The Economic Impact of Higher Education

by

Dr. Russell O’Hare
Policy Analyst

A White Paper
presented to review the economic impact of higher education
and the University of Alaska System

July 16, 2002

Statewide Office Budget & Institutional Research
University of Alaska
1157 Deborah Avenue
P.O. Box 755260
Fairbanks, Alaska 99775-5260
(907) 474-6956

Pat Pitney, Director Statewide Office Budget & Institutional Research

The Economic Impact of Higher Education

In a society in which efficient production and competent management are of paramount importance, being economically competitive is synonymous with being educationally competitive. If Alaska is to become more educationally competitive, investments in the infrastructure of the University of Alaska system are important.

Few institutions have more to offer in propelling economic development on both a national and local basis than our nation’s colleges and universities. They are the creators and disseminators of knowledge and understanding that can help address urban challenges. As leading institutions in their communities, they are powerful economic drivers, technology centers, employers, developers, and investors (Rosan, 2002).

The economy of the future will rely on intellect and knowledge. Every business needs ideas, innovations, and creativity. These are the things associated with a good university system. Tapan Munroe, an economist from California said, “Like steel and auto manufacturing during the 1900’s, universities will fuel the regional economic engines of the 21st century” (The Fresno Bee, 1998).

Impact of Research Universities on State Economies

Premier universities are at the heart of just about every high-tech success story. Silicon Valley in California developed around the universities of Stanford and Berkeley. Entrepreneurs were drawn to Route 128 in Massachusetts between Boston-area institutions such as Harvard and the Massachusetts Institute of Technology (MIT). The University of Texas supported Austin’s booming computer industry. North Carolina’s Research Triangle Park was built around Duke University, the University of North Carolina, and North Carolina State University. Many other states are using their innovative universities as economic engines. Fortune Magazine recently referred to Stanford University as “the cause” of Silicon Valley. Consider the numbers: In 1996, more than half of the $100 billion income from the economy of Silicon Valley came from companies started by Stanford graduates and faculty. In 1998, 15% of the Silicon area workforce was in research and development and was the home of more than 40% of the wealthiest individuals in technology (Rosan, 2002). A quick survey reveals that colleges and universities in southern California annually generate about $30 billion in regional economic activity and directly support more than 120,000 jobs (USC News, 1994).

Route 128 between Harvard and MIT had significant impact on the economic growth in Massachusetts. The federal government has provided the fuel for the region’s expansion. By the late 1980s, Massachusetts was one of the top five states in terms of federal research resources (Rosegrant and Lampe 1992, in Mackun, 2001). Whole new industries sprang up from these efforts: computers, biotechnology, and artificial intelligence, among others. By 1990, the state contained over 3,000 high-technology firms (Rosegrant and Lampe 1992, in Mackun, 2001). In 1997, the Bank Boston Economics Department issued a report, MIT: The Impact of Innovation that described the impressive economic benefits flowing from the university. The report emphasized the creation of 14,000 jobs in Cambridge alone at companies founded by its faculty and graduates. Throughout the state more than 1,000 businesses were started by MIT graduates and have more than 125,000 employees (MIT: The Impact of Innovation, 1997).

In December 2000, Texas Comptroller Carole Rylander in The Impact of the State Higher Education System on the Texas Economy stated, “Higher education has a significant impact on the Texas economy, fueling the Texas economic engine with nearly $25 billion a year. Considering that the system receives approximately $4.6 billion annually in state general revenue and local property taxes, every dollar invested in the state’s higher education system returns more than $5 for the Texas economy.” The University of Texas contributed to the development of more than 600 high tech companies in the Austin area and a thriving business corridor in Dallas (Goldberg, 1999).

Research Triangle Park supported by Duke University, University of North Carolina, and North Carolina State University is another success story. The business start-up rate in Research Triangle Park is the highest in the state, the unemployment rate the lowest, and per capita income and average wages are well above the state average. Today, it has at least 100 companies employing more than 36,000 people. Major companies such as IBM, Nortel, Motorola, DuPont, Harris Microelectronics, and SAS have operations in Research Triangle Park (Rosan, 2002).

Other Examples of Higher Education Economic Engines

Arizona taxpayers provided $700 million to its universities and got almost $4 billion back in the form of educated workers, payroll, local purchases, and a broader tax base (Ervin, 1998).

Georgia taxpayers provided $1.68 billion to its colleges and universities. Georgia’s University System generated almost $8 billion for the state in 2001 and was responsible for 101,427 jobs. Chancellor of the University System Thomas Meredith said, “The University System of Georgia truly is an economic engine that helps to power our state on many levels, from producing graduates to building capital projects, to leveraging our employment and spending power” (Simmons, 2002).

