Today at the Dublin Economics Workshop Policy Conference we present this work. Its part of a larger project called TIONCHAR, that being the irish word for Impact. Tionchar is a project funded by the Irish Research Council and based at Trinity College Dublin, Principal Investigator being my good self. Its main aim to analyse the economic impact of our higher education sector and in particular the impact of innovation spending on same.
In this first phase of the project we use a method known as input-output analysis, a standard approach to looking at the impact of different sectors on the economy. This process dates back to the mid-1930s, with a progenitor back in the 17th Century (Quesnay’s Tableau Economique) and was invented by Nobel Prize winner Wassily Leontief. It is the internationally accepted way of evaluating how a sector in the economy impacts on another sector or overall. We used the 2010 Input-Output tables for Ireland, which are the latest and newest offered by the CSO, and disaggregated them for the higher education sector.
It should be noted that there might still be a lingering effect of the Celtic Tiger, so we should treat these estimates with a lot of caution and see them as probable upper bounds on what a “stable state” set of impacts might be. We would also like to note that these are our preliminary and draft results and exclusively look at the immediate economic impact of the institutions and not at the social, educational or even the employment and wage prospects of graduates. This process looks at the impact of higher education institutions in the same way as a restaurant or a supermarket or an airport. We are concerned with the question – what is the gross economic output/employment effect of a euro spent on higher education?
Multipliers arise because someone spending is someone elses income, which they spend in turn. There are two types from Input output analysis. Type I show the direct and indirect effects – that is the direct raw injection and the effect this has in stimulating activity in other areas. Type II multipliers show the direct (raw spend) , indirect and induced output effects of higher education institution economic activity. This latter element takes into account not just the raw impact and the stimulative effect on other sectors but also the effect overall via increased economic output.
We conclude that Irish HEIs, either universities or IoTs, exhibit rather high multipliers, indicating that they have a relatively strong impact on the economy via the household expenditure. Imagine a multiplier of 4.25. This can be understood to mean that in the case of this institution that for every euro spent on Miskatonic U, 4.25 are returned to the local economy as a result of direct purchases and other expenditure related to the presence of this institution. The gross income of Irish HEIs, a total of €2.6b in 2010-11, generated gross output nationwide of €10.5b.
There is a distinction between Dublin-based universities and those situated elsewhere with regards to their Type II multipliers. In particular, the three universities in the capital city – DCU, TCD, UCD – are among the top institutions for impact, with multiplier between 4.14 and 4.17. By comparison, the other four universities, namely UCC, NUIG, NUIM, UL, are lower, with the highest multiplier of this group at 3.86. However, the IoT sector does not seem to show the same geographic split. This is also found in the UK where London based HEI’s show significantly higher impacts than do those in Wales for example. Agglomeration matters.
The Role of Government
In the balanced budget method of calculation we incorporate the opportunity costs of the exchequer supporting higher education as opposed to other government expenditure recipients. Irish HEIs that exhibit stronger results are those with greater diversity in their income, for example sources from research income as opposed to publically supported students.
Looking at an all-island comparison we see the Irish HEI’s perform well, with only QUB showing a balanced budget multiplier above the median of 70+ institutions across Ireland and GB. There is no clear relationship between the volume of income and the multiplier. We can note that the very largest multipliers belong to specialist institutions – London Business School and the London School of Economics, London School of Hygiene and Tropical Medicine, Courtalds Institute etc. Amongst comprehensive institutions the Irish HEIs, namely UCC, UCD, DCU and TCD stand out. It is noteworthy that in reality only UCC, UCD, TCD and St Andrews can be described as fully comprehensive universities (having e.g. a medical school, a school of classics etc) in the top 20 in the UK and Ireland. This is important since Irish legislation and practice has traditionally supported the idea of higher education covering all aspects of learning, including the arts and humanities. This makes economic sense is the finding here.
Our preliminary work has also calculated the effect of higher education institutions on employment. The sector as a whole shows that for every one million euro spent on the universities supports, in addition to the employment by the sector of 13,701 an additional 1781 persons through indirect effects and an additional 66,470 persons via induced demand. This is in keeping with some US results and in part reflects the relatively high income of persons employed by the sector and how they stimulate the local economy. It is a common finding that high skills sectors can show economic multiplier effects that are significantly greater than naieve expectations.
More detailed information, including the original working paper, can be found here: http://papers.ssrn.com/abstract=2508614 here: http://tionchar.wordpress.com/ and here :https://brianmlucey.wordpress.com