The Effects of Colleges and Universities on Local Labor Markets

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Despite the presence of anecdotal evidence linking regional economic growth and the presence of quality universities in such areas as the Silicon Valley in California and Route 128 in Boston, there have been few systematic studies of the relationship between universities and local economies. In this paper we examined the relationship between four measures of the quality or extent of activities of colleges and universities in an area and various measures of the local labor market activity, including employment, income and migration. We could not reject the hypothesis that there is no relationship between our measures of university activity and the overall employment rate in an SMSA. We did, however, find evidence that colleges and universities affect the composition of employment in an SMSA. The probability of being employed as a scientist or engineer and the probability of being employed in a high- tech industry were both found to increase with the amount of R&D funding at local universities. The probability of being employed in a high- tech industry was also found to be positively related to the number of graduates from local universities. We also found evidence that employment growth rates and earnings are higher in areas with good universities. Finally, the data can not reject the hypothesis that net migration is unrelated to universities.

Published: Review of Economics and Statistics November 1993.

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