The Economic Impact of College Graduates on Local Economies

It’s no secret that universities and colleges are major factors in the economic development of cities and metro areas. Stanford is often credited as the innovative spur to the Silicon Valley, while MIT is seen as a catalyst for startups and high-technology in and around Greater Boston. My own research considers universities to be creative hubs for America’s leading knowledge regions. At the same time, I have also argued that it is a mistake to pose colleges and medical centers—so-called “eds and meds”—as cure-alls for distressed local economies. Still, there is no doubt that their sheer size and scale create substantial effects on local economies.

A study by the economist Jonathan Rothwell of the Brookings Institution’s Metropolitan Policy Program takes a detailed, data-driven look at the effects of college and university graduates on local economies across the U.S. While these economic effects obviously depend a great deal on how good a metro is at retaining local alumni (a subject I’ll explore in an upcoming post), Rothwell’s initial research helps to outline which metros are currently benefiting the most. To get at this, he uses data from the Bureau of Labor Statistics’ 2014 Consumer Expenditure Survey to identify consumption levels in the U.S. economy broadly and across metro areas. Interestingly enough, he finds that a whopping $3.4 trillion a year—amounting to 40 percent of pre-tax income and nearly half (49 percent) of all spending—goes toward local goods and services.