High Education,High Technology, and High

Wages

An Exploration into the Relationship between University Education and Economic

Prosperity and Dynamism:

A California Wake-Up Call

Susan B. Carter

Mathew Sobek

Richard Sutch

Center for Social and Economic Policy

University of California

Riverside

California is aHigh Wage State

Opening Observation

1960 1965 1970 1975 1980 1985 1990 1995 2000480

520

560

600

640

680

United States

California

Median Real Wage1998 Dollars

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

1.00

1.05

1.10

1.15

1.20

1.25Index of Median Wages in California

US = 1

California’s High-Wage Status is Due in Part to

California’s Highly Educated Labor Force

California is aHigh Education State

Due in part to its long history of public and private support for education,

particularly higher education.

Educational Expenditures per FTE College Student, 1994-95

All Four-Year Institutions

Public and Private

Less than $14,000

$14,000 - $17,000

More than $17,000

1960 1965 1970 1975 1980 1985 1990 1995 200010

15

20

25

30

35

Percent of Full-Time Workerswith a College Education

United States

California

But, California is Losing its Relative Advantage

The proportion of

college-educated is falling

1960 1965 1970 1975 1980 1985 1990 1995 20001.00

1.10

1.20

1.30

1.40

California with US=1

Index of Highly-Educated Workers

College Degrees

The Proportion ofHigh-School Drop-Outs

in Californiahas Ceased to Fall

And California has fallen behind the rest of the country

1960 1965 1970 1975 1980 1985 1990 1995 20000

10

20

30

40

50Percent of Full-Time Workers

without a High School Education

United States

California

Something More than just the Educational Mix is

Influencing theWage Structure in

California

How do we know?

• Wages are higher in California, even after correcting for educational attainment levels– Wages of college grads are higher– Wages of high school grads are higher– Until recently, wages of drop outs were

higher

• Next Slide, please

1960 1965 1970 1975 1980 1985 1990 1995 20001.00

1.04

1.08

1.12

1.16

1.20

Index of Median W agesCollege Graduates in California

US=1

1960 1965 1970 1975 1980 1985 1990 1995 2000

1.00

1.04

1.08

1.12

1.16

1.20

Index of Median WagesHigh School Graduates in California

US=1

1960 1965 1970 1975 1980 1985 1990 1995 20000.80

0.90

1.00

1.10

1.20

1.30

Index of Median W agesHigh School Drop Outs in California

US=1

Taken together these trends imply ...

• Inequality in California is becoming greater – both absolutely and relative to the US

• Inequality Measure: The ratio of the wages of full-time workers at the 90th percentile to those at the tenth percentile– AKA: The 90/10 Pay Ratio

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20002.0

3.0

4.0

5.0

6.0

Wage Inequality

90/10 Pay Ratio

United States

California

Why is California a High Wage State?

California is Technologically Advanced

• Silicon Valley– computers and telecommunication

• Military Contracts– Aircraft and Space

• Petrochemicals

• Our Proxy?

1880 1900 1920 1940 1960 1980 20000

20

40

60

80

Patenting IntensityPatents per 100,000

United States

California

1945 1955 1965 1975 1985 19950

10

20

30

40

United States

California

Patenting Intensity

Patents per 100,000

California’s High Patent Intensity is a reflection of

(a Proxy for)its High-Tech, Entrepreneurial

Environment

… And a High-Tech Environment May lead to Higher Wages for All

Relative Patenting IntensityCalifornia with US

= 100

1945 1955 1965 1975 1985 199590

100

110

120

130

140

150

1945 1955 1965 1975 1985 19950

10

20

30

40

50

60

70

80

90

100

Relative Patenting Intensity

South with US = 100

1945 1955 1965 1975 1985 19950

10

20

30

40

50

60

70

80

90

100

Relative Patenting IntensityUS = 100

Great North

Heartland

1945 1955 1965 1975 1985 1995

9 0

1 2 0

1 5 0

1 8 0

2 1 0

2 4 0

2 7 0

3 0 0

3 3 0

Relative Patenting IntensityUS = 100

New Jersey

Southern New EnglandNew York

1945 1955 1965 1975 1985 19950

30

60

90

120Relative Patenting Intensity

West with US = 100

1945 1955 1965 1975 1985 19955 0

8 0

1 1 0

1 4 0

1 7 0

2 0 0

Relative Patenting Intensity

US = 100

Rust Belt

Minnesota

Wisconsin

Universities Patents

High Tech

Universities Patents

High Tech

Adam B. Jaffee. “Real Effects of Academic Research.” American Economic Review 79 (December 1989).

