THE ECONOMICS OF HIGHER EDUCATION IN THE UNITED STATES

Headnote

Abstract

The purpose of this study is to examine the relationship of education and economic growth, investment in education to increase human development and economic growth, and the role of education in promoting economic well-being. We are specifically interested in how previous research investigated the robustness of the relationship between education and economic outcomes, the association between the returns to college and the decision to attend college, human capital as an engine of economic growth for technological change, and the economic impact of schools.

Key words:

Education; economic growth; college; human development

JEL Codes:

F43; O47; H52

1. Introduction

Although researchers have discovered some important findings regarding school attainment as a measure of human capital, the impacts of educational quality on economic outcomes in the developing world, the economic and noneconomic factors influencing college attainment, the importance of cognitive skills in determining individual earnings, and there is still a great deal that is unknown and that requires further empirical inquiry. The results of the current study converge with prior research on the impact of variations in measured cognitive skills on economic outcomes, the role that colleges and universities play in building local human capital, the rise in for-profit enrollment, and the economic returns to differing levels of school attainment for individuals. The paper generates insights about the causal effects of higher education on subsequent socioeconomic outcomes, the relationship between education and economic growth, the importance of cognitive skills for economic outcomes, and the importance of schools in producing differences in cognitive skills.

2. The Relationship of Education and Economic Growth

Holding constant schooling attainment, the income distribution in the United States has become more dispersed in reflection of growing rewards to individual skills. Policies aimed at improving school quality and educational outcomes may affect the income distribution. Education increases the human capital inherent in the labor force, may increase the innovative capacity of the economy (Naito, 2013), and may facilitate the diffusion and transmission of knowledge needed to understand and process new information and to implement new technologies devised by others. Education is important both as an investment in human capital and in facilitating research and development and the diffusion of technologies. Consideration of cognitive skills alters the assessment of the role of...