Table Of ContentHigher 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 1s i 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 vii
About the Editors viii
Preface ix
Preview of Higher Education and Economic Growth
William E. Becker and Darrell R. Lewis
2
Higher Education and Economic Growth
Stephen A. Hoenack 21
3
Higher Education, Economic Growth, and Earnings
John Pencavel 51
4
Is Public Education Productive?
David Alan Aschauer 87
5
The Contribution of Higher Education to R&D and
Productivity Growth
Walter W. McMahon 105
6
The Effects of Higher Education on Unemployment Rates
Wayne J. Howe 129
v
Vl CONTENTS
7
Quality of Higher Education and Economic Growth in
the United States
Lewis C. Solmon and Cheryl L. Fagnano 145
8
Higher Education, Business Creation, and Economic
Growth in the American States
Bryan D. Jones and Arnold Vedlitz 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 Informa
tion 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 Econ
omics 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 Econ
omics of American Higher Education, Academic Rewards in Higher
Education, and Faculty Vitality and Institutional Productivity, and co
authored And on the Seventh Day: Faculty Consulting and Other Sup
plemental 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 edu
cation 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 re
turn, 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 Infor
mation Services), we are indebted for institutional support and collegial
interaction. Additional support for manuscript preparation was pro
vided 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 acknowl
edged 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 Depart
ment 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
1
PREVIEW OF HIGHER
EDUCATION AND
ECONOMIC GROWTH
William E. Becker and Darrell R. Lewis
The role of education in the economic health of the nation and the
relationship between education and economic growth are increasingly the
focus of public debate. In the 1980s, the educational reform literature
began warning that our nation was "at risk" because of perceived short
comings in our educational system. Even the cover of Business Week
(September 19, 1988) joined the chorus by stating that "the nation's
ability to compete is threatened by inadequate investment in our most
important resource: people." Although the early advocates of educational
reform aimed their criticism and remedies at primary and secondary
education, more recently, the role of higher education has been drawn
into the debate.
This volume is intended to contribute to our understanding of the
relationships between higher education and the economic growth and well
being of the nation. What is the role of postsecondary education in the
economic development of the United States? What other relationships exist
between economic growth and the research, service, and teaching missions
of colleges and universities? In short, how and in what ways does higher
education in the United States contribute to our nation's economic growth?
A significant amount of evidence in the economics literature indicates
that an investment in higher education is beneficial both to the individual
and to society in general. Our earlier edited book, The Economics of
American Higher Education (1992), dealt primarily with the effects of
higher education on the gains enjoyed by the individuals. Here, we focus
1
