How Can We Measure the Economic Impact of Colleges and Universities?

Most of us are already aware that college degrees can have a major impact on a person’s lifetime earnings potential. On average, bachelor’s degree holders earn approximately $32,000 per year more than those with a high school diploma only. However, the positive economic impact of colleges and universities extends beyond individual graduates, providing a boost for local and regional economies as well.

Founded in 1983, Pennsylvania’s State System of Higher Education (PASSHE) is the largest university network in the commonwealth. The system’s 14 universities have been dedicated to several goals throughout the past four decades, including an emphasis on stimulating economic, social, and cultural development in local communities, the state of Pennsylvania, and the nation as a whole.

The economic impact of the university is regularly measured through a comprehensive study that analyzes several useful data points. Read on for a closer look at the most recent PASSHE study.

How Colleges and Universities Benefit Local Economies

The economic contributions of America’s universities and colleges affect all levels of the economy, from local to national. Let’s take a look at some of the main benefits a college or university can provide for the local economy:

• Employment — Colleges and universities are among the top employers in several states. In communities based around a university, such as a state college, the university often employs the majority of local workers.
• More consumer spending power — People with higher education degrees are likely to earn more money, and consequently, will have more income to spend in the local economy.

Cultivation of new businesses — The majority of small business owners hold a college degree, and the right program can provide aspiring business owners with the knowledge they need to build a successful business.

• International students — Local businesses benefit from the approximately 1 million international students who study at American higher education institutions each year. These students contribute approximately $36.9 billion to the US economy and support over 450,000 jobs.

How PASSHE Universities Have Impacted Pennsylvania’s Economy

The most recent PASSHE economic impact report sought to measure the economic impact of the state system during the fiscal year of 2019–20. Additionally, the report includes projections for the economic impact PASSHE could have in the 2022–23 fiscal year, which is after the new sustainability measures will have been fully implemented. Finally, the report includes economic impact projections for the two new integrated universities in the 2025–26 fiscal year, after the full implementation of the integration measures.

According to the executive summary of this report, PASSHE had a total economic impact of about $4 billion during the 2019–20 fiscal year. This figure includes the impact of institutional spending, faculty/staff spending, student spending, and capital expenditures. PASSHE also supported approximately 49,237 jobs during the same period. Pennsylvania provided PASSHE with $477.5 million in appropriations during the 2019–20 fiscal year, and each of these dollars produced an average return of $8.30 in economic impact.

However, the economic impact of PASSHE during 2019–2020 decreased by 9.5 percent when compared to the same figure from the 2013–14 fiscal year.

Projected Economic Impact of Sustainability Policy

PASSHE arrived at the following projections for the fiscal year 2022–23 after the new financial sustainability policy has been implemented:

• A total economic impact of $3.8 billion
• An expected economic impact growth of 2 percent
• A projected growth of 7.6 percent for the total economic impact of institutional spending
• A decrease of 2.8 percent in the economic impact of faculty/staff spending
• A decrease of 1.4 percent in the economic impact of student spending
• Support for 45,940 total jobs

How Enrollment Trends Could Affect Economic Impact

Total fall enrollment at the 14 PASSHE universities grew steadily between 2005 and 2010 but has fallen every year since 2010. Enrollment peaked at 119,513 that year but fell to 93,708 in 2020. These trends have been observed at almost all of the 14 universities. Naturally, decreasing admissions could have major financial implications for PASSHE and its participating universities.

Looking at the 2013–14 fiscal year, overall enrollment decreased by 14.7 percent by the fall of 2019. Twelve out of the 14 universities had fewer enrollments, with only Slippery Rock and West Chester universities experiencing increases. This decrease in enrollment impacts the student spending portion more than any other type of economic impact. According to the report, student spending impact declined by $234 million between 2013 and 2019, accounting for a major portion of the overall 9.5 percent drop in economic impact.

While decreasing enrollment represents a major challenge for PASSHE and most other Pennsylvania universities, PASSHE remains committed to adapting to the changing times and meeting these challenges. Both a system redesign and financial sustainability policy could help the university overcome the obstacles they currently face and continue having a significant positive impact on local and state economies.