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 – – – – 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 … what does REMI say? sm 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: – – – – – – – 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 what does REMI say? sm Oklahoma Higher Education • Oklahoma has 59 postsecondary institutions – – – – – – 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. what does REMI say? sm 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 what does REMI say? sm 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) – – – – – Better health Reduced crime Increased volunteerism Increased innovation/entrepreneurship Etc. • Endogenous ripple and feedback effects what does REMI say? sm 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 what does REMI say? sm 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 what does REMI say? sm 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) what does REMI say? sm … … 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 what does REMI say? sm 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) what does REMI say? sm 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 what does REMI say? sm 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 what does REMI say? sm 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. what does REMI say? sm 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 • Northwestern University – • University of North Carolina (system) – • 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 – • Washington Research Council. 2004. Education initiative 884: short-term pain for long-term gain. Washington Research Council Special Report. University of Connecticut – • 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 – • ICF Consulting. 2003. California’s future: it starts here, UC’s contributions to economic growth, health, and culture. Florida postsecondary centers and institutions – • 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) – • 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 – 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. what does REMI say? sm Structural Model what does REMI say? sm Structural Model (cont.) what does REMI say? sm