The true New Hampshire advantage

"We must transform our tax advantage into an education advantage," says Children's Alliance board member and UNH economics professor Ross Gittell

December 1, 2004

By Ross Gittell, Ph.D.
Board member, Children’s Alliance of NH
James R. Carter Professor, University of New Hampshire

What is the true New Hampshire advantage?

The state has had a strong economy over the last quarter century. New Hampshire had the highest employment growth in the Northeast, second fastest increase in per capita income in the nation (improving in rank among the 50 states from 25th to sixth) and is well positioned in leading technology industries (ranked ninth in the nation in employment concentration in high technology industries).

There is no question that the lack of income and sales taxes has helped attract businesses, entrepreneurs and highly educated workers. But what has worked in the past will not work in the future. As the world outside New Hampshire changes, so must New Hampshire. If we are to keep our competitive advantage, we must transform our tax advantage into an education advantage.

The foundation of New Hampshire’s economic success is the skills and capabilities of the state’s residents. Of all the factors affecting states' economic performance, including tax burden, the factor with the strongest correlation to high level and growth in state per capita income is the percentage of the adult population with at least a four-year college degree.

All the highest per capita income states – Connecticut, Massachusetts, Maryland – rank at the top in the percentage of adults with a college degree. NH, and all the nation’s states and businesses, compete in a knowledge-based global economy for which human capital is the key to economic success.

In the past, New Hampshire has used its tax advantage – as one of only two states without either a broad-based personal income or sales tax – to entice many highly educated, hard-working and entrepreneurial adults into the state. Between the years 1975 and 2000, New Hampshire led the Northeast in net domestic in-migration (as a percentage of total population). A survey in 2000 revealed that three of four adults in New Hampshire with bachelor's degrees or higher were born in another state.

The influx of highly educated baby boomers also created an education advantage. By 2000, NH was the ninth-ranked state in the percentage of adults with at least a four-year college degree. That percentage increased from 18 to 29 percent between 1980 and 2000. In many respects, NH imported a highly educated workforce, a high-per-capita income, and a high-technology economy.

The state’s ability to parlay a tax advantage into an economic advantage required demographic factors outside its influence. The key demographic factor was the large pool of young, mobile baby boomers coming of age and starting families.

What has worked in the past for NH ’s economy will not continue to work. As many of us know first hand, baby boomers are aging and not as mobile. The generational cohorts following the baby boomers are significantly smaller. In addition, rising housing costs make the state less attractive to potential in-migrants, particularly young families. All of this results in the pool of potential in-migrants shrinking. For example, net in-migration of 14,000 to NH from other states in 2001 is expected to decline to below 9,000 by 2004 a decline of more than one third, according to the New England Economic Partnership.

That decline may be good news to those concerned about too much growth eroding New Hampshire's character. But as the baby boomers start to retire, who will work in the high technology and other industries that require skilled workers? How will NH sustain its economic advantage?

The answer is that economic policy dictates investments in NH's children. Our state's high concentration of technology jobs means that more than two-thirds of jobs created here in the future will require some college education. Yet the reality is that currently no county in the state has two of three high school graduates going on to college. In three counties – Coos, Belknap and Strafford – fewer than four of 10 male high school graduates go on to college.

New Hampshire is at risk of falling behind. Our rate of matriculation to four-year colleges is below those of other high per capita income states. In dollar terms, every high school graduating class’ matriculation to college below peer states results in an approximate annual loss of $10 million to the state’s economy. With multiplier effects, each (20-year) generation loss from low matriculation to 4-year colleges is about a half-billion dollars, or 1 percent of the state’s overall economy.

An education advantage is more important than a tax advantage to a strong economy.

NH’s economic future depends on investment in our children, even if it requires reducing our tax advantage. Investment in children starts by ensuring that young children are members of healthy and well-functioning families. It also requires high quality education starting with pre-school and continuing through graduate school. And it requires ensuring access for all our children to high quality and higher education.

Our most valuable economic resource is our children, every single one of them. It’s time we started treating them that way.

Ross Gittell is James R. Carter Professor and Professor of Management in the University of New Hampshire's Whittemore School of Business & Economics