In 1995, the strategic plan for the University of Iowa included a report titled The University and Its Environment that stated, “In addition to the general contributions of an educated work force, the University of Iowa produces a dramatic direct impact on the regional economy, as documented in a recent report by Backhaus and Whiteman (1994). University activities result in $1.4 billion in Iowa spending, $130 million in state tax revenues, and 55,000 jobs.”

In 1993, the New Orleans Times Picayune reported that according to a study conducted for the area’s 10 public and private colleges “Higher education is one of the main economic engines driving the New Orleans area, last year pumping more than $2 billion into the local economy” (Finch).

In a study conducted by the State University of New York at Stony Brook it was estimated that the school and its various programs had a $1 billion direct impact on the Long Island economy. The university created 2,900 jobs and $180 million in business (Losciale, 2000).

Tom Griffin, Managing Editor of the University of Washington (UW) alumni newspaper the Columns, wrote an article in December 1994 entitled, “The Day They Sold the University.” In the article he reported that UW cost the state taxpayers about $371 million to run but generated $3.4 billion in economic expenditures. Adding together faculty, staff, and student employees, the UW employs 20,663 full-time workers (only about 4,000 are paid with state tax dollars). Using federal multipliers, those positions created an additional 147,853 jobs outside the University. According to alumni records, 70% of all living UW alumni are in the state of Washington, with more than 65% in the Puget Sound area. According to UW records, 33 of the top-100 privately held companies in the state are headed by UW alumni (Griffin, 1994).

Arthur Wright wrote an article for the spring 2002 issue of The Connecticut Economy magazine titled “Human Capital, Research, and Taxpayers’ Money: A Microeconomic Look at the University of Connecticut.” He stated, “in 2001 the University accounted for almost 26,080 additional jobs across the state – over and above its own payroll. With multiplier effects, the University also contributed a total of $4.96 billion to Connecticut’s economy.” Wright then looked at three broad categories of impacts: spending, the labor market, and research. He reported, “In 2001 students and visitors spent $180 million in the state. That same year, the University bought more that $250 million in goods and services. University retirees still living in the state received income in excess of $46 million. Nearly 2,800 of last year’s graduates remained in the state enriching the state’s skilled labor force. The University attracted $147.5 million in grants. Finally, a number of firms in the state owe their existence, or a major part of their revenues, to technologies developed at the University.”

Impact of the University of Alaska on the Economy of the State

Alaska has fewer people and businesses than most other states yet the economic impact of the University of Alaska (UA) is a power that will continue to yield even more benefits to the state. The University of Alaska is a creator and disseminator of intellect, knowledge, and understanding that can help address Alaskan challenges. It is a leading research institution as well as an economic driver, technology center, employer, developer, and investor. The National Science Foundation estimates that more than half the U.S. economic growth since WWII is directly attributable to advances in technology -- advances made possible by research universities (Rosan, 2002).

At the individual level, UA brings life-long economic benefits to Alaskans. In fact, university graduates earn about twice as much as workers without a university education. This increased earnings power, multiplied by the number of Alaskans holding degrees from the University of Alaska saves Alaska businesses recruiting and relocation costs and provides a more stable workforce (McDowell Group, 1998). On average, 79% of baccalaureate degree recipients resided in Alaska one year after graduation and 68% resided in Alaska five years after graduation (UA in Review, 2002). According to a study published in 2002 by the Alaska Department of Labor, University of Alaska vocational education students’ average quarterly earnings rose 20% after completing training (Hadland, J. & Landry, G., 2002). In the past ten years, 16 patents were received by UA (Diana MacLean, personal communication, June 27, 2002). Patents are an important step for moving research from the campus to the marketplace.

A recent economic impact study by the McDowell Group found direct and indirect impacts of university spending injected over $300 million in personal income into the Alaska economy (1998). In FY02 the state of Alaska appropriated a total of $232.7 million in General Funds to cover the Operational and Capital Budgets for the University of Alaska. The University of Alaska generated an additional $387.1 million from outside sources (University of Alaska [UA] Authorized Operating and Capital Budgets Fiscal Year 2002, 2001). In bang for your buck terms, each dollar the state invested in the University was augmented by $1.66 from other sources. For every state tax dollar spent on the University of Alaska system, an additional $4.11 in spending was generated in the state economy (National Association of State Universities and Land-Grant Colleges [NASULGC], 2001).

The University of Alaska ranks among the largest employers in the state of Alaska. Last year UA employed over 2,300 of its full-time and part-time employees with non-general fund sources. When ranked against the top ten private employers in the state, UA was third, just after Providence Alaska Medical Center (Fried, August 2001). During 1999 the UA system employed 5,290 people, and its presence generated an additional 4,290 jobs around the state (NASULGC, 2001). Total UA-related employment is estimated at the annual equivalent of just under 9,600 jobs.

