In this third part of our series looking at the role of localised Labour Market Insight in the Civic University agenda, we look at how your institution can measure its economic impact on its area. Parts one and two of this series can be found here and here.
A good place to begin thinking about your university’s place in its local community is to consider the impact that it already has on its local economy. Clearly universities have a profound economic impact on their area, with the very existence of an institution meaning learners coming into the area, the employment of staff, and the spending by the institution itself on goods and services produced by local businesses. All these things generate prosperity, which is something that is explicitly recognised in the UPP Foundation’s Truly Civic report:
“This economic impact of universities is evident on many levels. They employ local people with a variety of skill sets, buy a range of goods and services from local businesses and increase the local stock of human capital via their teaching.”
However, the report goes on to point out that despite the unquestionable impact that universities have on their area, many institutions are not nearly as aware of the full implications of this as they perhaps should be:
“All universities will be able to give examples of local procurement, employment and community involvement happening as a result of their presence. However, despite this, it was not clear to us that all universities are fully cognisant of the full impact that their presence could have upon the local economies which host them.”
The purpose of this part is to show some of the ways that universities impact their local economy, and how this can be quantified through an Economic Impact Study (EIS).
Impact of staff, institution and learner expenditure
All universities spend money on wages, goods and supplies, and this is money that will, for the most part, enter the local economy. In addition, the existence of the university means learners coming into the area, and they too will spend money in the local economy. Of course not all of this spending ends up in the local economy, which is why when looking at the impact a university has on its local economy, our EIS excludes money spent outside the institution’s area and only includes spending by students who come to study from outside the normal travel area. In other words, what we are essentially looking at is spending in the local economy which only exists because of the university’s presence.
The story doesn’t end there, however. Money entering a local economy then flows through it, and in order to calculate what effect this has we apply “multipliers” across all sectors of the local economy. But because local economies are often very different to one another, we do not just “multiply” it through the economy on a crude “catch all” basis; rather, we calculate and use different “multipliers” based on the nuances of the particular area we are looking at. By taking these things into account, we end up with a somewhat conservative, but ultimately realistic figure of impact.
Added workforce skills
But the impact of the university on its local economy does not end with spending by staff, the institution and learners. Again, this is something the UPP Foundation recognises, especially the need for universities to think more holistically about the impact they are having:
“A number of universities express their economic importance through standard measures of impact. Yet standard economic impact reports tend to overclaim and do not take account of opportunity costs or claim credit for things that would have taken place in any case. Reliance on these narrow measures of economic contribution lacks imagination.”
One of the many imaginative ways that impact can be looked at is through the concept of Added Workforce Skills. This is a calculation of the economic contribution made by a university’s students who find employment in the area after leaving, and is derived by looking at each year of historic training at the institution – typically going back 15 years – and then using this data in conjunction with wage differential data to determine the total amount of higher earnings associated with the educational achievements of past and present learners. The figure we end up with – the aggregate higher earnings as a result of the university’s education, and the impact this has on the local economy – represents the increased economic growth that the past (and present) learning at the institution is producing each year. So far as we are aware, this measure is unique to Emsi.
Impact on local industries
Another imaginative measure of a university’s impact on its local economy is to look at the effect it has on various sectors. For example, a university spends money on electricity to operate, which means that there will be an impact on the electricity, gas, steam and air conditioning supply industry in the area. In addition to this, there is also the fact that many former learners take their new skills into local industries, leading to increased output in the sectors they work in. These figures can be calculated, with a breakdown given for each specific industry, as the following graphic demonstrates:
There are a number of possible uses for these figures that a university might want to consider. For instance, the figure for a particular industry could be used to show leaders in that sector just how valuable the institution is to their businesses. Another example would be an institution using the figure for a particular industry when applying for a grant in that sector.
Benefits to learners, society and taxpayers
One final imaginative measure of the economic contribution made by a university on its local economy are the returns on investment that it brings to learners, society and the taxpayer. All three stakeholders invest into the university, and all three do so hoping for a return. This too can be measured in an EIS.
In terms of learners, there are a series of direct costs, such as tuition fees, as well as equipment and books etc, as well as “opportunity costs” – that is money they could be receiving if they had entered the workforce instead of continuing in education or training. But there are also economic benefits, seen primarily in the increased earnings potential that they have as a result of the education they undertake.
We can calculate these elements and from there find the benefit/cost ratio – a figure that tells us how much students will, on average, receive back for each pound they invest in gaining a degree from the university. So for example, a benefit/cost ratio of 6.3 means that for every £1 a student invests in their education, they will get £6.30 in higher earnings over the course of their working life. This figure can also be expressed as an annual percentage, therefore making it even clearer just how much return on investment learners get for attending the institution.
But of course, the benefits of a university education are not just confined to the individuals who graduate from the institutions; there are also knock-on effects on the rest of society. As with the calculations for learners, there are both costs and benefits to society which must both be established before they can be offset against one another.
The costs are basically money that society invests in the provider, and the loss of money/output that could be being generated if each of the students were actually working instead of attending the institution. As for the benefits, these are the added income produced by a more skilled local population/workforce (i.e. higher wages, higher local spending, more spending on local housing, increased prices, increased business profits etc), and social savings, such as lower levels of ill health, lower levels of crime, lower requirement of state benefits, which are all corollaries of higher levels of education. As with the investment analysis for learners, we do not just come up with catch-all figures, but rather we take into account the differences within the student body (i.e. age of students, level of course, achievement etc).
Finally, we can also look more specifically at the benefits to taxpayers. This involves firstly looking at the amount of UK government funding that the institution receives in the year of our analysis, in order to find out the cost to the taxpayer. We then separate out those benefits to society that go specifically towards taxpayers, which are an increased tax base from more highly skilled workers (as they earn more, they pay more tax), and avoided social costs directly attributable to the taxpayer (i.e. those that the taxpayer would otherwise have to pay for such as for police, unemployment programmes etc).
Again, just as we did with learners and society, we look at this as a benefit cost ratio (£1 investment gives a return of £X amount) and also as an annual percentage rate of return. What this does is give clear evidence that taxpayer investment in the education gives a strong rate of return. The graphic below demonstrates how these figures can be articulated in a way that is extremely compelling, showing very clearly the return on investment that the university brings to its stakeholders.
As we mentioned at the start, many universities do not really understand just how much impact they have on their local economy. And of course if the university itself does not understand this, the chances of local employers, economic developers and the Further Education College understanding this are slim. By using a number of highly imaginative measurements, the EIS changes this dynamic, putting the university in a position where it can confidently articulate the value it brings to the local economy to potential partners, and so create a foundation from which it can lead and grow as a truly Civic University.
If you would like to discuss how our LMI can help your university in its drive to be a truly Civic University, get in touch.