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The Economic Impact of a Higher Education System on a State Economy

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  1. The Economic Impact of a Higher Education System on a State Economy Presented by: Christopher S. Gerlach, Associate Economist April 21, 2010

  2. 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 …

  3. 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 … socio-economic, racial equity considerations … • Justify and/or quantify the economic impact of higher education at the national, state or local level …

  4. 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

  5. Oklahoma Higher Education • Oklahoma has 59 postsecondary institutions • Number of Public: 29 ~49% • Number of Private: 30 ~51% • Number of 4-year: 39 ~66% • Number of 2-year: 20 ~34% • Enrollment: ~205,000* • Location: ~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.

  6. Tulsa MSA Counties • Oklahoma City MSA Counties Model Specifications • Creek • Okmulgee • Osage • Pawnee • Rogers • Tulsa • Wagoner • Canadian • Cleveland • Grady • Lincoln • Logan • McClain • Oklahoma 3-Region … … 70-Sector

  7. 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

  8. 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

  9. Labor Productivity Gains Oklahoma Residents Oklahoma Businesses

  10. REMI PI+ Inputs

  11. Partial Model Demo Abbreviated Model Demonstration

  12. Change in GSP

  13. GSP Growth Drivers 100% = $1.361 trillion over 40 years (real)

  14. Employment and Labor Force Gains

  15. Employment Growth Drivers

  16. 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.

  17. Questions/Comments? Christopher S. Gerlach Associate Economist District Office: Headquarters: 700 12th St. NW, Suite 700 433 West St. Washington, DC 20005 Amherst, MA 01002 Ph: 202.904.2490 Ph: 413.549.1169 chris.gerlach@remi.com info@remi.com www.remi.com

  18. Referenced Studies • Northwestern University • Felsenstein, Daniel. 1996. The university in the metropolitan arena: impacts and public policy implications. Urban Studies 33, 9: 1565-1580. • University of North Carolina (system) • 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) • ICF Consulting. 2003. California’s future: it starts here, UC’s contributions to economic growth, health, and culture. • Florida postsecondary centers and institutions • 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 • Washington Research Council. 2004. Education initiative 884: short-term pain for long-term gain. Washington Research Council Special Report. • University of Connecticut • 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 • 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.

  19. Productivity Manipulation where, ΔOutputjtis 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.

  20. Structural Model

  21. Structural Model (cont.)