Taking charge: State Growth Through Higher Education

By Andrew P. Kelly, Daniel K. Lautzenheiser | American Enterprise Institute

The Great Recession has put state leaders in a bind. Governors and statehouses must simultaneously generate the economic growth that will replenish state coffers and avoid adding to significant budget deficits. Though tax revenues have rebounded some since 2010, for fiscal year 2013, 31 states still reported budget deficits, totaling $55 billion.[1] In the midst of this new normal, state leaders must leverage existing investments to improve their states’ economic outlooks.

States have often looked to their systems of higher education to help drive economic growth. America’s research universities are among the best in the world, producing the innovations and skilled graduates that fuel state and regional economies. As urban studies theorist Richard Florida has argued, colleges and universities tend to attract and employ members of the “creative class,” helping to catalyze dynamic regional economies like those in California’s Silicon Valley, the Seattle metro area, and Route 128 in Boston.[2] Postsecondary institutions also provide the occupational training that allows state economies to retool in light of new demands, particularly in places that are continuing to shift away from manufacturing.[3]

Beyond these transitioning economies, demand for postsecondary credentials—and not just four-year degrees, but certificates and associate’s degrees—will only grow in the years to come. The Georgetown Center on Education and the Workforce estimates that, by 2018, almost two-thirds of all jobs will require some level of postsecondary education. Much of this growth will be in so-called “middle-skill” jobs, those that typically require short-term occupational training from a two-year college rather than a four-year degree.[4]

Although two- and four-year colleges are important linchpins in state economies, there is a growing sense that the existing system is not as productive as it needs to be, particularly in this era of tight budgets. Across two- and four-year institutions, just half of students who start a degree finish it within six years.[5] Completion rates are particularly low at community colleges and for minority and low-income students. Here’s the rub: at this rate of production, the United States will have a hard time meeting labor market demand, falling about three million graduates short of where we need to be in 2018.[6]

Moreover, there has been a dramatic shift in the demographics of higher education today. The traditional college model—physical campuses that bundle students and professors into a single location—was built to accommodate the “traditional” student. But what we think of as traditional students—18–22-year-old first-time college students who head to four-year colleges, live on campus, and attend full time—now make up less than a quarter of all postsecondary enrollments.

Instead, higher education is increasingly serving so-called “nontraditional” students—learners over the age of 25 who are attending part time and juggling multiple commitments such as work and family. One-third of college students are over the age of 25. Nearly 40 percent of undergraduates attend part time, and one-third of part-time students report working more than 35 hours per week. These shifting demographics, combined with the technological advances that allow for distance learning, suggest a need to revisit many of the assumptions underlying the traditional place-based model.

There are also emerging doubts about the value of a college education. Although the cost of college has increased at three times the rate of inflation, little evidence exists that higher prices reflect higher quality. In their landmark study of student learning on college campuses, sociologists Richard Arum and Josipa Roksa found that 36 percent of students did not show any significant improvement in critical thinking, complex reasoning, and written communication skills after four years of college coursework.[7] It is no surprise, perhaps, that in 2012 the Associated Press found that 53 percent of recent college graduates were either unemployed or “underemployed”—the euphemism for overqualified waitresses, bartenders, and baristas.[8]

Between 2000 and 2011, wages for recent college graduates actually declined; they still outperform those with only a high school diploma, but the payoff for this credential has not kept pace with the investment required to get it. From the taxpayer’s perspective, students who fail to graduate or who finish without the skills necessary for success in the labor market do not provide the full return on state investments.

We cannot simply spend our way out of these problems. Though state appropriations for higher education increased in most states during 2012 and 2013, these increases come after years of steep declines.[9] It seems unlikely that states’ spending will return to prerecession levels.[10] Moreover, higher education will continue to compete for state funding with priorities such as health care and K–12 education. State leaders must seek out reforms that leverage existing investments more effectively and that put their higher education systems on a stable, sustainable path.

You can read the full report here below.

Taking charge: A state-level agenda for higher education reform

1. Phil Oliff, Chris Mai, and Vincent Palacios, States Continue to Feel Recession’s Impact (Washington, DC: Center on Budget and Policy Priorities, June 27, 2012), www.cbpp.org/files/2-8-08sfp.pdf.
2. Richard Florida, The Rise of the Creative Class (New York: Basic Books, 2002).
3. See Anthony Carnevale and Nicole Smith, “The Midwest Challenge: Matching Jobs with Education in the Post-Recession Economy,” Georgetown Center for Education and the Workforce, www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/midwest-challenge.pdf.
4. Anthony P. Carnevale, Nicole Smith, and Jeff Strohl, Help Wanted: Projections of Jobs and Education Requirements through 2018 (Washington, DC: Georgetown Center on Education and the Workforce, 2010), http://cew.georgetown.edu/jobs2018/.
5. US Chamber of Commerce, Leaders & Laggards: A State-by-State Report Card on Public Postsecondary Education (Washington, DC, June 2012), http://icw.uschamber.com/reportcard/.
6. Carnevale, Smith, and Strohl, Help Wanted.
7. Richard Arum and Josipa Roksa, “Are Undergraduates Actually Learning Anything?” Chronicle of Higher Education, January 18, 2011, http://chronicle.com/article/Are-Undergraduates-Actually/125979/.
8. “Half of Recent Grads Underemployed or Jobless, Report Finds,” Associated Press, April 23, 2012.
9. Kevin Kiley, “The New ‘New Normal,’” Inside Higher Education, June 4, 2013, www.insidehighered.com/news/2013/06/04/appropriations-increases-and-tuition-freezes-reshape-state-funding-picture.
10. In 2010, analysts at the Delta Cost Project commented: “Unlike earlier recessions, when revenues were expected to rebound within a few years, the consensus now is that the ‘new normal’ means that higher education has seen a permanent reduction of roughly 10 percent of its revenue base—more in some areas of the country, less in others—money that won’t be coming back, and can’t realistically be made up in tuition increases.” See Donna M. Desrochers, Colleen M. Lenihan, and Jane V. Wellman, Trends in College Spending, 1998–2008 (Washington, DC: Delta Cost Project, 2010), 5.

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