The Human Capital Economy and Higher Educational Opportunity in Montana

Tom Mortenson
Higher Education Policy Analyst, Postsecondary Education OPPORTUNITY, Oskaloosa, IA
Senior Scholar, The Pell Institute for the Study of Opportunity in Higher Education, Washington, DC

[Editor's Note: The substance of this article was presented as an illustrated lecture, at the "Montana Pathways Roundtable," October 2, 2002, at which George Dennison's "Privatization: An Unheralded Trend in Higher Education" (The Montana Professor Fall 2002, 10-16) was also presented. Dr. Mortenson prepared this article at the request of TMP's editors.]

The Human Capital Economy in Montana

In 1973, the United States entered a new economic era: an era created by the decline in heavy industry, increases in automation, and the increasing importance of information. This new economy has often been called "the information economy," or "the knowledge economy"; but it is more aptly denoted the Human Capital Economy for the extent of its dependence on human knowledge and skills. Increasingly, income and the living standards that income supports are being determined by educational attainment (Fig. 1). Those individuals, families and households, cities, and states with the most formal education have prospered during the last 30 years. Individuals, families, and households with the least formal education have experienced substantial real (inflation adjusted) declines in their incomes and living standards. Cities and states with the fewest college-educated adults have seen per capita income growth rates that fall below the national average. Market forces based on educational attainment have been and continue to aggressively reallocate income and living standards for people, their families, cities, and their states.

Montanans' per capita personal income has suffered during the Human Capital Economy. In 1973, Montana's per capita personal income stood at 96 percent of the average for the United States, and the state ranked 29th. By 2001, Montana's per capita personal income had fallen to 79 percent of the national average, leaving Montana ranked 47th among the states. While per capita personal income for the U.S. in 2001 was $30,472, Montana's was $23,963. If Montana had maintained its per capita personal income at the 1973 share of the national average, average Montanans would have earned $5,168 more in 2001 than they actually did. Montana has slipped to being one of the lowest income states in the U.S. during the Human Capital Economy of the last three decades.

Montanans are reasonably well-educated and their educational attainment levels are rising. But their educational attainment compared to other states is slipping. In 2000, 89.6 percent of Montanans age 25 and over were high school graduates and this ranked the state 11th. But in 1989 Montana ranked eighth among the states when 83.6 percent of its population 25 and over were high school graduates.

As far as the state's success in the Human Capital Economy is concerned, it is more significant that the college education statistic for Montanans does not fare as well as that for high school graduation. Between 1989 and 2000, the proportion of those 25 and over with at least a bachelor's degree from college increased from 21.1 to 23.8 percent. But Montana's rank among the states slipped from 23rd to 30th. Thus, Montana's gains in educational attainment have been outstripped by the gains occurring in other states. Montana is clearly lagging in developing and retaining college-trained workers for its Human Capital Economy.

During the Human Capital Economy of the last 30 years, a period when economic well-being has increasingly depended upon educational attainment, Montana has sharply curtailed its investment efforts in higher education. In 1973, Montana invested $11.43 per $1,000 of its personal income in higher education through the appropriation of state tax funds. By 2003, Montana's investment effort had dropped to $6.74 per $1,000 of personal income (Fig. 2). This is a reduction in Montana's higher education investment effort of 41 percent during the era where higher education has become the dominant factor in the growth in the personal incomes and the living standards of people, families, cities, and states.

The Public Interest in Opportunity for Higher Education

While education is seldom mentioned in the nation's great founding documents, it is nonetheless true that our nation's founders recognized the importance of education to the functioning of the democracy they envisioned and created through the Constitution. This importance was implicit in what they called "the republican idea," a complex set of principles the first of which was that political power was derived from the people, the primary governors. Good government, they held, required good governors, and good governors were well-educated. Nor was this a matter of national interest alone. In the first of paper of The Federalist, a series of newspaper columns explaining the new Constitution and advocating is ratification, Alexander Hamilton wrote:

It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for the political constitutions on accident and force.

At key times in our nation's history since, federal and state governments have turned to education for solutions to civic, social, and economic problems. In 1862 when classical higher education appeared to be ignoring the needs of an agrarian and industrial economy, the land grant universities were authorized. In 1944 when the end of World War II was in sight, the Congress, recognizing the implications of the tremendous growth in technology the war had spawned, made provision for returning members of the armed forces to obtain a college education by passing the famous G.I. Bill of Rights. In 1965, the plague of poverty amid prosperity was addressed in part through the creation of financial aid and outreach programs based on financial need to help students from low-income families prepare for college and pay college attendance costs.

States have always had the main responsibility for education, and as needs have emerged, states have responded. When efforts to make K-12 education universal required a well-trained teacher corps, the state normal schools were created. Community colleges followed when many remaining needs for postsecondary education that were not being addressed by four-year institutions became apparent. And after 1965, most states created financial aid programs (sometimes with federal encouragement) to help needy students finance college.