UA’s external revenue for FY02 exceeded the 2000 annual earnings of many industrial sectors within the state. Non-general fund revenue, excluding inter-agency receipts for FY02 was estimated at $283 million. This surpassed the annual earnings of health service offices and clinics within the state and clearly showed that the university generated revenue from external sources to contribute to Alaska’s economic growth (Employment & Earnings Summary File for Alaska, 2000).

In FY01 UA applied $16.3 million in general funds revenue to research. The university system generated an additional $92.9 million in non-general funds from competitive grants, contracts, receipts, and cost recoveries. This provided the state with a $5.70 return on every dollar invested (UA in Review, 2002). In FY02 UA received approximately $15.6 million in general funds. From this initial investment, internationally recognized UA researchers brought in an additional $95.4 million through competitive grants and contracts. In other words, UA researchers provided a return of 600% on the state’s investment during FY02. By any measure in the financial world, this must be considered an excellent return on capital (UA Fiscal Year 2003 Operating & Capital Budget Requests, Spring 2002).

Expenditures by the university system in FY 99 for supplies, materials, equipment, acquisition, maintenance, and other institutional improvements, including spending on construction and renovation, totaled $224 million (NASULGC, 2001). In the same year employees of the university system spent about $104 million across the state, students spent almost $75 million, and visitors to the university contributed another $3 million to the economy (NASULGC, 2001).

Many benefits of higher education are difficult to express in monetary terms. These intangible benefits include lives enriched by exposure to knowledge and improvements to society through application of technology and other research breakthroughs (McDowell Group, 1998).

References

Alaska Department of Labor and Workforce Development. (2000). Employment & Earnings summary File for Alaska [On Line]. Available http://almis.labor.state.ak.us/?PAGEID=67&SUBID=116.

Bank Boston. (1997). MIT: The Impact of Innovation [On Line]. Available http://web.mit.edu/newsoffice/founders/.

Ervin, E. (1998, August). Arizona: Higher Education Issues [On Line]. Available http://w3.arizona.edu/~provost/issues.

Finch, S. (1993, March 31). Colleges an economic engine. The Times-Picayune, p. G1.

Fried, N. (2001, August). Alaska’s largest private sector employers in 2000. Alaska Department of Labor and Workforce Development.

Goldberg, C. (1999, October 8). Across the U.S., universities are, fueling high tech booms. New York Times, p. A1, A20.

Griffon, T. (1994, December). The day they sold the “U”. Columns.

Griswold, L. (1998, February 11). Universities vital to 21st century economies. The Fresno Bee, p. C1.

Hadland, J., & Landry, G. (2002, February 13). Training Program Performance 2000 Employment & Earnings of Training Program Participants Exiting Alaska Training Programs. Alaska Department of Labor and Workforce Development .

Losciale, A. (2000, April 7). Study: Stony Brook has $1 billion impact/university as an economic engine. Newsday, New York, NY.

Mackun, P. (2001, January 27). Silicon Valley and Route 128: Two Faces of the American Technopolis [On Line]. Available http://www.netvalley.com/archives/mirrors/sv&128.html.

McDowell Group. (1998, May). The Economic Impact of the University of Alaska. Juneau, AK.

National Association of State Universities and Land-Grant Colleges. (2001 August). Shaping the Future: The Economic Impact of Public Universities. Washington, DC: Henderson, C.

Rosan, R. (2002). The Key Role of Universities in Our Nation’s Economic Growth and Urban Revitalization [On Line]. Available http://experts.uli.org/Content/WhosWho /Officers/Rosan/Rosan_C7.htm .

Simmons, K. (2002, April 9). Report tracks fiscal impact of universities. The Atlanta Journal and Constitution, p. 3D.

University of Alaska. (2001). Authorized Operating and Capital Budgets Fiscal Year 2002 (Yellow Book). Fairbanks, AK.

Texas Window on State Government. (2000, December). Special Report: The Impact of the State Higher Education System on the Texas Economy [On Line]. Available http://www.window.state.tx.us/specialrpt/highered.

University of Alaska. (2001). Authorized Operating and Capital Budgets Fiscal Year 2002 (Yellow Book). Fairbanks, AK.

University of Alaska. (2002, Spring). Fiscal Year 2003 Operating & Capital Budget Requests (Red Book). Fairbanks, AK.

University of Alaska. (2002). UA in Review 2002 . Fairbanks, AK.

University of Alaska, Fairbanks. (2000). UAF Graduation Report

University of Iowa. (1995, February 20). The University and Its Environment [On Line]. Available http://www.uiowa.edu/~our/strategic-plan/.

University of Southern California. (1994, May 22). Southern California’s Hidden Economic Engine [On Line]. Available http://uscnews.usc.edu/presidential/1994_economic_engine.htm.

Wright, A. (2002, Spring). Human capital, research, and taxpayers’ money: A microeconomic look at University of Connecticut. The Connecticut Economy, p. 4-5.