New Report Reaffirms that Education is Vital for Kentucky’s Economic Future

This is a guest post by Michael T.Childress about the 2018 Kentucky Annual Economic Report produced by the Center for Business and Economic Research at the University of Kentucky

Michael T. Childress was the executive director of the Kentucky Long-Term Policy Research Center from 1993 to 2010, and has worked at the Center for Business and Economic Development (CBER) at the University of Kentucky since 2010, where he is the managing editor of the Kentucky Annual Economic Report. 
 
Perhaps the most noteworthy economic trend over the last three and a half decades is the growing importance of education for economic success. Improving educational outcomes and enhancing the skills of Kentucky’s prime working-age adults would, no doubt, help to move the needle on the state’s labor force participation rate, which is one of the lowest in the country. This is especially true in rural areas where education levels and labor force participation rates are generally lower. However, while improving educational outcomes is necessary for increasing the labor force participation rate, it is not necessarily sufficient. For a variety of reasons, including, but not limited to, the changing global energy market and high chronic disease rates, many regions around the state are languishing economically. There are two primary factors that drive economic growth and enhance productivity—education and innovation. Kentucky has experienced educational progress over the last several years, but has consistently lagged behind in growth entrepreneurism and innovation.

Education is expensive for both the individual and the taxpayer. In fiscal year 2016, 40.4 percent of Kentucky’s total state expenditures went to either elementary and secondary education (16.3%) or higher education (24.1%), 10.3 percentage points higher than the national average of 30.1 percent (NASBO, State Expenditure Report, 2016). Average tuition across Kentucky’s postsecondary system increased 80 percent from 2005-06 to 2015-16 while per capita personal income increased 28 percent over the same period. Education might be expensive but the lack of education is even more costly.

Investments in education yield multiple dividends. According to a 2016 RAND study, government spending on early childhood education returns $2 to $4 for every $1 invested. And, as one climbs the educational ladder, the resulting economic benefits, such as higher income and lower unemployment, get larger, especially for those with a 4-year degree or higher. Likewise, there is a clear and consistent pattern with higher levels of education associated with better health, less dependence on public assistance, and increased technology use—just to name a few other benefits. And what is generally good for the individual also benefits the wider community—such as lower crime rates and more volunteerism.

Increasing educational attainment, as well as educational achievement, has measurable positive benefits. Stanford economist Eric Hanushek and his colleagues published a study in 2016 estimating a strong connection between academic achievement and state-level economic growth. They found, for example, that if Kentucky students performed at the same level as those in Minnesota—the state with the highest performing students in the country—then gains to Kentucky’s GDP over the next 80 years could top $1 trillion or 5 times the current level.

Kentucky’s educational status has improved since the early 1990s when its educational reputation was at a low point. Our analysis shows that Kentucky is statistically higher than 8 states, lower than 17, and statistically no different from 24, based on 12 educational attainment and achievement factors combined into a single index. To improve educational outcomes in Kentucky, we cannot limit our focus solely to the classroom. Kentucky faces many obstacles to cost-effective educational performance, ranging from high poverty to poor health. Moderating the harmful effects of poverty on learning will help to reduce these obstacles and facilitate even higher returns.

We talk about those in the lower, middle, or upper income group, those with one level of educational attainment or another, and those living in one region of the state or another as if they are fixed and static. But they are not—they are dynamic. Individuals can get additional education and training, migrate to another area with more job opportunities, and otherwise improve their standard of living or quality of life by taking active steps to do so. Kentucky has many strengths upon which to build, including a low cost of living, numerous natural amenities, and an enviable location within a day’s drive of two-thirds of the U.S. population. By enhancing workforce quality, health outcomes, and online connectivity, we can maximize the potential of the state’s most important resource: its people.

To learn more about Kentucky’s economy and the role of education in enhancing the state’s future, see the 2018 Kentucky Annual Economic Report, available online at http://cber.uky.edu/ or send an email to Michael.childress@uky.edu.