Thursday, July 28, 2011

California versus Texas: Part 3: Education

The education level of a state's workforce is strongly correlated with salaries. While I think that good high school education is important, it is the percentage of college graduates that seems to determine the value of the workforce.

Massachusetts, Connecticut and New York are the best educated states, and they have the highest wages. 38% of Massachusetts residents have a degree, and they have an average wage of  $53,700.

California has the sixth highest wages at $50730  and 30% of the workforce has a degree. Eight other states have both lower wages and a better educated workforce than California.

California does especially badly when looking at the percentage of the workforce who graduated high school. Only Texas and Mississippi do worse than California. Texas earns $42220 and 25% of the workforce has a degree. Mississippi has the lowest wages at $33930 and only 19% of the workforce has a degree.

I'm very worried for California. We have an expensive workforce with a doubtful quality of education. Guess which area has been heavily affected by budget cuts in the past few years? Schools and universities!!! Workers are unlikely to reduce their wages, so employers may leave the state if the educational level of the workforce falls further.

Texas is less well educated than California, but they have much lower wages to compensate for that.

How much does education boost the value of a workforce? In my model I use:

Labor force value ($/year) = 22845 + (775 * (Percentage of workforce with a college degree))

In my model boosting the number of people with a degree by 5% is worth about $4000 extra in mean annual wage, all else being equal. I haven't checked to see if this agrees with values published by economists.

(Educational attainment is 2008 data from the Census Bureau,  Wage data is for May 2010 from the Bureau of Labor Statistics)


  1. California does have some advantages. You may have a rather dubious education (in the future, since the U of C system is still very good), but you also have good weather and some particularly dynamic areas in northern California to draw in educated workers.

    That might compensate for a shortfall in locally educated labor (more so if you guys actually make it easier for new housing).

  2. If we had education levels comparable to the East Coast, then with our excellent universities, aggressive venture capitalists and great weather, I think we would be competitive. The trouble is that our education level already falls short, and cuts to schools and universities will make things worse.

    California hasn't been competitive for a long time. What has carried the state has been rising house prices together with a big tech bubble and a big housing bubble. With house prices stagnant and no new bubble in sight, the underlying competitiveness issue has become obvious.

    I don't think venture capital funded business in the Bay Area can carry the whole state. They make a lot of money but they just don't produce enough jobs.