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Economic prosperity in Utah, Arizona: What does the future hold?

This graphic illustrates Arizona's reduction in higher ed spending per student in recent years.
This graphic illustrates Arizona's reduction in higher ed spending per student in recent years.
Heather Miller, Deseret News

Despite being similar in many important ways, Utah and Arizona have their own strengths and weaknesses relative to economic prosperity. Recognizing these differences (and trying to understand them) can be an important exercise for thinking about and shaping the futures of these two states.

Political leaders and policy experts interested in regional economic development tend to focus their attention to measures of aggregate economic growth, such as gross domestic product and employment. But the ultimate goal of economic development is to enhance the prosperity of a region, not to increase its economic size. A recent report by the Office of the University Economist at Arizona State University shows that while Arizona’s economy is larger, Utah is arguably more prosperous.

The business climate in Utah has been evaluated as among the best in the nation, while Arizona’s ranks in the middle of the pack. For example, according to the Beacon Hill Institute, Arizona’s business climate ranks 23rd nationally while Utah’s is 8th. And according to Forbes, Arizona’s is 22nd and Utah’s is first.

Relative to Arizona, Utah’s median household income is higher and its poverty and unemployment rates are lower.

There are many factors that contribute to a successful regional economic development. Some of these factors — including the quality of physical infrastructure, business costs and the quality and availability of labor — are known to be more favorable in Utah than in Arizona. While all of these factors are important, we see the quality and availability of labor as especially critical if these states continue on economic development trajectories that aspire to be more knowledge and technology intensive. Also, since public schools account for the majority of students in K-12 and higher education in both states, this is an economic development factor that is among the most amenable to optimization through policy choices.

The quality and availability of the labor force is often evaluated through measures of educational achievement and attainment. In terms of achievement, students in Utah score higher than those in Arizona in critical subjects such as reading, mathematics, and science. Education attainment is also higher in Utah than Arizona, whether measured in terms of the percent of adults who have graduated high school or the percent of adults who have college degrees.

It is true that educational achievement and attainment are influenced by a number of conditions, including income, English fluency and the educational attainment of a child’s parents. We are especially cognizant of the large differences between Arizona and Utah in these areas, with Utah comparing more favorably on each characteristic as they relate to educational performance. Accordingly, Utah performs better than Arizona on educational measures due largely to demographics.

Since most children attend public schools, public policy plays a significant role in a state’s development of qualified labor. Funding per pupil in elementary and secondary schools is very low in both Arizona and Utah, with each state ranking among the bottom three states. With the needs being greater in Arizona, due to many of the demographic factors mentioned above, Arizona needs to spend more per student to achieve the same education outcomes as Utah.

In recent years, both Arizona and Utah have spent less on higher education than the national average. However, in the last four years, Arizona’s investment has dropped significantly. In 2011, state appropriations per student in Arizona were 30 percent higher than in Utah, but since then Arizona has cut higher education spending dramatically. In 2016, Arizona is projected to spend 29 percent less per student than Utah.

While it is true that many economic, policy and demographic factors contribute to these differences and how they will play out in years to come, labor force issues are arguably the most important. Labor force quality has and will contribute to ongoing economic performance differences. And higher education has a key role to play in determining labor force quality. The financial investments that Utah and Arizona make toward higher education going forward will have an important influence on accessibility and the pace at which workforces in each state realize educational attainment goals.

Dennis Hoffman is director of the L. William Seidman Research Institute at the W.P Carey School of Business at Arizona State University, where he is also director of the Office of the University Economist. Derrick M. Anderson is a professor in the School of Public Affairs and the Center for Organization Research and Design at Arizona State University, where he is also adviser to the president for innovation.