EMSI have been conducting Economic Impact Studies (EIS) for almost 15 years, and some of the more common questions we get asked by colleges and universities are, “What exactly is involved in an EIS?”, “What does it measure?”, and “What would be the point in us doing one?” Over the course of five short articles throughout the next fortnight, we want to set out a fairly comprehensive, but hopefully comprehensible, answer to these questions, the plan of action being as follows:
Part 1: Benefits to Learners
Part 2: Benefits to Society and Taxpayer
Part 3: Impact of Staff and college expenditure (and Impact of Learner Expenditure)
Part 4: Added Workforce Skills
Part 5: Examples of the benefits the EIS brings to institutions
A basic Impact Study will often just look at the money spent by an institution — on wages, goods and supplies — and “multiply” this through the economy. Our EIS, on the other hand, looks at detailed multipliers, which we will cover in parts 3 and 4, but firstly we want to tell you about our “investment analysis”.
What is an investment analysis? Although conducting an investment analysis for a college or university is a complex process, the basic concept is actually something that we are all pretty familiar with throughout our lives, whether or not we have had any training in economic theory: If I put my money and time into something, am I going to get more back in return? If the answer is yes, then it’s worth doing! If the answer is no then we should think carefully about that investment!
Our college and university EIS involves an investment analysis — or return on investment — for the following stakeholders:
We’ll be looking at the return to society and taxpayers tomorrow, but for the remainder of this piece, let’s look at the impact for learners.
Everyone who attends college or university incurs direct costs, such as tuition fees, as well as equipment and books etc. In addition to these direct costs, each learner also incurs indirect costs or “opportunity costs” — that is money they could be receiving if they had entered the workforce instead of attending college or university. EMSI calculates all of this — both the direct costs and the opportunity costs — but in doing so we ensure that we don’t just apply uniform values to each student. The opportunity costs for a 16-year-old with no work experience are obviously vastly different than those for an adult student with lots of experience, and our analysis takes this type of variable into account.
So much for the costs, but what about the benefits? The economic benefits for learners are basically the increased earnings potential that they have as a result of the training undertaken at college or university. We have produced the following graph to show this relationship at the most general level:
However, when conducting an investment analysis for learners, we recognise that earnings power is not uniform across the board for all students, but also depends on age, programme of study and achievement. Therefore, far from applying a blanket value to each learner, we first establish all the different variables that will affect future earnings, and then apply this to the student data provided by the particular college or university we are conducting the study for.
At the end of this process, we end up with two figures: On the one hand, there are the learner costs — that is the costs to the total student body in the single academic year that we analyse. On the other hand, there are the benefits that we identify as the increased earnings of this one group of students, discounted back to today’s value (for example, a salary of £30k in 10 years time will be “worth less” than it is today, so we discount everything to today’s value to give a true measure).
These figures are then used to find the benefit/cost ratio — a figure that tells us how much students will, on average, receive back for each pound they invest in going to college or university. So for example, a benefit/cost ratio of 5.5 means that for every £1 a student invests in their education, they will get £5.50 in higher earnings over the course of their working life. This figure is also expressed in our EIS as an annual percentage (e.g. Learners receive a 10% annual return on their investment in ABC College or XYZ University), making it even clearer to anyone reading the report just how much return on investment learners get for attending the institution.
If you would like to discuss how our EIS can help your college or university articulate its economic value, contact Andy Durman at email@example.com