The conventional wisdom is that a state with a better educated population will attract businesses that offer higher paying jobs, and this will typically lead to higher levels of economic output for that particular state. This argument is often used to justify higher spending on schools at the local level.

TUTORIAL: Education Savings Account

Unscientific Testing
One method to empirically test this assertion is to find various government measures of economic output and wealth for individual states and compare that to the education levels achieved to see if we can discern any relationship between these. (Education and training benefit not only the worker, but also the employer and the country as a whole. For more, see How Education And Training Affect The Economy.)

Per Capita Income Measures
The Census Bureau recently released a report on 2009 levels of disposable personal income per capita, which is defined as personal income less personal tax payments and non tax payments. The report ranks each state relative to the overall country using an index, with the United States at an index level of 100. The top six states and index levels are:

Connecticut 132.6
New Jersey 126.3
Massachusetts 124.2
Maryland 121.3
Wyoming 116.4
New York 115.5

Another report from the Census Bureau measures 2008 personal income per capita rather than disposable income, and as expected, the top six states are the same with only a slight change in ranking.

Connecticut $ 56,272
New Jersey $ 51,358
Massachusetts $ 51,254
New York $ 48,753
Wyoming $ 48,608
Maryland $ 48,378

GDP Measures
A more direct measure of economic output for a state is real GDP per capita, and as you might expect, the government reports this statistic as well. The rankings here are slightly different with Alaska and Delaware making the list:

Alaska $63,424
Delaware $62,587
Wyoming $61,049
Connecticut $59,132
New York $53,377
Massachusetts $52,251

The presence of Alaska at the top might be explained through a combination of a sparse population and dependence on mining, which accounts for 25% of total GDP. Delaware has a high concentration on the finance and insurance industry, which represents 37% of GDP and these two industries tend to pay well. (For related reading, see Invest In Yourself With A College Education.)

Educational Attainment
We now look at the educational achievements of the various state populations to determine if this is associated with higher per capita GDP or higher personal income. One measure that can be examined is the percentage of residents that have an advanced college degree.

The three states that rank highest using this metric are Massachusetts, Maryland, and Connecticut, with 16.4%, 15.4% and 15.2% respectively, of residents with an advanced college degree. This is calculated using 2008 data and includes only residents over 25. Virginia and New York are tied for fourth place in educational attainment, with 13.8% of the population achieving this higher level of education.

An unscientific look at all this data seems to point to a positive correlation between the education level of a state's population and economic output. However, there are some outliers that are hard to explain.

Wyoming is in the top six for both personal income and real GDP per capita, but is at the bottom of educational achievement with only 7.9% of the population holding advanced degrees. Alaska also follows a similar pattern, and ranks first in GDP per capita, but has only 9.7% of the population holding advanced degrees.

Another outlier is North Dakota, where only 6.6% of state residents have advanced degrees, putting that state 49th in educational achievement. Despite this poor ranking, North Dakota has real GDP per capita of $46,468, putting it eleventh on the economic output rankings. North Dakota also had the fastest growing GDP from 2006 to 2008, with growth of 7.3%. Connecticut, which is arguably the most educated state, experienced a contraction in GDP over the same time frame.

Bottom Line
Although the link between the education level and economic output of a state might seem obvious and intuitive, it is not as clear as one might expect, as there are a number of outlier states that defy this relationship. Further investigation is needed to explain these anomalies.(For related reading, see What Is GDP And Why Is It So Important?)

Related Articles
  1. Economics

    5 States with the Highest GDP Per Capita

    Learn about the top five states ranked by their real gross domestic product (GDP) per capita as of 2014: Alaska, North Dakota, New York, Connecticut and Wyoming.
  2. Fundamental Analysis

    Emerging Markets: Analyzing Brazil's GDP

    Examining the GDP composition of one of the BRIC members, Brazil.
  3. Economics

    Time to Worry About a Profit Recession?

    3rd Q earnings season, a weak global economy, a strong dollar and collapsing energy prices suggest that the U.S. may be in the midst of a profit recession.
  4. Economics

    3 Recession Signposts to Watch

    For now, the recent spate of U.S. weakness appears to be a slowdown, not a full-blown recession. However, the risks to the U.S. economy have gone up.
  5. Mutual Funds & ETFs

    Want to Invest in the Philippines? Eye These ETFs

    The Philippines offers more potential than most markets throughout the world. These two ETFs will give you exposure.
  6. Investing

    Which Economy Is Larger - The United States or China?

    China's economy may be larger than the U.S. economy, but it all depends on which exchange rate method you use to make the GDP comparisons.
  7. Investing

    How Worried Should We Be About China?

    An economic slowdown, a freezing up in trade and plunging markets and currencies are casting a shadow across Asia—and the globe. How worried should we be?
  8. Economics

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  9. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  10. Fundamental Analysis

    Emerging Markets: Analyzing Chile's GDP

    Chile has become one of the great economic success stories of Latin America.
  1. Is Australia a developed country?

    Australia is one of the most developed countries in the world. The nation's per capita gross domestic product (GDP), one ... Read Full Answer >>
  2. Is Nigeria a developed country?

    Nigeria is not a developed country by any reasonable standard. The country's per capita gross domestic product (GDP) is much ... Read Full Answer >>
  3. Is Italy a developed country?

    Italy is a developed nation with extensive infrastructure, a rich cultural history and control over several exports. Italy ... Read Full Answer >>
  4. Is the Netherlands a developed country?

    The Netherlands is a developed country. A developed country is typically defined as one exhibiting economic security and ... Read Full Answer >>
  5. Is Canada a developed country?

    Canada is a developed country. Countries that are considered to have developed economies exhibit strength in typical economic ... Read Full Answer >>
  6. Is France a developed country?

    Benefiting from one of the world’s largest economies, France is considered to be a developed country. As of 2015, France ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center