the United States. Attention is given to the research, teaching, and service missions of higher education in stimulating economic growth. The social rate of return, aggregate production function, and other aggregate measures of the contribution of education to economic growth are considered in detail. Little attention, however, is given to the importance of colleges and universities in the enhancement of individual students; this topic is covered in our related book The Economics of American Higher Education (Kluwer Publishing, 1992). IX

X PREFACE The chapters in this volume summarize the research literature and synthesize what economists and other social scientists have learned about the contribution of higher education to economic growth within the American society. Many of the chapters were originally commissioned by the editors for a seminar on these topics at the University of Minnesota during the spring of 1989. The seminar was financed by grants from the Hubert H. Humphrey Institute and the College of Education at the University of Minnesota. To the deans and faculty of both units, as well as David Berg and Stephen Hoenack (Management Planning and Information Services), we are indebted for institutional support and collegial interaction. Additional support for manuscript preparation was provided by the Joint Council on Economic Education, for which we are most grateful. In Higher Education and Economic Growth we have assembled a group of recognized scholars from economics and the other social sciences who have individually made significant contributions to the literature in higher education. The authors draw heavily from their own research in providing current evidence while focusing on their assigned chapter topics. To the nine contributing authors we are thankful. Without their work this book would not have been possible. Suzanne Becker provided manuscript editing as part of her duties as assistant editor of the Journal of Economic Education. As always, her patience, eye for detail, and skill with the English language are acknowledged and appreciated. Together with the reference librarians at Indiana University, whose services are gratefully acknowledged, Sue did all the final reference work. Manuscript preparation was completed in the Department of Economics at Indiana University through the capable word porcessing skills of Elaine Yarde, to whom we are indebted. William E. Becker Darrell R. Lewis