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Plugging the brain drain

States fret over losing their young, educated workers, and many are scrambling for ways to stop the outward flow

January 1, 2003


Ron Wirtz Editor, fedgazette
Plugging the brain drain

James Burgum is a study in leadership and potential, and representative of a big problem in North Dakota and many other states.

Burgum is currently studying business administration and accounting at North Dakota State University, in Fargo, and is president of the student government. A North Dakota native, Burgum grew up in tiny Casselton, just 20 miles from Fargo. Assuming he makes it to graduation this May, he'll be a fourth-generation NDSU grad—his great grandmother was one of the first women to graduate from NDSU.

But upon receiving his sheepskin, it looks like Burgum's local roots will meet the scythe. He's thinking about going on to graduate school, and "probably looking out of state." His younger brother Ben crossed the border a few years ago to attend the University of Minnesota in the Twin Cities. "I think he was attracted to the big city," Burgum said. "He loves it down there."

For North Dakota and a number of other states, the Burgum brothers are as much the rule as the exception when it comes to young folks. Numerous states have identified the so-called brain drain of young, educated workers as a major policy problem.

Some are taking action. Voters in North Dakota considered a November ballot measure that would have provided $5,000 for both income tax reduction and student loan forgiveness over five years to any North Dakota college graduate who stayed in state. The initiative—called Measure 3—was soundly defeated.

"It was a good initiative in that it rose awareness. But it doesn't solve the issue," said Burgum. "It's not that students don't want to stay here, but there are no opportunities."

Come cap-and-gown day, students have spent "four to five years and a lot of money into getting a degree," and they are looking for a payoff on that investment, he said. For graduates to stay, "there's got to be [local] opportunities that are challenging in your field of study" and that pay reasonably well. In fact, Burgum and a handful of other NDSU students met with Gov. John Hoeven just before Thanksgiving to discuss strategies to that end.

Even Measure 3's staunchest advocates admit it wasn't a cure-all, nor was it their last effort at redirecting the outward flow of educated young people from the state. "We didn't believe [Measure 3] in and of itself will reverse the trend," said Roger Johnson, who proposed and headed the Measure 3 initiative, and is also commissioner of the North Dakota Department of Agriculture. "It sent a different message" to young people about opportunities in the state.

"One thing is clear: A lot of people leave," Johnson said. "No other state faces the [brain drain] problem to the degree that North Dakota does. There's nobody that's worse off than us."

Seeing and believing

Part of the concern over brain drain is fiscal in nature. Policymakers worry about subsidizing the education of students who ultimately go elsewhere, taking the larger social and economic benefits of that education to another state.

But more broadly, policymakers are concerned about where the educated set down roots because many experts believe these folks hold the key to prosperity in a state or region. "In the New Economy ... human capital is one of, if not the most important factor in economic growth," said Paul Gottlieb, a Rutgers economist who studied the brain drain problem in northeast Ohio. "People are concerned about the net out-migration of human capital."

"Most states, Wisconsin included, have gotten on the economic development bandwagon ... and they are worried about the state getting a piece of the new economy," said Frank Goldberg, assistant vice president for policy analysis and research with the University of Wisconsin System.

But while the problem itself might seem obvious—newly minted graduates are leaving—a closer look reveals a very complex web of issues. Conventional wisdom on the topic tends to look no further than the out-migration of college graduates, often ignoring-or at least not connecting-other, related migratory trends. When it comes to brain drain, Goldberg said, "the state looks at scarce resources and doesn't see the in-migration" of graduates. Neither does the controversy recognize the in- and out-migration of students pursuing their college education, which changes the full extent of brain drain that many are fretting over.

Maybe more important, the debate today commonly overlooks the other half of the formula for educated workers, namely, demand, which in turn ignores factors that drive migration in the first place. As a result, brain drain "is not complicated to see," said Tom Mortenson, head of Postsecondary Education Opportunity, a small policy firm in Oskaloosa, Iowa. "But it's hard to interpret."

Early checkout

Johnson outlined the nub of North Dakota's problem with a few statistics. The state is first in high school graduation and first in continuation on to college. "We place a very high value on getting an education," Johnson said. But something goes awry after young adults get their education, because the state ranks poorly among states in the percentage of the 25-and-over crowd that has a bachelor's degree. "We're first, we're first, we're 34th. Why is that?"

The reason, Johnson and others will tell you, is because only about half of graduates from all public universities and colleges in North Dakota remain in the state one year later. Worse, retention of graduates with bachelor's degrees or more—typically the focus of most policy discussions—plummets to only about 40 percent. Placement surveys also don't track graduates after the first year, and further out-migration likely occurs as young workers climb career ladders which often take them elsewhere.

