A Note on Measuring the Economic Impact of Institutions of Higher Education

Universities and other institutions of higher education are frequently asked to justify, in economic terms, the allocation of state monies toward their programs. These institutions have often responded by conducting economic impact studies. The traditional approach to economic impact views increases in expenditures by a university as a means to create new jobs within the state and to expand the state's economic base. Recent studies have employed a new approach that also accounts for increases in the state's skill base as part of the economic impact. Although the skill-base approach yields favorable results for higher education, recent applications of the technique fail to consider fully the effects of migration on a university's economic impact and, thus, substantially overestimate the impact. Researchers are well advised to avoid the skill-base approach and to utilize the traditional economic-base approach, which produces more reliable estimates of local economic impact. Moreover, states and universities are cautioned not to place the debate over education financing exclusively in the realm of economic impact, since there are other reasons to provide publicly funded higher education.