The Economic Impact of a Higher
Education System on a State Economy
Presented by:
Christopher S. Gerlach, Associate Economist
April 21, 2010
what does REMI say? sm
State of Affairs
Great Recession … Higher tuition …
• Private higher education
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–
–
–
Job losses  Lower income/wealth 
… may limit access (in-state vs. out-of-state) …
… may scale down (2-year vs. 4-year) …
… may postpone/opt out …
• Public higher education
– Lower output/employment  Lower revenues 
– … limits tuition assistance loans, grants, etc. …
– … reduction in service and/or increase in tuition …
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Policy Interface
• Inform state and local tax reform/budget shortfall
decisions ... potholes or professors? …
• Investigate the availability of loans, grants, etc. to make
higher education more accessible, comprehensive and
affordable …
• Explore immigration reform measures as they relate to
higher education as an export industry …
• Examine other impacts of public policy decisions …
primary and secondary education implications … socioeconomic, racial equity considerations …
• Justify and/or quantify the economic impact of higher
education at the national, state or local level …
what does REMI say? sm
REMI & Higher Ed
• Past studies utilizing REMI’s dynamic structural economic
impact model:
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–
–
–
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Northwestern University, Illinois (1996)
University of North Carolina (system) (2001)
University of California (system) (2003)
Florida postsecondary centers and institutions (2003)
Washington hypothetical expansion of public higher education (2004)
University of Connecticut (2005)
Michigan, Grand Rapids and Kalamazoo hypothetical expansion of public
higher education (2007)
– Virginia public higher education and a hypothetical expansion (2009)
• This analysis revisits a 2008 study conducted by REMI for
the Oklahoma State Regents for Higher Education (OSRHE)
to measure the total economic impacts of the higher
education system for the state of Oklahoma
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Oklahoma Higher Education
• Oklahoma has 59 postsecondary institutions
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–
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–
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Number of Public:
Number of Private:
Number of 4-year:
Number of 2-year:
Enrollment:
Location:
29
~49%
30
~51%
39
~66%
20
~34%
~205,000*
~40% in Oklahoma City and Tulsa areas
Source: National Center for Education Statistics (NCES) – Integrated Postsecondary Educational
Data System (IPEDS). (2006-2007) (2007-2008).
• Largest institutions
– Oklahoma State University (5 campuses ~30,000 students)
– University of Oklahoma (3 campuses ~30,000 students)
• Data for 2008 study provided by Oklahoma State Regents
for Higher Education (OSRHE)
– employment; graduate numbers; retention rates; construction and capital
spending; student and visitor spending; etc.
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Model Specifications
Destination of Production of Forestry and logging; Fishing, hunting, and trapping for Tulsa MSA Counties - 2008
Oklahoma City
MSA Counties
2.48%
0.03%
3-Region …
Destination of Production of Forestry and logging; Fishing, hunting, and trapping for Oklahoma City MSA Counties - 2008
Tulsa MSA
Counties
•
•
•
•
•
•
•
Creek
Okmulgee
Osage
Pawnee
Rogers
Tulsa
Wagoner
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16%
0.32%
•
•
•
•
•
•
•
Canadian
Cleveland
Grady
Lincoln
Logan
McClain
Oklahoma
Destination of Production of Forestry and logging; Fishing, hunting, and trapping for Rest of Oklahoma Counties - 2008
10.01%
0.56%
… 70-Sector
Basic Methodology
• Direct jobs, student and visitor spending, and capital
expenditures
• Productivity gains*
 Graduate earnings
 Competitiveness of Oklahoma industries
*Utilizes a given level of graduate retention
• Additional benefits (outside scope of this analysis)
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–
–
–
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Better health
Reduced crime
Increased volunteerism
Increased innovation/entrepreneurship
Etc.
