Implications for Economic Growth of Governor Walker’s Proposed Higher-Ed Funding Cuts

From Foxnews:

Wisconsin Gov. Scott Walker is calling for steep cuts to the University of Wisconsin System, while offering the network more freedom in exchange, … [H]is university plan … would cut funding by $300 million over two years…

This measure would amount to a 13% cut in state funding to the university system. In addition, the Governor’s proposal includes a continued tuition freeze until 2017, until which time tuition changes would be unconstrained. That means under the Governor’s plan, funding levels would be reduced, while the university is stopped from raising revenues. Layoffs seem plausible. [1]

I find this approach to dealing with the state’s calamitous fiscal situation (exacerbated by recent ill-advised tax cuts) interesting to the extent that higher education is important to economic growth. From KNOWLEDGE MATTERS: THE LONG-RUN DETERMINANTS OF STATE INCOME GROWTH, in the Journal of Regional Science (2012):

A state’s knowledge stocks (as measured by its stock of patents and its high school and college attainment rates) are the main factors explaining a state’s relative per capita personal income.

We find that these effects are robust to a wide variety of perturbations to the model. Other things equal, being one standard deviation above the states’ average in the stock of patents per capita (75 percent higher) leads to 3.0 percent higher per capita personal income. Similarly, being one standard deviation above the states’ average in high school attainment (a 20 percentage point increase) leads to 1.5 percent higher per capita personal income. Finally, being one standard deviation above the states’ average in college attainment (23 percentage points higher) leads to 1.4 percent higher per capita personal income.

In short, we find that incomes have failed to converge because knowledge stocks have failed to converge. If state policymakers want to improve their state’s economic performance, then they should concentrate on effective ways of boosting their stock of knowledge.

By this criterion, the Governor’s plan is counterproductive.