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Higher Education is Economic Development in Alabama

At the end of April, released their analysis of the fastest growing economic areas in the State, based on the Federal Reserve’s recent release of GDP data. Despite the many challenges as a result of the COVID-19 pandemic, many counites across Alabama saw sustained economic growth. In the article, you can see that rural counties like Bullock experienced high levels of growth, while areas like Mobile and Madison County continued their economic growth as well.

The Higher Education Partnership completed some additional analysis and found that change in GDP, as well as GDP per capita are both strongly correlated with the percent of the population over age 25 that has a Bachelor’s degree or higher.

What is GDP and Why Are These Numbers Important?

Economic growth, put simply, is enlarging value and productivity for the economy in a specified region. Sounds pretty basic, right? On face value, it seems straightforward, but to measure economic growth in a way that can be compared or evaluated can be a little trickier. Gross Domestic Product (or GDP) represents the end value of all goods and services produced in a specific area (Read More About this Definition at the International Money Fund).

GDP isn’t always directly linked to income levels, or well-being of the individual citizens in an area for many reasons, but these indicators are often correlated, and both GDP and Per Capita Income can be used to estimate the vitality of an economy.

How Does Alabama Compare?

Alabama has grown in recent decades as a result of sustained investment in a variety of sectors from manufacturing to incentives for new business. In fact, early in 2021, Alabama was named one of the states with the fastest growing economic momentum in the U.S. (Read more from Gov. Ivey’s pressroom here). This is a positive sign for communities and individuals looking ahead to the future.

However, despite this growth, at the end of 2021, Alabama still ranked near last in both GDP per Capita and Per Capita Income (48th out of 50 states in both categories).

Our personal per capita income is nearly $15,000 below the national average and our poverty rate is higher than most surrounding states and the U.S. average.

Additionally, only 26 percent of Alabama’s working population (25 and older) has a college degree. This is a stark comparison to the 33 percent national average.

View more from the nationwide data on GDP and Income below.

Or more on educational attainment and facts from Alabama here in our Resource Guide.

What causes Economic Growth?

While the drivers of economic growth can be a little bit of a mystery, we can look towards past trends and economic theory for indicators of what builds a strong and resilient economy.

The Federal Reserve explains, “There are three main factors that drive economic growth:

· Accumulation of capital stock

· Increases in labor inputs, such as workers or hours worked

· Technological advancement.”

The article goes on to explain that historically technological advancement is the most significant factor to advance growth. Technological advancement has widespread and near irreversible effects – think, for example, about the development of the computer chip and how it’s been refined over the decades, shifting the way we as humans interact with the working world. Technological development, though relies on another component of growth – “human capital.” To create new technology, economies rely on research and development and innovation across sectors, all resulting from a well-established knowledge base (read more from Harvard’s RCC here) .

This focus means that, while technology may give you the most significant gain, it’s critically important that any growing economy focus on investing in their people. While you may get some benefit from simply recruiting more people into the job market or getting everyone to work a few more hours, economic growth relies, ultimately, on the education of your workforce. Since 1950, it is estimated that, globally, nearly 75 percent of economic growth is the result of increased educational attainment (FRBSF).

Higher Education and Economic Growth in Alabama

The connection between higher education is visible in newly released GDP data highlighted in the article. With a few exceptions, there’s a strong correlation between per capita GDP and percent of the population with a college degree. This may seem obvious given the theories we’ve discussed in this article, but even more telling is that there was a significant correlation between change in GDP and percent of the working population with a Bachelor’s Degree, demonstrating that on as small of a scale as Alabama counties, having a more college educated adults in your county can be tied to increased economic growth[i].

While it’s important to note that this correlation does not demonstrate a direct cause of the economic growth, it does reinforce a clear connection between an educated community and the ability to recruit more high paying jobs, grow our economy, and move Alabama forward into the economy of the future.

One reason for this correlation is that higher levels of education often result in higher incomes – in Alabama alone adults with a Bachelor’s degree make $17,000 more annually, on average, than their peers without, accumulating more than $1 million more than less educated peers in earnings over the graduate’s lifetime.

For the state, investing in higher education has an even stronger return on investment. Every $1 of state funding returns to $12.50 to the economy and the state’s 14 public universities have a more than $20 billion economic impact on Alabama.

Alabama Universities Work to Encourage Economic Growth

Alabama’s 14 public universities are the primary economic growth engine across the State. In addition to employing more than 20,000 people across all 67 counties, they provide critical healthcare services, invest in research and development of innovative ideas and new technologies.

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[i] GDP Per Capita / Degrees --- Pearson R: 0.585 P-Value: 6.34E-34 % Change in GDP / Degrees --- Pearson R:0.28 P Value:7.927E-24


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