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Economy: Economic Impact of Higher Ed

How much does a region benefit economically from hosting an institution of higher education? Traditionally, the benefits are discussed in broad, qualitative terms that often fail to satisfy those who demand tangible evidence of the economic linkages between the academic community and the community as a whole.

The economic benefits that the 29 University System of Georgia (USG) institutions convey to the communities in which they are located are based on college/university-related expenditures like institutional spending for salaries, operating supplies and expenses; spending by students; and spending by the institutions for capital projects (construction).

This does not account for the intangible benefits, such as cultural opportunities, intellectual stimulation and volunteer work, to local residents.

For FY 2015, total initial spending for all 29 institutions was $10.6 billion. Spending originating from personnel services accounted for 37 percent ($3.9 billion); operating expenses 23 percent ($2.5 billion); and students’ personal expenditures 39 percent ($4.2 billion).

The output impact (equivalent of business revenue, sales or gross receipts) was calculated based on the multiplier effect – when an increase in initial spending generates more spending and consumption across a community. Total output impacts are the most inclusive, largest measures of economic impact, representing the value of productions by all industries, including households.

Measured in the simplest and broadest possible terms, the total economic impact of the USG’s 29 institutions was $15.5 billion in FY 2015. Of that number, $10.6 billion (69 percent) was initial spending by the institutions and students, while $4.9 billion (31 percent) was the induced/re-spending impact (or multiplier effect).

The multiplier captures the regional economic impact as re-spending takes place throughout the area surrounding a school campus. The average multiplier value for all institutions in FY 2015 was 1.46 (the total output impact of $15.5 billion divided by initial spending of $10.6 billion). On average, therefore, every dollar of initial spending generated an additional 46 cents for the economy of the region hosting the institution.

It is no surprise that estimates for the various institutions show differing outcomes, given the differences in budgets, staffing, enrollment and regional economies. Institutions located in large metropolitan areas – where multipliers are the highest – or institutions that have the largest budgets, staffs and enrollments had the biggest economic impacts. Thus, for the most part, institutions with large initial spending will rank highly on the various indicators of economic impact, including value-added, labor income and employment impact.

Because value-added impacts exclude expenditures related to foreign and domestic trade, they provide a much more accurate measure of the actual economic benefits flowing to businesses and households in a region than the more inclusive output impacts.

The 29 institutions collectively generated a value-added impact of $10.6 billion in FY 2015, 2.1 percent of Georgia’s GDP. For all institutions combined, the value-added impact equaled 69 percent of the $15.5 billion output impact (with domestic and foreign trade comprising the remaining 31 percent of the output impact). Collectively, the USG institutions generated a labor income impact of $7.5 billion in FY 2015.

The economic impact of hosting a university is most easily understood in terms of its effects on employment. Collectively, the USG institutions generated an employment impact of 150,191 jobs in FY 2015. Approximately 32 percent (48,785 jobs) of these positions are on-campus jobs, and 68 percent (101,406 jobs) are off-campus positions in either the private or public sectors. On average, for each job created on campus there are 2.1 off-campus jobs.

The employment impact associated with the university system accounts for 3.5 percent of all the nonfarm jobs held by Georgians, or about one job in 28. For all institutions combined, 14 jobs were generated for each million dollars of initial spending in FY 2015.

The fundamental finding of this study is that each of the USG institutions creates substantial economic impacts in terms of output, value added, labor income and employment. Therefore, the continued emphasis on higher education as a pillar of the regional economy translates into jobs, higher incomes and greater production of goods and services for local households and businesses.

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