Assessing the Effectiveness of Human Capital Investments on the Regional Unemployment Rate in the United States: 1990 and 2000

Abstract

This article evaluates the effect of human capital investment—for example, expenditures on education, training, and employment—on regional unemployment rates in the United States. State-level unemployment rates are estimated using the spatial lag fixed effects model with spatial correlation of regional unemployment rates for 1990 and 2000. The results show that unemployment rates can be decreased by a policy of state-level human capital investment. A $100 per capita human capital investment in a state is expected to decrease the unemployment rate by 0.63 percent. Human capital investment has a negative impact on a state's unemployment as long as the yearly average state net migration rate is greater than −1.6 percent. A maximum of 1.6 percent of a state's population can out-migrate on average in a year for human capital expenditures to be associated with a decrease in the state's unemployment rate. If a state's net migration rate is less than −1.6 percent of its population, human capital expenditures have a positive effect on unemployment.