The outward flush of educated young folks comes, at least in part, from a subtle but pernicious cultural attitude in the state, according to Johnson: Do well in high school, go to college, get a degree, "and then go somewhere else and pursue your dream."

Other district states fare better, and some much better, in the battle to retain college graduates. (See sidebar on the most recent and comprehensive retention data available for five district states.)

But graduate retention figures measure only part of the in- and out-migration habits of young people. Inconsistent and incomplete data on other migration flows mean that few, if any, states have a reliable grasp on actual brain drain in their state.

Conventional wisdom sees brain drain as a one-dimensional flow, namely, college graduates leaving a state. But other factors need to be considered when trying to gauge net brain drain. The most obvious is the inflow of college graduates—the brain "gain" if you will. This important piece of information, however, remains largely unknown because states do not track incoming graduates, and very little research or data gathering at any level has been done.

One useful attempt to fill this gap was done by Postsecondary Education Opportunity. Using census figures, the organization estimated the growth of bachelor's degrees among those 25 and older from 1989 and 1999 in each state. From this figure, it then subtracted the cumulative number of bachelor's degrees given out by all degree-granting institutions during this time in each state, offering a reasonable proxy for a state's brain drain or gain. By this method, Minnesota was the clear winner among district states, with Montana, the Dakotas and Wisconsin all seeing net out-migration of bachelor's degrees (see table).

  Estimated Number of Persons Over 25 Years Old with a Bachelor's Degree Estimated Change in Bachelor's Degree Stock Number of Bachelor's Degrees Produced Estimated Net Brain Drain or Net Gain
1989 1999 1989-1999 1989-1999 1989-1999



North Dakota
South Dakota
* Population data revised by the Federal Reserve Bank of Minneapolis.
Source: Postsecondary Education Opportunity

Map:Net Migration of Freshman to Degree-Granting Institutions

Source: Integrated Postsecondary Education System, National Center for Education Statistics, U.S. Department of Education

Clogged drain

But if we're after a full accounting of the comings and goings of educated young people, then this methodology also has its shortcomings. Most important, it does not account for the in- and out-migration of high school graduates going on to college—a location decision that has a big impact on migration tendencies after college.

Some states—like North Dakota—are net importers of college students (see chart). In 2001, 35 percent of all students in the North Dakota University System were nonresidents (more than 13,000 in all), easily the highest percentage of any district state and one of the highest rates in the country. Among freshmen, the state imported about two-thirds more than it exported to colleges elsewhere for the fall 2000 semester—a net gain of about 1,000 freshmen.

While it doesn't stop the brain drain argument cold, student migration patterns do change the brain drain picture because nonresident college students (in all states) are more likely to leave a state after graduation. For North Dakota, such a phenomenon inflates brain drain there—typically applied to the native population—by as much as one-quarter.

Other migration data show additional anomalies. Using the PEO database, some of the biggest brain drain losers are states you wouldn't expect. New York, for example, saw a net loss of some 353,000 people with a bachelor's degree from 1989 to 1999. Massachusetts lost 248,000, and yes, even California saw a net loss of 100,000 during this period. (See data.)

Part of the explanation is, again, a matter of accounting for migration of college-going students. Massachusetts is, for example, a major importer of college students, many of whom end up leaving upon graduation, in spite of the job opportunities along Route 128 and elsewhere. It also happens to be a very small state, which means graduates might locate nearby but still cross a state border. In California's case, the percentage of people with bachelor's degrees barely grew from 1989 to 1999, while the state's production of bachelor's degrees jumped 20 percent, to 110,000 graduates, during this time.

On the flip side, big gainers include Texas and Colorado. Compared with Ninth District states, both states have considerably lower high school graduation rates, a lower percentage of those going on to college and lower college completion rates. Each state imports college graduates in part because it can and has to—the two states saw very strong job growth during the 1990s, and local graduates can't fill the demand. On a per capita basis, North Dakota universities crank out about twice as many bachelor's degrees as Texas, according to the PEO database.

Fill in the blank: Demand

Even perfect knowledge of student and graduate migration patterns still leaves us well short of understanding whether brain drain is actually a problem for a particular state. Some people assume it's a problem without considering local and state demand for graduates, particularly in industry sectors that are most widely considered critical for future growth.

"Brain drain is a symptom of an economic development problem. It is not the problem itself," according to a report by Gottlieb, the Rutgers economist, on the effect of brain drain for northeast Ohio. "[S]imple measures of student out-migration are meaningless in the absence of information on university degree production (supply) and high-tech job demand."

