Geographic distribution of human capital and local economic output in Indiana counties

The relationship between human capital and economic growth is well established in economic literature. Human capital, which includes the knowledge, skills and experience embodied in a region’s workforce, is a key determinant of a region’s economic growth through increased productivity, innovation and positive externalities. Higher education, particularly regional universities, play a critical role in fueling local economic growth since they serve as the engines of human capital formation. Through research and partnerships with local businesses, universities also help stimulate innovation and entrepreneurship.

In this article, we explore the geographical distribution of human capital across counties in Indiana. We then proceed to examine the association between human capital and local economic output from 2019 to 2023. Throughout the article, we use the terms “employment concentration (of those with a bachelor’s degree)” and “human capital” interchangeably.

Employment concentration of those with a bachelor’s degree

We quantify local human capital using the employment concentration of those with a bachelor’s degree (or BSEC). This is calculated as an employment location quotient, comparing a county’s employment of its college-educated workforce to the national average. A value greater than one indicates that a county employs a greater concentration of its college-educated workforce than the U.S. average. The BSEC data is from Lightcast and is based on Lightcast’s demographic data and the Census Bureau’s American Community Survey.     

To illustrate the geography of human capital across counties in Indiana, we mapped BSEC for 2020 (the height of the pandemic and presented in Figure 1A) and 2023 (presented in Figure 1B).¹ Counties are grouped by percentiles of the employment concentration distribution — the top 25th, middle 50th and bottom 25th. 

Figure 1A and Figure 1B: Spatial distribution of bachelor’s degree employment concentration (BSEC) in 2020 and 2023

Source: Authors’ calculations, using data from Lightcast

A visual inspection of the mapped data reveals clustering of the top 25th percentile counties in BSEC distribution (employment concentration greater than 0.74 and 0.77 in 2020 and 2023, respectively; darkest color on the maps) mostly in the middle of the state. There are also a few pockets near the northwest, northeast, southwest and southeast borders.

To gauge the impact of bachelor's degree concentration, we examine the presence of two industries with higher average weekly wages than manufacturing, the most concentrated industry in Indiana. For the top 25th percentile counties in baccalaureate employment concentration in 2023, the percentage of jobs in professional, scientific and technical services is significantly higher than it is in the bottom 25th percentile counties (4.15% and 2.25%, respectively). The percentage of jobs in finance and insurance is marginally higher in the top 25th percentile counties as opposed to the bottom 25th percentile counties in BSEC distribution (2.60% and 2.11%, respectively). Both industries are among the highest paid industries in Indiana.

There are several policy implications for this:

First, the concentration of high-skill, knowledge-intensive sectors (such as professional business services and finance) in top counties reinforces the importance of advanced educational attainment as a key driver of regional GDP. Investments in higher education directly contribute to building the local workforce needed for these sectors (Moretti, 2012).

Second, the statistical gap suggests a growing divergence between top-performing metropolitan counties and rural or smaller urban counties. This raises concerns about regional inequality and the need for targeted development strategies outside the core metropolitan areas (Federal Reserve of St. Louis, 2019).

Third, counties in the lower (25th) percentile may need expanded access to degree programs tied to high-skill sectors, employer-university partnerships to upskill existing workers and targeted micro-credentials in professional services, IT and financial analysis (Porter, 1998).

Regional economic development organizations can use this data to build their targeted sector attraction strategies and make the case for educational investment as a component to regional economic competitiveness, particularly as knowledge-intensive sectors are highly concentrated. Institutions of higher education and regional planners need to be highly intentional about linking program offerings with employer needs — or they risk widening regional disparities (Porter, 1998; Brookings Institution, 2017).

Human capital and economic output across Indiana counties

The link between human capital and local economic growth is well documented. To measure local economic output, we use county-level per capita real gross domestic product (RGDP) data from the U.S. Bureau of Economic Analysis (BEA). County per capita RGDP captures the overall value of output per individual, an indicator and broad measure of local economic growth when tracked over time.

