Degree of Confidence

illustration of a orange rocket ship blasting across a city skyline

UT Economists Acknowledge the Wise Investment Today’s Graduates Have Made in Their Futures

By Gina Stafford

Capped and gowned and filled with pride, tens of thousands of Tennesseans this month will step onto stages for the last time as college students and step off for the first time as college graduates. Behind them are the time, effort and dollars to complete their degrees, and ahead of them—the experts say—is the promise of a return on investment that will demonstrate its value clearly over a career.

First up, today’s graduates enter the work world equipped with what has become the common currency for making a living in today’s knowledge economy.

And, when it comes to the knowledge economy, Tennessee policymakers want to make sure the state is open for business. They’re betting big on the potential of higher education to transform Tennessee’s economy by transforming its workforce. Tennessee Achieves, Tennessee Promise, Tennessee Reconnect, Drive to 55 and the Complete College Tennessee Act all are higher-education initiatives implemented within just the last five years. Since 2011, the state’s public colleges have seen two-year degree production up 22 percent, four-year degree production up 11 percent, graduation rates up 10 percent, and there’s optimism about the economic rewards to be reaped from those trends.[1]

Bill Fox
Bill Fox

In Tennessee, if you want to know about the state’s official economic outlook, you go to the University of Tennessee Knoxville’s Boyd Center for Business and Economic Research (CBER). CBER conducts research on state and national economic trends for the university, state agencies, and public and private organizations.

Led by two highly regarded economists, Bill Fox, its director, and Matt Murray, associate director, CBER analyzes the Tennessee economy and reports on it yearly in a document that informs the governor’s annual state budget proposal. Among its other influential reporting and analysis, CBER maintains the Tennessee Econometric Model of the state economy, providing quarterly, annual and long-term economic and fiscal forecasts.

Fox and Murray say that, while Tennessee is recognized as a leader in education innovation, just as change takes years to implement, results can take years to appear.

“These are policy changes. They’re not actual achievements yet, but it’s clear that we have been creative,” Fox says. “We’ve taken a state with relatively limited resources and used them really well to move us in the right direction. Hopefully, over the next 10 years, we achieve, but we have to keep achieving beyond that.”

“We’ve got to get the pipeline solidified in order to produce the quality of students that we want to enter higher education.”


That’s part of the “foot race” mindset Murray introduced 10 years ago in his “Education Crossroads” report on numerous concerns about the relationship between lagging education attainment, economic opportunity and economic competitiveness in Tennessee. Among those concerns: Only 19.6 percent of Tennesseans had at least a bachelor’s degree in 2000 versus 24.4 percent nationally. In the wake of numerous K-12 and higher-education initiatives since then, about 38 percent of Tennesseans have at least a post-secondary education credential or better today.
Murray says he hopes his report was influential but notes “a lot of things were coming together.”

Matt Murray
Matt Murray

“There was a growing awareness in ’06, ’07, and ’08 about the woeful situation in Tennessee in terms of funding, particularly for K through 12 education but also growing concerns about the labor force,” Murray says. “Gov. (Phil) Bredesen was shocked to find that the U.S. Chamber gave Tennessee an F when it came to its workforce. That was one of the really important catalysts.

“We’ve seen really significant improvement since then—in funding, in education initiatives, and by some measures, educational attainment has improved. It’s really not moving the needle yet in per-capita income, but we would expect that those investments continue to be made going forward and, ultimately, we will see that bear fruit in the form of higher earnings for Tennesseans.”

While Tennessee post-secondary education attainment has roughly doubled since 2000, Fox says boosting it again by half, from its current 38 percent to 55 percent by 2025–the goal of Gov. Bill Haslam’s Drive to 55 initiative–is “incredibly challenging.”

“I don’t know if we’ll get there, but it’s not totally about whether you get there,” Fox says. “It’s about whether you’re able to change the direction to start moving rapidly in that direction. To me, the key issue—and we have done this as a state—is we’ve changed the conversation about education.”

Meanwhile, what changed the workplace so drastically? How did higher education become the common currency of making a living? Well, “the knowledge economy” isn’t just a catch phrase. It’s the reality of a job market increasingly driven more by skills and less by manual labor, Fox says.

“The bottom line is an ability to think in ways you can’t fully develop just by going to high school. The information requirements to run a business, to have positions, simply have grown dramatically. That means decision-making skills, analytical skills—those are what employers are looking for,” he says.

“And, of course, what an employee does shifts so radically across the course of a career. Certainly, this is true for me. The way I do my job today and the way I did my job when I came to UT are so different, you would hardly know I had the same job, but I’ve been a professor all through this time period. What I need and what most of the workforce needs is that capacity to transition with an economy that is changing so fast.”

For example, Fox says, decades ago, when he analyzed state tax revenues monthly, he spent two days in Nashville collecting data and noting it by hand, then he returned to Knoxville to conduct the analysis and prepare a report.

“Now, thanks to information technology, we do the report in two hours from Knoxville and in much higher quality than we used to,” Fox says.

“Technology is affecting what every single one of us does. That’s why you have to have people who not only can work with technology of today but who can work with where the economy is going, five years from today and 40 years from today.”

It’s a long-term trend accelerated by the recession of 2008, Murray adds.

