Skin in the game: higher ed edition

A core advantage of the United States as an economic and political unit is that it is a massive labor market with very high mobility, so talent moves from areas with lower demand to higher demand.

The flip side is that some states will suffer from brain drain: their talent pools hollow out as other states draw their most attractive job candidates. If you’re early-career and have a computer science degree in West Virginia, moving to the Bay Area might be a good career move.

What economic incentive does this leave West Virginia to build a strong “export” market for human capital? Very little, unless those workers come back to the state with accumulated skills and capital in the future.

One option to start threading this needle is through mechanisms like Income Sharing Agreements (ISAs). If student loans are analogous to corporate debt, these ISAs work like preferred equity: a guaranteed cut of the graduate’s income over some length of time sufficient to turn a profit on the initial spending. This gives the ISA holder upside to a student’s earning potential.

Does an ISA, or something like it, give West Virginia a way to capture some of the earnings on its recent graduates, which might be from higher wages earned elsewhere? Potentially. This turns on the economics of ISAs. The results have been mixed.