Lack of college grads hurts state economy


Whenever I explain why Indiana needs more kids to attend college, I get some version of the comment, “a young person doesn’t need college to do well; we need more people in the trades.”

While it is true for a few talented individuals, that is not true for a city or state. Economists call this the ‘fallacy of composition,’ which I can explain with a few facts.

In a typical year, more than 85,000 Hoosiers turn 18 years old. Of these, fewer than 75,000 finish high school, and of these fewer than 42,000 head to college. Ultimately, about 60% of those will complete their degree. That means the state’s pipeline of college-educated workers is today about 27,000 per year. However, the net loss from brain drain is about 10% and growing. That means Indiana can expect only about 25,000 college graduates per year to finish college and live in Indiana.

This is an economic development disaster. To see how this hobbles Indiana, we should consider how national labor markets value education.

Nationwide, about 8 in 10 of all net new jobs go to 4-year college graduates. The remaining 2 in 10 jobs go to those who hold either an associate degree or have been to some college. This means that if Indiana were growing like the national economy, all the new job growth would go to those who’d been to college. Demand for workers who haven’t been to college would be limited to replacing positions of retiring noncollege workers. Perhaps it is a bad trend, but it is a 30-year trend that seems certain to continue.

In a typical year, roughly 25,000 retiring workers hold a high school diploma or less, but Indiana’s educational system delivers roughly 40,000 workers with no college plans. However, in that same year, about 31,000 retiring workers hold at least some postsecondary education (either some college or a degree). The reason there are more retiring workers with degrees is that maybe half the folks holding a high school degree or less don’t work.

This means that Indiana oversupplies the market for non-college-educated workers by about 15,000 kids each year, and undersupplies college graduates by about 6,000 kids. That in part is why so many people who haven’t been to college never work, and why almost everyone with a college degree does. These facts explain nearly all of the slow growth that plagues Indiana’s economy. They also explain why wages are declining for the oversupplied non-college graduate, and why businesses needing lots of college graduates will choose to locate in places outside of Indiana.

The ‘fallacy of composition’ is the mistaken belief that what is true of one person is also true of the group. The math surrounding job openings in the skilled trades should silence those who think they offer a meaningful option for most Hoosier students.

Today, Indiana has about 36,000 adults in the skilled trades: carpenters, plumbers, masons and electricians. Most of these workers earn good money, have reasonable job security and see opportunity for upward mobility. There is abundant opportunity for owning a business or doing specialty work within the trade. For an individual, the skilled trades are as fine and honorable a career choice as anything available.

Of those 36,000 trade workers, 2% to 3% retire each year, and a few change jobs, mostly into other trades. Over the past 20 years, the number of jobs for the skilled trades has declined by about 0.5%. That means that of those 40,000 Hoosiers turning age 19 next year who won’t be in college, maybe 1,000 jobs in the trades will become available. That is roughly the same number of Ph.D.s awarded in the state each year. I’d encourage any young person who is interested to earn a doctorate or master a trade. Both are great options for a smart, hardworking young person, but together will only account for about 2.5% of job openings each year.

Now, I know some folks will still argue, “but I cannot find a plumber; we need more kids in the trades.” That’s simply mistaken. Since 2000, employment in the skilled trades in Indiana is down more than 10%. Brick mason employment is down 29.3%, electricians down 4.9%, carpenters down 15.4% and plumbers down 9.2%. Wages in each of these trades are also down, at an inflation-adjusted average of 11.2% since 2000. As high school economics classes make clear, when employment shrinks and wages are down, there’s not a labor shortage.

The fact is that Indiana is chock full of other occupations that will decline in number over the coming generation. Over the next two decades, Indiana will have fewer factory jobs, fewer transportation jobs, and fewer construction jobs than are available today. Basically, every job that requires only a high school diploma or less is at risk of long-term job losses.

The simplest economic argument for sending more Hoosier kids to college is that it is where the jobs of the future will be. There is yet another benefit of having better-educated state. Wages for workers without a college degree are higher in places that also have a larger share of college grads. For example, for a construction worker, moving to a county with 10% more college graduates would boost their income by more than 10%, or roughly $6,000 per year.

The best way to boost wages for those without a college degree is to surround them with more college graduates. This is also the best way to boost your local population growth. Nationwide, 43% of population growth occurred in the top 10% of counties by educational attainment. Only five of those counties are in Indiana — about half the number we should have given our size. The problem of oversupplying low-skilled workers and undersupplying high-skilled workers is not just an individual problem for Hoosier workers. It means that only a few select parts of Indiana will enjoy economic or population growth. The rest of the state will suffer economic decline.

Let me write this as plainly as I can. As long as Indiana continues to undersupply college graduates to the modern economy and oversupply those who haven’t gone to college, we will slip farther and farther behind the national average. Fixing this won’t be easy, inexpensive or quick. Even with dramatic improvements, we are decades away from making it to ‘average’ in terms of educational attainment or per capita incomes. It is a sad thing to admit that getting to ‘average’ is an aspirational goal.

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