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Designing a brain drain plug

States create incentives to keep their best and brightest

January 1, 2003


Ron Wirtz Editor, fedgazette
Designing a brain drain plug

A quick scan of states shows that North Dakota is hardly alone in its desire to do something to stem the loss of educated young adults.

Pennsylvania, for example, is spending $12 million on an initiative called "Stay Invent the Future" that's aimed at reversing outward migration of college-educated folks believed to be upwards of 10,000 annually. Part of the money went to a nationwide TV ad campaign to woo workers back home that featured a joe-six-pack "fairy job mother" wearing a tutu, wings and construction boots.

In Nebraska, an Omaha billionaire established a scholarship program a couple of years ago in hopes of keeping up to 150 of the brightest engineering and computer-science students who often went to out-of-state universities.

Other district states also tried getting on the bandwagon. Nestled in a larger proposal dubbed "Build Wisconsin," then-governor Scott McCallum sought loan forgiveness for college graduates who remained in state, as well as the creation of a state office of student retention responsible for conducting a year-round campaign to try to keep students in Wisconsin.

A few years ago the South Dakota Legislature tried to enact a so-called scholar program designed to keep college-aged students in South Dakota for their higher education experience. According to a source with the state Board of Regents, the proposal started with fairly broad support, "but it got bogged down" over whether the scholarships could legally go to both public and private institutions.

The goal of these and other brain drain programs "is to keep the best and brightest from high school from leaving the state," according to Tom Mortenson, head of Postsecondary Education Opportunity, a small policy firm in Oskaloosa, Iowa. "In a narrow sense, I understand what states are doing. They are proud of the talent raised there and they don't want to lose it."

Whether any of these programs is effective at addressing brain drain is largely unknown because very little research has been done on the issue of brain drain itself, to say nothing about the efficacy of policy responses to the problem.

But programs commonly designed to combat brain drain demonstrate two shortcomings: First, the small scale of most brain drain programs suggests that if there is any effect, even cumulatively, it is likely marginal. Second, the many facets of demand for workers—local vs. national markets, skill types, comparative wages—are not often connected to or aligned with the supply of graduates coming from local colleges and universities. As a result, brain drain programs tend to keep priming the supply pump when closer attention to the demand engine might prove more useful.

When it comes to brain drain programs, according to Paul Gottlieb, a Rutgers University economist, "if you ignore the demand side, you will fail."

Map: Percent of Population 25 years and older with at least a college degree

Source: U.S. Census Bureau

Design challenge

A study by two economists at the University of Wisconsin-Oshkosh looked at the seemingly large out-migration of graduates from that school, particularly those in high-demand technology fields. It pointed out that if the state is producing too few math and science graduates supposedly sought by high-tech employers, then those who are produced should find a ready-made job market in state.

But the report found that math and science graduates were 50 percent more likely to leave the state than those in other fields. "This suggests that it is not the supply of high-tech workers, but the demand for them, that is the problem."

Designing a public policy response in this case is difficult because the cause-effect of brain drain is hard to pin down. Economist Kevin McGee, one of the study's authors, pointed out that the highest emigration rates were in technical fields. "[T]hat might imply a failure in Wisconsin to create technical employment opportunities," he responded via e-mail, or "it might also just imply that those fields have greater overall [job] mobility."

Either way, brain drain among technical graduates at UW-Oshkosh appears to be a function of demand: Either slow local demand or high external demand (or a combination) is causing these graduates to leave. Yet this perspective is often absent when it comes to addressing the brain drain problem.

Gottlieb conducted a brain drain review for the Ohio Board of Regents and the Greater Cleveland Growth Association. "My funders were already doing brain drain programs" like scholarships, Gottlieb said. "I didn't want to offend my funders, but I really kept thinking these policies were misguided and just moving bodies around."

He was quick to point out that some supply-based policies are economically sound. "They are not necessarily stupid or bad ideas. ... They are all broadly justifiable in economic terms." But Gottlieb added, "Supply-side [programs], my gut tells me, is a drop in the bucket."

States already have a broad network of policies targeting the supply of graduates, including tens of billions of dollars in expenditures on higher education and student financial aid. As such, Gottlieb said, new supply-based programs "are add-ons, marginal and incremental on top of everything else they're doing."

