Public Education Expenditures and State Economic Growth: Northeast and Sunbelt Regions

Abstract

The level of educational services may affect economic growth in a state in two distinct ways. First, potential migrants may be concerned with the quality of education that their children will receive in that state. To the extent that a growing population contributes to economic growth, increasing both the supply of labor and the demand for local goods, educational spending may contribute to growth by attracting people to the state. We call this the parental migration effect. The extensive empirical literature based on the Tiebout model has shown that local school expenditures affect choice of residence among school districts within metropolitan areas. Readers may be more skeptical of our hypothesis that educational expenditures affect interstate location choices, but support for our hypothesis is found in Cebula [3] and Herzog and Schlottmann [8]. Cebula showed that net migration into metropolitan areas was in the metropolitan areas with the rates of growth in education spending. Herzog and Schlottmann found that education expenditures per student had a negative effect on the likelihood of out-migration from metropolitan areas. Since children frequently attend college outside the state in which their parents reside but seldom attend elementary or secondary schools away from their parents' home, local K-12 (elementary and secondary) educational spending may have a more significant parental migration effect than state spending on education although Herzog and Schlottmann [8] did find a significant effect of higher education options. Second, education may increase the productivity of workers. This productivity effect should raise wage rates in a state, whereas the migration effect will primarily affect aggregate income by increasing the population. The productivity effect may also be distinguished from the migration effect by a longer time lag. Improving the quality of education will only begin to raise the productivity of the labor force four years later when the better-trained students graduate from college. Improved elementary and secondary education will not begin to have an impact for 4 to 9 years. There is an extensive literature estimating the impacts of education on individual earn-