Essays on higher education, welfare policies, and the regional economy.

Abstract

My dissertation investigates education policy choices in a regional context, with applications of economic theory and econometric methods. Chapter I analyzes the optimality of allowing schooling to fulfill work requirements in a welfare program. I explore the relationship between returns to schooling and the relative benefits to the government of allowing schooling to count toward work requirements. A common intuition is that the benefits to a government of allowing schooling should increase as the returns to schooling increase. This paper shows how this intuition does not necessarily apply. In a principal-agent model, opposite predictions for the direction of this relationship are derived given different governmental objectives. If the government aims to provide a safety net at minimum cost, the schooling-excluded work requirement will be increasingly preferred as the returns to education increase. The driving mechanism is consistent with the concept of transfer targeting. Alternatively, if the government aims to maximize social welfare with a budget constraint, it is likely that the schooling-permitted policy is preferred where returns to education are relatively high. Consistent with the former hypothesis, I find that the states with greater returns to college education are less likely to allow participation in postsecondary education to fulfill the work requirements after the 1996 welfare reform. Chapter II investigates the long-term effects of colleges on regional economic growth, made possible by knowledge spillovers, with application of spatial econometrics. Institutions of higher education are classified based on the fields of programs offered and their degree-granting activities. County-level data for the contiguous US are used to estimate the marginal effects of colleges on the changes in log employment and log wages between 1970 and 2000. Evidence is found of knowledge spillovers of higher education institutions. Counties with more colleges in their location or in their neighboring counties experienced modestly faster employment growth over the 30-year period. Institutions offering accredited business programs had much larger effects than the others. In terms of degree-granting activities, only those awarding bachelor's degrees or above had significant growth-boosting effects.