Figure 2 shows the trends in average employment concentration of the college-educated workforce (BSEC) and output per capita (RGDP) across all Indiana counties from 2019 to 2023. BSEC shows a steady increase, even through the pandemic. On the other hand, per capita RGDP dropped at the height of the pandemic in 2020 and has shown a positive trend from 2021 to 2023. The steady increase in BSEC through the pandemic is a positive indicator of the importance of human capital for a worker’s resilience from adverse economic shocks. Additionally, considering the spillovers and positive externalities of human capital on local communities, this increase may also help these communities be more resilient.

Figure 2: Per capita real gross domestic product (RGDP) and employment concentration of those with a bachelor’s degree (BSEC) across all Indiana counties

Note: RGDP is in thousands of 2017 chained dollars. BSEC is an employment location quotient that compares employment of those with a bachelor’s degree to the national average.
Source: Authors’ calculations, using Lightcast and Bureau of Economic Analysis data

To explore the association between human capital and local economic output, we estimated a regression model of RGDP with BSEC, its squared term (BSEC2) and a dummy variable (BSECG1). BSECG1 equals one if the county’s BSEC is greater than one (implying a higher concentration than the U.S. average).² For a better model fit and to facilitate an easier interpretation of results, we transformed RGDP to its natural log (i.e., Y = lnRGDP). The results are presented in Table 1.

Table 1: Per capita RGDP and BS employment concentration

Note: *** indicates significant at 1%, ** indicates significant at 5% and * indicates significant at 10%. The standard errors are in parentheses.
Source: Authors’ calculations, using Lightcast and Bureau of Economic Analysis data

The regression results suggest a consistent positive association between RGDP and BSEC from 2019 through 2023. Moreover, we observed some evidence of diminishing marginal returns to human capital, as indicated by the negative coefficients on the BSEC2 variable (significant in the 2019 pre-pandemic and 2021 post-pandemic models). However, there is no indication that a local employment concentration that is higher than the U.S. average (BSECG1) is associated with higher local per capita output. What seems to matter is having a higher concentration of human capital locally rather than comparing it to the national average.

To further investigate the association of levels of local employment concentration to per capita output, we estimated a second set of regression models using dummy variables to capture the counties in Indiana at the top and bottom 25th percentiles of BSEC distribution (see Table 2). The results suggest that the bottom 25th percentile counties in the employment concentration distribution have lower per capita RGDP compared to the rest of the counties in the state, with the disparity growing from 2019 to 2020.

On the other hand, the top 25th percentile counties in the employment concentration distribution exhibit higher RGDP than the rest of the counties in the state. This trend is significant in 2019 and 2020, although there is a decline in magnitude during the pandemic in 2021. From 2022 to 2023, the significant trend not only persists, but also increases in magnitude. Before the pandemic in 2019, the top 25th percentile counties in the employment concentration distribution had a 25.3% higher per capita RGDP than the rest of the counties in Indiana. This difference decreased to 23.7% at the peak of the pandemic in 2020, but rose to 27.7% by 2023. These trends can be seen as a positive indicator of the role of human capital in the ability of counties to respond to adverse economic shocks.

Table 2: Per capita RGDP and employment concentration of those with a bachelor’s degree, top 25th and bottom 25th percentiles

Source: Authors’ calculations, using Lightcast and Bureau of Economic Analysis data

Conclusion

The trends we have uncovered here suggest that counties in Indiana with higher concentrations of employed college-educated workers tend to have higher economic output, albeit subject to diminishing marginal returns. In addition, our examination of the top and bottom 25th percentiles of the BSEC distribution reveals that counties in the top 25th percentile exhibit significantly higher per capita RGDP compared to the rest of the state, while those in the bottom 25th percentile have lower per capita RGDP. We also observed significant positive spatial clustering of human capital, with the top 25th percentile counties predominantly located in the central region of the state, as well as pockets near the northern and southern borders, suggesting spillover effects. Additionally, we provide evidence of significant differences in high human capital industries between the highest and lowest counties in bachelor employment concentration. These results highlight the critical role of human capital in fostering local economies and the benefits of a regional approach to education.