The common thread running through all of these initiatives may be stated simply: we Americans believe significant social, civic, and economic needs can be addressed by fostering opportunity for higher education and training. Opportunity for higher education serves vital public interests. High school education alone is no longer sufficient, and it has not been sufficient for the last 30 years of the Human Capital Economy. Today one must have the education and training gained through higher education to qualify for the best jobs at the highest pay.

Educational Opportunity by Family Income

It is a brute fact of nature that children are not able to choose their parents. The hand children are dealt at birth--including the character, gifts, and relative wealth of their parents--is the one they must play throughout their childhood, youth, and early adult lives. Public policy makers sometimes seek to intervene--to level the playing field--but for the most part these interventions are spotty, weak, late, and only marginally effective. Because of the importance of parental characteristics in the fortunes of children, we might say that in the United States children would be better off if they could choose their parents.

Census Bureau data collected in the Current Population Survey since 1970 describes trends and patterns in educational opportunity by family income in the United States. In these data we can control for family income by dividing the population of dependent 18- to 24-year-olds into quartiles of family income. In 2000, a quarter each of the population of dependent 18- to 24-year-olds fell into each of the following family income ranges:

Bottom quartile:	$0 to $34,000
Second quartile:	$34,000 to $60,000
Third quartile:	$60,000 to $86,000
Top quartile:	more than $86,000

For analytical purposes we describe educational progress in three stages: high school graduation, then college continuation for those who graduate from high school, then bachelor's degree completion by age 24 for those who start college. The product of these three stages is bachelor's degree attainment.

High school graduation: In 2000, high school graduation rates were strongly related to family income levels of students. For example, the proportion of dependent 18- to 24-year-olds from the bottom family income quartile who were high school graduates was 65.1 percent. At the second family income quartile, this rose to 83.4 percent, then to 90.5 percent in the third quartile, and finally to 92.0 percent for those from the top family income quartile. Moreover, these gaps have persisted almost without interruption for the last three decades. At this the first hurdle on the path to a bachelor's degree by age 24, the cohort has already been sorted out by family income.

College continuation: The college continuation rate is the proportion of dependent 18- to 24-year-old high school graduates who enroll in college. In 2000, these rates, too, varied directly with family income. High school graduates from the bottom family income quartile reached college at a 54.4 percent rate, compared to 67.1 percent in the second family income quartile, 76.2 percent in the third quartile, and 81.7 percent in the top income quartile. These gaps have also persisted over the last 30 years. At the second hurdle on the path to a bachelor's degree, the field is further spread according to family income.

Bachelor's degree completion: The bachelor's degree completion rate is an estimate of the proportion of dependent 18- to 24-year-olds who start college and complete a bachelor's degree by age 24. In 2000, these rates again varied with family income. For college students from the bottom quartile of family income, 19.5 percent completed a bachelor's degree by age 24. In the second family income quartile, the completion rate was 24.9 percent, in the third, 36.7 percent, and in the top it was 69.6 percent. These rates have fluctuated somewhat differently over the last 30 years, but the growth has been concentrated at the high end of the family income scale. Here, more than at earlier stages in the education pipeline, family income contributes the most to bachelor's degree completion.

Bachelor's degree attainment: The product of the high school graduation rate, college continuation rate, and college completion rate is the bachelor's degree attainment rate. It is the proportion of the population at age 24 with a bachelor's degree. In 2000, for students from the bottom quartile of family income, 6.9 percent had earned a bachelor's degree, compared to 13.9 percent in the second quartile, 25.3 percent in the third quartile, and 52.3 percent in the top quartile of family income (Figure 3). In fact, at college graduation most of the students we see receiving their bachelor's degree were born into the top quartile of family income. They did not earn their high family income--it was a gift based on the luck of the draw, an advantage that public policy interventions failed to overcome. To put the point somewhat differently: it is a sad fact that in the United States today it remains true that when we meet a college graduate, the chances are better than 50-50 that we are meeting someone whose parents' income was in the top 25 percent of the nation's families.

In the Human Capital Economy of the last 30 years, this mal-distribution of higher educational attainment exacerbates the growing income gap between rich and poor. The income gap has been growing since 1967. The education gap, resulting in part from spotty, weak, late, and only marginally effective public policy interventions is now contributing to the growing income gap.

Educational Opportunity in Montana

Montana newborns become high school graduates and college freshmen 18 years later. This defines the "education pipeline." The following chart describes what happened to the 14,538 babies born in Montana in 1982 as they moved through the educational milestones of their lives.

High school graduation: Montana youth graduate from public high schools at relatively high rates. At the conclusion of the 1999-2000 academic year, 10,903 students graduated from the public high schools in Montana. Four years earlier when this class started ninth grade there were 13,957 enrolled. Thus, 78.1 percent of those who started ninth grade received regular high school diplomas. By comparison, the national public high school graduation rate that year was 67.1 percent.

