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According to a recent report from the Federal Reserve Bank of New York, entitled "The Role of Colleges and Universities in Building Local Human Capital" [PDF file], colleges and universities can contribute to a region's economic success by greatly increasing the skills and knowledge – or human capital – of its residents.

Higher levels of human capital, the report notes, are tied to faster population and economic growth, higher wages, increased worker productivity, and greater innovation. Only 15 percent of the working-age population of Flint, Mich. holds a degree, and its GDP per capita is approximately $27,000. In contrast, 45 percent of the working-age population of Boston, Mass. has a degree, and its GDP per capita is $66,000.

While many college graduates do migrate, of course, the net effect of the presence of colleges and universities is positive. A doubling of a metropolitan area's rate of degree production, the authors write, is associated with an increase of 3 to 7 percent in local human capital levels. "While this effect may appear small, it does suggest that an increase in degree production can result in a permanent shift in a region's human capital stock," the authors explain.

The role universities can play in the region

Crucially, colleges and universities can also contribute to a region's economic success through research activities, which can both attract new firms to the area and help existing businesses expand and innovate. In fact, the authors report, a doubling of a metropolitan area's research intensity is associated with a 4 to 9 percent increase in levels of local human capital.

In Tompkins County, N.Y., home of Cornell University, the authors note that more than 80 companies have ties to Cornell – some were started by faculty and students, while other came to the area to access knowledge, products, or processes developed at the university.

The report was written by senior economist Jaison R. Abel and research officer Richard Deitz in the Regional Analysis Function of the Federal Reserve Bank of New York.

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