According to Gottlieb, out-migration "is largely explained by an excess of supply over demand." If the object is to create a high-tech economy, then "only states that are deficient in high-tech jobs may be said to have an economic development problem."

In an interview, Gottlieb added, "The quantities of graduates you have matter, and the quantities of jobs you have matter. ... [The problem] is there are not enough opportunities, especially for smart [graduates], for them to stay local. Nobody's going to stay if they don't have jobs to take."

Other recent studies have come to similar conclusions. One done for the Pittsburgh region by researchers at Carnegie Mellon stated, "If a region is able to attract students and workers sufficient to meet the needs of the regional economy, then exporting excess talent produced by local universities is not a critical policy problem." A report on Canadian brain drain to the United States concluded, "Brain drain is not a problem unto itself, but a warning light that can indicate areas where we should be taking action for more general reasons."

In fact, while brain drain might represent a lost opportunity for a particular state, it's actually a good example of efficient labor markets. Economists have long argued that labor mobility is the grease that helps supply and demand for employment operate smoothly because it allows workers and employers alike to search for the best fit. On a national scale, the only thing that matters is that workers find jobs and employers find workers in a reasonably efficient manner. Mobility helps workers adjust to changing and growing job demands of employers, particularly from a geographic standpoint. (For additional discussion on the supply and demand of labor markets, underemployment and job matching, see the July fedgazette.)

In this light, brain drain represents one of several demand scenarios. The first is soft local or state demand—graduates go elsewhere because in—state employers have all the labor they need. A second, related scenario is mismatched demand, where employers need workers, but not college-educated workers, or not graduates from particular fields being produced by state universities. A third reason for brain drain occurs when graduates look elsewhere for jobs that are also available in state, suggesting that regional or state employers aren't competitive enough in salaries, benefits or other factors that graduates consider when choosing a job.

The economic slowdown is believed to have slightly dampened overall demand for college graduates (the first scenario). But over the long term, the last two scenarios appear most relevant for explaining why brain drain happens, both today and in the future, especially in district states. In a nutshell, there are either comparatively few opportunities available, particularly in high-tech fields, or better offers await elsewhere.

The underlying driver here is the education premium that some employers are willing to pay for in their workforce. On average, workers with a bachelor's degree earn close to double the salaries of those with only a high school education; the premium goes higher still for those with advanced degrees. Workers have recognized the premium by hitting the books at record levels.

But not all employers value education equally. If employers either don't need educated workers or don't offer competitive wages and benefits for educated workers, the mobility of college graduates allows them to earn their wage premium elsewhere. In other words, a state's brain drain demonstrates its relative lack of jobs and competitive wages for educated workers.

The Wisconsin Taxpayers Alliance, for example, found that the state fares poorly in comparative pay for education-intensive jobs. Wages in management, law, computers and math, engineering, architecture, business and finance in Wisconsin were all 10 percent below the national average. In contrast, the state is very competitive in wages for blue-collar industries like construction and manufacturing.

About half the graduates from Michigan Technological University in Houghton, Mich., take jobs in state, and "a very small percentage" stay in the Upper Peninsula, according to Jim Turnquist, director of university career services. About two-thirds of the student body are engineers. "We'd love to keep them here but the reality is we expect they'll leave the area" after graduation, he said.

There are two reasons. First, "there are not a lot of industries" in the Upper Peninsula that hire engineers, Turnquist said. Second, starting pay for newly minted engineers is about $10,000 less in the U.P. than in common destinations like Minneapolis or Detroit. The low cost of U.P. living shrinks that gap somewhat, but unless they are the outdoorsy type, "the money, opportunities, growth ... [the pull to] leave the area is a lot stronger" than the benefits of staying, he said.

In North Dakota, a report on 1999 graduates by the university system found a large percentage of graduates in high-skill fields left the state for jobs elsewhere, including architecture (86 percent), engineering (77 percent), computer and information services (56 percent), biological and life sciences (61 percent), mathematics (68 percent), physical sciences (64 percent), law (65 percent) and airway sciences (89 percent).

Pay is likely a big reason because wages in North Dakota tend to be low in many career fields, particularly in high-skill ones. Nationwide, average wages in all computer and math occupations was $58,000 in 2000, according to the Bureau of Labor Statistics. In North Dakota, the average was just $39,000. College students notice, too. Focus groups in the Fargo-Moorhead area in 2001 found that "students felt salary and wages in the area are not competitive ... [and] there were limited employment opportunities in the area."

