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News from EPI For States, Investing in Education is the Key to Economic Prosperity

The best way for states to foster a productive economy is to invest in a well-educated workforce, according to a new paper published by EPI for the Economic Analysis and Research Network (EARN), a network of 61 state and local economic think tanks and 25 national partners founded by the Economic Policy Institute and several other state and national groups.

In A Well-Educated Workforce is Key to State Prosperity, Noah Berger, president of the Massachusetts Budget and Policy Center, and Peter Fisher, research director at the Iowa Policy Project, find a strong link between the educational attainment of a state’s workforce and both productivity and median wages in the state. Expanding access to high quality education will create more economic opportunity for residents and do more to strengthen a state’s overall economy than anything else a state government can do.

“States have fewer tools to build a strong economy than the federal government does, but states do play a major role in education—one area that turns out to be crucial for building a high-wage economy.” said Berger. “Across the board, states with better educated workforces have higher wages and more productive economies. For states trying to build long term economic strength, there is no more important challenge than expanding access to quality education and supporting children in the classroom.”

Meanwhile, strategies such as cutting taxes to lure employers and capture private investments from other states are shortsighted, and promote a race to the bottom which undermines states’ ability to invest in and attract an educated workforce. The paper finds no clear relationship between a state’s tax rates and its wages.

“Investing in education is also good for state budgets in the long run,” said Fisher. “Highly educated workers have higher incomes and thus pay more in taxes and rely less on state assistance.”

States can increasing the educational attainment of their population by working to slow the growth of college tuition, increasing financial aid, investing in quality K-12 education, and offering preschool programs.