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Study shows link between education, pay

It’s popular among politicians to say that their education plans are really economic development plans, because education means jobs.

Now a new report suggests they’re right.

The Economic Policy Institute’s report, out last week, says there is “a clear and strong correlation between the educational attainment of a state’s workforce and median wages in the state.”

It advises states to invest in education for long-term economic development gains.

The report says that over the past 20 to 30 years, states have increasingly focused on luring businesses, mostly by cutting taxes or otherwise offering businesses breaks.

But, says EPI, that’s short-sighted and promotes “a race to the bottom.”

“State and local taxes on business are simply too small a share of total business costs to play a significant role in location decisions; other factors—labor skills, wages, access to inputs and markets—are much more important,” the report said. “Yet business tax breaks are expensive, and take money from investments in education and infrastructure that increase productivity and support growth.”

Spending state resources on lowering business taxes does not lead to higher wages, the report says. But it does show a connection between high wages and high levels of education.

In most of the 22 states with the least-educated workforces—defined by EPI as having 30 percent or less of the population with a college education—median wages are about $15, the report said.

In three states where more than 40 percent of the people have a bachelor’s degree or higher, median wages are $19–$20 an hour, the report said. The gap between $15 an hour and $20 an hour is the difference between $30,000 a year and $40,000 a year for a full-time worker, the report said.

EPI reports that wasn’t always the way. Through the late 1970s, the wage gap between the college-educated workforce and the less educated workforce was smaller, and manufacturing and industry played a bigger role in the economy. There used to be a correlation between union density and higher wages—now there is not.

While EPI said the link between education and wages is consistent across the states, most state policies don’t seem to reflect it.

“While this correlation between education and high-wage jobs is not surprising, what perhaps should be surprising is how often policymakers ignore it and pursue other quick fixes, such as special tax breaks or other subsidies for businesses,” the report said. “Looking at the correlation between education and wages, there is little indication that states have found a way to create a high-wage economy without a well-educated workforce.”

Virginia is generally considered a state with a high educational level and relatively high wages. But it, too, has seen increased tuition rates and drops in state funding for education.

The EPI report says states can best improve their economies by focusing on policies that encourage higher educational attainment—such as lower tuition costs at colleges, an emphasis on GED and associate degree programs, and offering preschool programs.

Overall, the report says, states should put resources into high-quality educational opportunities for all residents, from preschool through college—the opposite of what many states have done in recent years’ budgets.

“In most states, that would mean reversing recent cuts to, and even elimination of, publicly funded preschool, and declines in public investments in postsecondary education,” the report says.

It cites a 26 percent decline in per-student funding at public colleges between 1990 to 2010, while tuition at four-year colleges doubled, and increased even more for community colleges.

“Instead of improving access to higher education in response to the needs of a changing economy, most states have restricted it,” EPI said. “States can build a strong foundation for economic success and shared prosperity by investing in strategies that make their people more productive, chief among them education. Providing expanded access to high quality education and related supports—particularly for those young people who today lack such access—will not only expand economic opportunity for those individuals, but will also likely do more to strengthen the overall state economy than anything else a state government can do.”

Chelyen Davis: 540/368-5028