Johnson, the ag commissioner, lamented the fact that as a "very low-paying state," North Dakota often tried to capitalize on that trait in its economic development efforts. "Guess what kind of companies we tend to attract? Educated young people look at the world and ask, 'Why would I want to work here?'"

Don Morton, senior staff in the president's office for Microsoft Business Solutions in Fargo, agreed that North Dakota needed "better jobs with better compensation." Microsoft provides a sizable number of such jobs, and the company offers salaries comparable to what a graduate would receive in Minneapolis. "Not every business in Fargo does that."

The state is already dealing with considerable underemployment, where educated folks work in jobs below their skill level, Morton said. Even if the state could somehow manage to keep all of its graduates, "I don't know if we have enough (good) jobs."

Morton also pointed out that Michigan has the same problem; so does New York. Big cities, he said, are winning the battle for young minds because rural areas don't offer opportunities for educated workers. "This is not a North Dakota problem. It's a rural problem."

That viewpoint is supported by research on Montana wages by Minneapolis Fed economists, which found that per capita income rises with a city's population—a so-called urban wage premium. Cities offer proximity and other synergistic factors—like concentrations of businesses and skilled workers—that contribute to higher average wages. The bigger the city, the better the synergy, the higher the pay.

The wild card in supply-demand

Complicating matters is a growing belief that not even good jobs and wages will necessarily stop out-migration of the young and educated. The wild card in the supply-demand formula, they say, has to do with the nonwork environment—things like weather and natural amenities—and the nebulous "cool factor" of the host state or region.

Generational experts say that today's college graduates are more prone to seek out a place they want to live—somewhere that's culturally and recreationally interesting to them—and then look for work. Work is important, but nonwork activities are equally, if not more, important.

"It would be smart of us to pay a little attention to those trends," Johnson said. "I think it's presumptuous of us gray-haired folks to say we know what young people want."



Map: High School Completion and College Enrollment 2002
Source: The National Information Center for Higher Education Policymaking and Analysis

But lifestyle-as-economic-development is a tricky formula. Consider Hawaii. Despite its exotic aura and ideal weather, it too has been facing brain drain and has a population growth rate that is among the lowest in the country. Reports there show that many leave for college elsewhere with the intention of coming back eventually, but lack of good job opportunities and comparatively high housing costs deter the return trip to the island.

Others are skeptical of the importance of the cool factor. If the choice is between a cool place to live and no job, or a less-cool place and a good job, "most people would take the job, particularly in the current environment. Students are more interested in the job, or even an offer of a job, and considerations of a cool place are secondary," according to Dennis Ahlburg, associate dean of faculty and research at the Carlson School of Management at the University of Minnesota.

"All of us would like to have our jobs and a cool place" to live, but there are trade-offs everyone has to make, Ahlburg said. "There are cases in university towns where Ph.D.s drive cabs. For them the trade-off is worth it. For other people with mortgages and kids, etc., the coolness is what gets traded off."

Mortenson, the higher education consultant, said college graduates still "go where the jobs are, anywhere in the country." But he acknowledged that this truism might be changing, in part by observing his own family. With a son in Colorado, "I can tell you Colorado is full of people who want to live in Colorado and make do when they get there," Mortenson said. "It's absolutely a lifestyle choice."

Germinating roots and hearts

It was in this vein—providing some incentive, even artificial, to attract young people—that Measure 3 was proposed. Despite a resounding 2-to-1 defeat at the polls, many still hold out hope that the Measure 3 effort will kick-start changes in North Dakota.

"It was an attempt in doing something different" in terms of economic development, said Tom Morth, a research analyst with Job Service North Dakota and state expert on student migration. "I think it's going to germinate. They wanted to start the dialogue."

The state's policies in this area have been in place for 50 years, trying to move the state to a healthier economy. Given the results, "it's either a failed premise or we're not doing it properly," Morth said. "We're not pushing [young people] out. Our students are smart and unconsciously realize they have to go elsewhere. ... They realize they are better off supporting themselves and their families outside of North Dakota," he said. "It's very frustrating for those of us who stayed here. We can survive here, but [life] is more than that."

Morth has also experienced brain drain firsthand. He has two college-aged daughters, both of whom go to school out of state, one in Texas and the other in Oregon. "It was hard to let them go. I doubt if they will come back. I don't know if they know yet," he said. People say North Dakota is a nice place to raise a family, but as Morth pointed out, "there are a lot of nice places to raise a family."

Burgum, the NDSU student, also sees the personal and career dilemma. "I definitely see myself coming back, but the opportunities will be the most important factor," he said. "My heart is definitely in North Dakota."


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.