He acknowledged that programs that "bring our sons and daughters home" are politically popular but said they "are almost certainly not to scale" to have much of an impact. For example, it's common for a state or region to identify brain drain as a problem, "and a couple of foundations will belly up to the bar and ante up a million dollars for scholarships." That's small potatoes to Gottlieb. Real impact on the supply side would be upping higher education spending by, say, 20 percent. "Now you're talking."

Fried chicken, runny eggs

That might sound counterintuitive: pumping money into higher education to increase the supply and quality of graduates, when demand—good jobs for these graduates—appears to be the bigger issue. Part of the rationale is pragmatic.

Map: Higher Education Spending 2002

Source: Measuring Up 2002, National Center for Public Policy and Higher Education

"The state can't very easily do anything about the demand for graduates," according to McGee, "but it does have considerable control over the supply. And it is after all the supply that is the major state budget outlay."

Moreover, many believe the best way for states to influence local demand for high-skilled workers is to turn the supply spigot for college graduates—and related public spending—wide open. Welcome to the world of economic development in the new economy.

Research shows that at every economic unit—individuals, families, cities, regions, states, even countries—income is proportional to educational attainment. Mortenson, the policy consultant, said states fail to understand that "the only people making it are those with some, and hopefully a lot, of higher education." For those who can't or don't adapt to a high-skills economy, "there are consequences," he said. "If you want to be poor, forget about higher education."

Research also shows that thriving regions tend to have concentrated levels of highly educated workers, particularly in high-tech fields. The key to winning and losing in the new economy, and the best way to reverse net out-migration, according to Gottlieb's Ohio report, is to "create successful high-tech agglomerations." Without this concentration of talent, "programs like tuition clawbacks will only be marginally effective. ... They will inevitably target some individuals who would stay anyway, while bribing others to remain for a period that is all too brief."

Those agglomerations occur in part through a strong and vibrant higher education system, complemented—or possibly led—by an entrepreneurial culture. Both are a necessity, but which one precipitates the other is a matter of heated debate. Gottlieb acknowledged as much in his report, but argued that this dynamic rendered the brain drain issue mostly moot. "In the chicken-and-egg debate over what comes first—smart people or entrepreneurial growth—it is not clear that reducing out-migration is the most important egg."

Mortenson pointed out that there is an upside for states like North Dakota and Iowa that are large exporters of graduates. He pointed out that these states also import a lot of students, which gives them a strong position in higher education—itself a high-growth industry—and provides the developmental underpinnings for high-skill agglomerations.

Ironically, states are finding themselves in something of a Catch-22: They want to keep more students in state, as well as attract more nonresident students. They will likely get their wish because the demographic bulge known as the echo boom (or millennium generation) is starting to go to college. From 1999 to 2010, the Department of Education projects that postsecondary enrollment among those under the age of 25 will increase by 21 percent.

But at the same time, broad-based access to universities is getting tougher, as schools are ratcheting up admission standards in a race for quality. States across the country are also staring at large budget deficits, and higher education spending has been and will likely continue to be affected. These two factors have helped produce double-digit increases in annual tuition rates.

In Wisconsin, budget cuts last year prompted a hiring freeze by the UW System, which has already had a ripple effect. Despite growing enrollments nationwide, UW-Madison's enrollment actually declined this fall by about 1,000 students. Other Wisconsin state universities were worried about taking on more students without proportional increases in state support.

That doesn't appear very likely, given a current state deficit estimated at $3 billion. The threat of additional higher education cuts is now colliding with a surge in enrollment. According to system officials, applications to the UW System for fall 2003 are up better than 20 percent over this time last year and are up at every campus.

The widespread budget dilemma for many states, combined with a popular brain drain notion that much of the investment in educating young people ultimately hits the freeway for a job elsewhere, is creating a lot of pressure to rein in higher education spending.

That would be penny-wise and pound-foolish, according to Gottlieb. States should not "ratchet down" higher education spending or capacity "simply because you discover that you are educating other states' technology workers ... [that] would be a huge mistake. The role of university capacity in creating high-tech agglomerations is simply too important."

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.