“If you think about Tennessee’s economy, the kinds of jobs we supported were reflective of the kinds of skills that Tennesseans had, so there’s going to be a lag as businesses adjust and transform, and I think, in some ways, the great recession probably really sped this process up because it led to enormous job losses and fundamental restructurings across industries around the country,” Murray says.

“A big part of the economic activity that will take place in Tennessee will happen because Tennesseans start it.”


“What we’ve seen over the course of the great recession is one of the reasons the unemployment rate is still high is we are creating jobs&emdash;good-quality jobs, and that’s what we want, employing better-educated Tennesseans&emdash;but then large numbers of people who historically have been low skill with low levels of educational attainment are being left behind by this kind of new pattern in economic growth. I think that really characterizes our collective thinking about why the unemployment rate’s high and what’s different about the economy today in 2016 than was the case in 2007 when the recession started.”

A better-educated workforce doesn’t appeal to businesses only as quality labor, Fox says; it also appeals to businesses looking for quality of life.

“It plays both sides. It’s both their workers and their own lives being influenced by education,” he says. “Also, economic activity won’t happen just because we may have 10,000 workers with the right skills. A big part of economic activity that will take place in Tennessee will happen because Tennesseans start it. We need a skilled set of entrepreneurs who are going to create jobs from within, and many of these are people who will benefit from and need higher educations to have the skills necessary to compete.”

Given all that, a college degree is a wise buy, these experts say.

“You could look at this from a basic investment perspective,” Murray explains. “If you look at higher education, it provides a pretty incredible return on investment. The earnings difference is really substantial and, in some fields of study, the difference is enormous. The returns are very compelling.”

“And, remember, it’s an investment that’s made in some two- to four- to five-year time period up front,” Fox adds, cautioning that neither he nor Murray advocate large student debt.

“Education is the investment you make in your own future.”

“We hear all this talk about students leaving with ‘this much debt, and in the first year, they earn only $40,000 or $50,000’ or whatever the number is. That’s not the right comparison,” Fox says. “If what they’re going to get is more money throughout the rest of their life, that’s what needs to be compared to the investment they made up front. The comparison between the earnings differential and that cost to them up front suggests it’s well worth it.”

Compensation varies by career path, obviously, but estimates are that a college graduate’s lifetime earnings average 84 percent more than a worker without a degree—or an average $2.8 million over the course of a lifetime[2]. That doesn’t include the diminishing job prospects for those without education beyond high school.

“The financial returns are just one dimension. It’s really a broader issue of quality of life because there are so many benefits to society and that accrue to the individual who achieves that higher education degree,” Murray says. “They tend to live longer. They tend to have generally better health status. They tend to be happier in life. They have a greater likelihood of owning a home.

“The list goes on, with enormous spillover returns for the individual and the family, and the better-educated are less likely to be on welfare, less likely to be in the prison system. So there also are many significantly reduced social costs associated with having a better-educated population.”

Fox and Murray both praise Bredesen and Haslam for making education a priority while governor, especially now that education attainment has become a critical asset in the footrace driven by global economic competitiveness.

“Failure to invest in education doesn’t just leave us where we are,” Fox says, “because the rest of the world is changing, whether we keep up or not.”

“In fact, we have to accelerate,” Murray adds. “To gain ground, from a national perspective in measures like education attainment, we’re going to have to have stronger growth in educational attainment. We’re falling behind by standing still. It’s an absolute recipe for disaster.”

It’s going to take more than just 18- to 22-year-olds seeking degrees, too. Fox says “the big part of the investment that needs to continue to take place in Tennessee” is in education for nontraditional or returning students.

In January, CBER completed a report in collaboration with the research staff of Tennessee Commissioner of Economic Development Randy Boyd. Titled “Economic Benefits of Postsecondary Credentials,” the report estimated the income differential to Tennesseans for achieving Drive to 55’s ambitious goal and was cited by Gov. Haslam in his 2016 State of the State Address: “…moving our population to 55 percent would mean $9 billion in additional income for Tennesseans. I can’t think of anything else that comes close to this effort for impacting the future of Tennessee.”

“That’s $9 billion a year, plus growth from there, all valued in 2015 dollars,” Fox says. “The potential implications of this are extraordinary. Any investment Tennessee puts into higher education over the next decade is going to pale by comparison.”

So, congratulations to the class of 2016 on your achievement today—and for the wise investment in your tomorrow.

Editor’s Note: In April, the UT Board of Trustees voted to re-name the UT Knoxville Center for Business and Economic Research the Boyd Center for Business and Economic Research in honor of Randy and Jenny Boyd.

[1] Tennessee Higher Education Commission
[2] Lumina Foundation

More in this Issue:

Bill Fox and Matt Murray
More thoughts from economists Fox & Murray
illustration of smiling grads
Caps, gowns, commencement. Where do graduation traditions come from?

Alumni Stories:

Joshua Light
Joshua Light
Rosie Riley
Rosie Riley
Harold DePriest
Harold DePriest
Maddy and Mathilde
Madeleine Beatty
Blake Thomas
Blake Thomas
Jake Bynum and daughter Ella in the Tennsee Soybean Festival parade in 2014
Jake Bynum