Building Knowledge Stocks: The Role of State Higher-Education Policies

A variety of studies provide evidence that the stock of college-educated labor has fundamental effects on state and local economies through its association with wages, economic growth, personal incomes, and tax revenues. As a result, policymakers in many states try to increase the percentage of the state’s population (or workforce) that has a college degree through the use of various higher-education policies that have the potential to influence the supply side of the labor market. This paper reviews evidence on the effectiveness of these policies in achieving that goal. I discuss several types of policies related to the finance and production of undergraduate education within a state, including expansions in degree production and scholarships to encourage attendance at in-state colleges. The evidence suggests that these policies can affect the stock of college-educated labor within a state, but that effect is limited by the mobility of college graduates across state boundaries. I also discuss location-contingent financial aid, adjustments to the composition of enrollment by residency or by field of study, and internships with state-based employers. More research is needed to identify the causal effects of these policies on the behavior of students and to sort out the responses by students and institutions to changes in state policies