Authority:

Universities Patents

High Tech

High Wages

Ow

n Education

Universities

High Wages

Alfred Marshall

Regression Model

• Data: CPS March 1994, ‘95, and ‘96

• Sample: Full-Time Male Workers– Age18-65– Born in the USA

• Dependent Variable: Log Weekly Wage

• Estimator: Weighted Least Squares

Own Education

• Four Separate Regressions– No High School Diploma:

– High School Diploma: – College Degree:– Advanced Degree:

– n = 4,642– n = 36,343– n = 11,831– n = 6,087

n = 58,903

Independent Variables

• Constant and Dummies for 1994 and 1995

• Third-Degree Polynomial in Age

• State-Level Externality Variables– Patents per capita, 1994-96 [Johnson]– Percent of all 19-21 year olds attending

college [CPS]– Educational Structure of State [next slide]

Educational Structure of State Workers

• All Workers (three out of four)– Percent that are HS Drop Outs– Percent that have HS Diploma– Percent that have College Degree– Percent that have Advanced Degree

• IDEA: You are more productive, if those around you are highly educated.

2 0 3 0 4 0 5 0 6 00

200

400

600

800

1000

1200

1400

Age-Wage Profile, 1994-96Full-Time Working Men, Born in the USA

Drop Outs

Advanced Degree

College

High School

Age

All the Marshallian Variables have Powerful Effects

• We can demonstrate this with a few examples ...

• Start with HS graduates in Arkansas and ask what the impact on wages in that State would be if it had:– high tech environment of Massachusetts– college enrollment of Massachusetts– educational attainment of Massachusetts

20 30 40 50 60

200

300

400

500

600

700

800

900

1000

Age-Wage Profile High School Graduates, Arkansas vs Massachusetts

Full-Time Working Men, Born in the USA

Arkansas

With Colleges

With Patents

Massachusetts

Age

With LF Mix

How Big Depends Upon the Example

• Start with High School Grads in North Dakota and ask what the impact on wages in that State would be if it had:

– high tech environment of New York– college enrollment of New York– educational attainment of New York

20 30 40 50 60

200

300

400

500

600

700

800

900

1000

Age-Wage Profile High School Graduates, North Dakota vs New York

Full-Time Working Men, Born in the USA

North Dakota

With Colleges

With PatentsNew York

Age

With LF Mix

20 30 40 50 60200

300

400

500

600

700

Age-Wage Profile High School Graduates, United States vs California

Full-Time Working Men, Born in the USA

United States

California

Age

Conclusion

• California’s Past Investments in Higher Education have fostered a High-Tech Environment and has supported a High Wage work force

• California is in danger of losing its edge• More support of higher education would yield

handsome dividends– to those educated– to others in the State

Dilemma

• Would not educating more Californians simply benefit the rest of the world at California Tax-Payers’ expense?– They could move to other States

• Test: Relative Retention of In-State College Degree Recipients– Measured by CS Method

C-S Method• In-migration measured as the difference

between– the number of 29 or 30 year-olds in the State with a

college degree in 1990

and– the expected number of surviving 19 or 20 year-olds

attending college in the State in 1980.

• Survival rates calculated for the cohort from the US totals [Census Survival Method].– See Carter and Sutch [1996] for details.

California is home to more college-educated people

than it has educated

During the decade 1980-1990, California was a net importer of college-educated people born in

1961 or 1962.

States by Net Importationof College Graduates, 1980-1990

Net importersNo net changeNet exporters

But, California is a net importer of people of all

educational levels

When we control for California’s population growth over the

decade, its status changes...

States by Net Importation of College Graduates,Controlling for Population Growth, 1980-1990

Net importerNo net changeNet exporter

In-migration is not improving California’s

Educational mix

Can California hold on to its High-Tech, High-Education, High-Wage

Position?

A stronger commitment to Higher Education would

help

End of Show

Comments welcome

send e-mail to:

susan.carter@ucr.edu

sobek@ucr.edu

richard.sutch@ucr.edu