Authors Jaison R. Abel and Richard Deitz argue that colleges and universities can help increase both the supply of and demand for human capital in U.S. regions. These effects are important because a region’s human capital–the stock of knowledge and skills possessed by its residents–is a key driver of local economic performance, with higher levels of human capital being tied to faster economic growth, increased worker productivity, and more innovation.
The authors contend that colleges and universities increase the supply of human capital by producing skilled graduates who can strengthen the region’s labor force. While high migration rates among college graduates undercut these increases for much of the country, some degree recipients stay on to join the local workforce. Contrary to conventional wisdom, however, producing new graduates is not the only way colleges and universities can increase their region’s human capital.
Abel and Deitz demonstrate that universities increase regional human capital in a second way–by boosting the demand for skilled workers. In addition to employing educated professionals, these institutions conduct research and development activities that have spillover effects into the local economy and local employment. Businesses in the region may take advantage of university knowledge and research facilities to develop new products and technologies, and new companies may be drawn to the region because they want access to university resources. Both of these developments are likely to generate new jobs requiring high levels of human capital.
"The Role of Colleges and Universities in Building Local Human Capital" gives particular attention to the higher education industry in the Federal Reserve’s Second District, which comprises New York, northern New Jersey, and a small portion of Connecticut. Observing that the many academic institutions in the District conduct a significant amount of research, the authors conclude that the region is well positioned to leverage the benefits of its colleges and universities.
Jaison R. Abel is a senior economist and Richard Deitz a research officer in the Regional Analysis Function of the Federal Reserve Bank of New York.