That is, when the British Empire was populating the Haklyut Archipelago.  These days, it works differently, with state colleges conditioning free tuition on staying in state to complete a term of service.  Dumb idea, says Matt "Dean Dad" Reed.
The point of public education is to benefit everybody.  Sometimes that means sending folks off to places where their unique talents will make a better fit. That’s fine; that’s what makes the economy work.  But even if the economics turn out to be a wash, there’s a deeper ethical point here. Education is about, among other things, freedom.  If some of the peasants want to flee the land, let them. If states want to keep more of their own, and attract others from outside, let them make themselves more appealing destinations. Attract the ones who want to be there, rather than trapping the ones who don’t.
Yes, and there's no reason a state university can't run a balance of trade surplus with China, or with New Jersey or with Illinois.
Remember the Great Recession?  Imagine graduating the University of Michigan in 2009, only to be told that leaving the state would require ponying up all that past tuition, but the in-state economy simply isn’t hiring.

Conservative economist Tyler Cowen has argued, I think correctly, that people going where the opportunity is often leads to better outcomes all around. Shackling them to a depressed region isn’t likely to lead to positive outcomes.

Residency requirements, if they spread, would also greatly shift the balance of power when companies play states off against each other in bidding wars for relocations. As hard as it is to move for a job -- something I know personally -- it’s that much harder to see the job move away and know that you don’t have the option to follow it. That already happens between countries, but moves between states are much more common.  Allow capital to move but tie workers to places, and I’d expect to see ever more public funding get diverted -- whether directly, as through subsidies, or indirectly, as through tax credits or abatements -- to owners, even as wages go down.
I'm not sure that "conservative" adjective, which isn't precise with respect to Professor Cowen anyway, helps much.  Efficiency gains are more likely wherever economic agents operate under fewer constraints: that is, with more agency, and Tyler Cowen and Joseph Stiglitz and Stephen Karlson for that matter are likely to cite the same theorems in defense of that proposition.  Now, with Foxconn extracting some tax preferences from Wisconsin, even without a Wisconsin Indenture Free Tuition program in place, the states are locked in this subsidy arms race.  Now immobilize the labor force with these indentures and the states might compete to pick up the exit taxes of workers moving to the new jobs.

But Matt might want to be careful about subverting the state.
People aren’t supposed to be tools to realize goals of the state. The state is supposed to be a tool to realize the goals of people. Social contract theory isn’t new, but it’s based on an insight that still holds: the state is here to serve us, not the other way around. This kind of economic coercion, essentially kneecapping the educated young for the short-term gain of the state, is a category mistake.
The beginning of classical liberalism, anyone?

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