• Endogenous ripple and feedback effects
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Direct Jobs and Spending
• Faculty and staff employment and compensation
– educational services
– professional and technical services
– administrative and support services
• Student and visitor spending
– publishing, excluding internet (books)
– educational services (tuition)
– consumption (pizza, beer, hotels, etc)
• Construction, operations and maintenance
– commercial and institutional building construction
– highway, street, bridge and tunnel construction
– computers and furniture
what does REMI say? sm
Labor Productivity Gains
Increased Labor
Productivity
Higher
Compensation
to OK Employees
Higher Real
Disposable
Income
Higher
Employment
Higher
Output/GSP
Higher
Consumption
Oklahoma Businesses
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Oklahoma Residents
Increased Labor
Productivity
Decreased
Production Costs
Increased Market
Share
Higher
Employment
Higher
Output/GSP
Increased Exports
/ Decreased
Imports
REMI PI+ Inputs
Employment Effect
Student Expenditures
Visitors and Athletics
Capital Expenditures and
Construction Spending
Graduate Earnings
Productivity
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Partial Model Demo
Abbreviated Model Demonstration
Direct Employment Impacts
2008 2009 2010 … 2047 2048
Totals
Educational Services
183
183
183 …
183
183
7,510
Professional and Technical Services
186
186
186 …
186
186
7,638
…
…
…
…
…
250
250
250 …
250
250 10,235
…
Administrative and Support Services
Policy Variable: Industry Employment (number)
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…
…
Change in GSP
Gross State Product (Bil Nom$)
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Baseline
With Higher Education
2008
$129.528
$134.852
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2018
$205.395
$231.687
2028
$312.669
$370.206
2038
$479.102
$584.101
2048
$758.871
$938.634
GSP Growth Drivers
Shares of Cumulative Growth in Gross State
Product over Baseline Scenario
Productivity
68.4%
Graduate Earnings
14.8%
Employment Gains
10.4%
6.0%
0.2% 0.3%
Student Expenditures
Capital and Construction Spending
Visitors and Athletics
100% = $1.361 trillion over 40 years (real)
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Employment and Labor Force Gains
400,000
353,200
350,000
302,900
300,000
314,800
248,200
250,000
265,400
185,600
200,000
205,600
150,000
135,900
107,900
100,000
50,000
23,590
-
2008
2018
Labor Force
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2028
Employment
2038
2048
Employment Growth Drivers
Employment Gains by Exogenous Input
350,000
Productivity
300,000
Graduate Earnings
250,000
Capital and Construction
Spending
200,000
Visitors and Athletics
150,000
Student Expenditures
100,000
Employment Effect
50,000
2008
2018
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2028
2038
2048
Summary
• Compounding effects of productivity gains from higher education
– 2008: 2008 graduates with lifelong higher productivity
– 2009: 2008 & 2009 graduates with lifelong higher productivity
– 2048: 40 years of graduates with lifelong higher productivity
• Increased graduate earnings will contribute $8.825 billion annually to
state disposable income  consumption  GSP/employment  etc.
• Ripple and feedback effects
– Direct employment gains 2008-2048: ~739 jobs annually
– Total employment gains 2008-2048: ~6,200 jobs annually
Through these individual and combined effects, investment in higher education
builds the foundation of sustained economic growth and ensures a long-term
regional competitive advantage.
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Questions/Comments?
Christopher S. Gerlach
Associate Economist
District Office:
700 12th St. NW, Suite 700
Washington, DC 20005
Headquarters:
433 West St.
Amherst, MA 01002
Ph: 202.904.2490
chris.gerlach@remi.com
www.remi.com
Ph: 413.549.1169
info@remi.com
what does REMI say? sm
Referenced Studies
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Northwestern University
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University of North Carolina (system)
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McMillen, Stan. 2005. The economic impact of research at the University of Connecticut and the University Health Center.
Storrs, CT: Connecticut Center for Economic Analysis, University of Connecticut.
Michigan (Grand Rapids and Kalamazoo) hypothetical expansion of public higher education
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•
Washington Research Council. 2004. Education initiative 884: short-term pain for long-term gain. Washington Research
Council Special Report.
University of Connecticut
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•
Harrington, Julie, Tim Lynch, Necati Aydin, and Deokro Lee. 2003. The economic impact of academic centers and
institutions on state-level GRP. The Empirical Economic Letters 2, 6: 229-245.
Washington hypothetical expansion of public higher education
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•
ICF Consulting. 2003. California’s future: it starts here, UC’s contributions to economic growth, health, and culture.
Florida postsecondary centers and institutions
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•
Luger, Michael, Jun Koo, Jonathan Perry, and Stephen Billings. 2001. The economic impact of the UNC system on the
State of North Carolina. Chapel Hill, NC: Office of Economic Development, Kenan Institute, University of North Carolina
at Chapel Hill.
University of California (system)
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•
Felsenstein, Daniel. 1996. The university in the metropolitan arena: impacts and public policy implications. Urban Studies
33, 9: 1565-1580.
Bartik, Timothy and George Erickcek. 2007. Higher education, the health care industry, and metropolitan regional
economic development: what can “eds & meds” do for the economic fortunes of a metro area’s residents? Staff Paper
No. 08-140, Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Virginia public higher education
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Rephann, Terance, John Knapp, and William Shobe. 2009. Study of the Economic Impact of Virginia Public Higher
Education. Charlottesville, VA: Weldon Cooper Center for Public Service, University of Virginia.
what does REMI say? sm
Productivity Manipulation
where,
ΔOutputjt is the change in output of sector j in year t;
Intermediate is the intermediate demand for employment in 2006;
Emp is total employment in 2006;
Grads is the total number of graduates of all degrees in 2006;
ΔEmp is total new employment in 2006;
Outputjt is the baseline output of sector j in year t;
TotalOutputt is the baseline output of the State of Oklahoma in year t;
prodjt is the baseline labor productivity of sector j in year t;
compjt is the baseline average annual compensation of sector j in year t;
DiffInit is the income differential of degree i in year t.
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Structural Model
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Structural Model (cont.)
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