In 2000, Montana's public high school graduation rate ranked eighth among the 50 states. Over the last 20 years Montana has consistently ranked between fifth and eighth among the states.

However the rate at which Montana's ninth graders receive regular high school diplomas has been slipping. Montana's public high school graduation rate peaked at 86.7 percent in 1993 and has since dropped to 78.1 percent in 2000--the lowest at any time in the last two decades. Nationally, the public high school graduation rate has been sliding too, so Montana's rank among the states has only declined from sixth to eighth. The decline in public high school graduation rates is both a Montana and national problem because the students who do not persist and complete high school graduation requirements are not prepared for the academic challenges of college.

College continuation: Montanans' commitment to education weakens sharply after high school graduation. The fall 2000 college continuation rate for 2000 Montana high school graduates was 54.4 percent. This ranked Montana 32nd among the states. During the 1990s, the college continuation rate ranged between 51 and 58 percent, and Montana's rank among the states ranged between 25th and 32nd.

More Montana high school graduates leave Montana to attend college than come from other states to enroll in Montana colleges and universities. This has been the case for the last two decades, but in the 1990s that disparity increased. In 1986, 1,004 Montana high school graduates left the state to enroll elsewhere, and by 2000, that number had grown to 1,779. Most emigrants enroll in private colleges, and they tend to head for North Dakota, Washington, Wyoming, Oregon, Idaho, and California in that order.

Meanwhile, 1,316 freshmen came from other states to enroll in Montana institutions. Nearly all came to enter Montana's public universities, and they came mainly from Washington, Idaho, Minnesota, and Wyoming.

College participation by age 19: The product of high school graduation rates and college continuation rates for those who graduate from high school is the college participation rate. In 2000, the college participation rate for Montana was 42.5 percent, which ranked Montana 15th among the states. The 2000 rate for Montana was lower than any year in the 1990s, and below the peak of 46.2 percent reached in 1998.

College participation for Montana students from low-income families: Students born into low-income families present special challenges for public policy designed to foster higher educational opportunity. These students not only lack financial resources to attend college, but they also are less likely to be academically prepared to take on the intellectual challenge of college. Their parents are least likely to have college experience themselves, and they tend to live in communities and attend schools where relatively few students ever make it to college. In 2000-01, the college participation rate for Montana students from low-income families was 27.9 percent (compared to 42.5 percent for the population). This ranked Montana 15th among the states--the same ranking Montana holds for the population. Since 1992-93, Montana's college participation rate for students from low-income families has fluctuated between 11th and 21st among the states.

Summary and Observations

The Human Capital Economy will march along, its dependence on educational attainment ever increasing, with or without Montana's full engagement. Income and living standards supported by income are being ruthlessly reallocated according to educational attainment, a process which will continue. Those with the most education will prosper, just as they have been, while those with the least education will fall ever farther behind. This finding holds for individuals (men, women, whites, minorities), families and households, cities, and states. Only the naive can believe that it does not hold for Montana and its residents.

Compared to most other states, Montana's educational commitment appears to end at high school graduation. The state has done an enviable job of graduating its students from high school. In 2000, the proportion of its adult population with a high school diploma ranked 11th among the states, and its public high school graduation rate ranked eighth among the states. But even this success is slipping; the public high school graduation rate in Montana had declined from 86.7 percent in 1993 to 78.1 percent in 2000. Montana must reverse this trend.

But Montana needs to reassess its public commitment to higher education as well. The most obvious measure that something is wrong is the 41 percent reduction in state investment effort in higher education between 1973, at the advent of the Human Capital Economy, and the current fiscal year. The retrenchment in state investment effort has been particularly notable since about FY1986 and shows no signs of abatement. When it comes to the financing of higher education, Montana's leaders have been doing exactly the opposite of what the economic and social facts would imply that they ought to have done. This trend, too, must be reversed./1/

There are other apparent weaknesses in Montana's commitment to higher educational opportunity as well. In FY2001 Montana provided $2.2 million to fund 4,222 need-based grants to undergraduate students. But the federal Pell Grant program provided $36.9 million to 17,372 financially needy Montana resident undergraduate students the same year. Montana needs to make sure that financially needy students can afford pay their college attendance costs. Studies in New Mexico and Colorado have identified substantial unmet financial need for students from families earning less than $40,000 per year; yet both states have strong need-based grant programs, so the unmet financial need of students from low-income families is probably worse in Montana./2/

Notes

1. Happily, Montana has an opportunity in coming years to expand college participation rates without expanding campus capacity. The number of Montana high school graduates will decline by nineteen percent between 2000 and 2012.[Back]

2. Further illustrative material for this article may be seen at http://www.Postsecondary.org/pr/pr_02mt.asp.[Back]