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Definitions

Direct Economic Effects

Universities economically impact their communities through their spending for goods and services, and by the expenditures of their employees, students and visitors.

Employee Wages and Salaries
The wages received by university employees largely are spent at businesses in the local community, with taxes paid to local governments.

Institutional Expenditures on Goods and Services
Universities purchase a wide range of goods and services, many from local businesses.

Expenditures by Students and Parents
Students, even those living and eating on campus, make purchases at local businesses. Parents and other visitors to the university inject money into the local communitiy, much like tourists.

Benefits to Individuals and Society Through Educational Attainment

Universities improve the stock of human capital, which results in higher wages—of those who attended the universities and of other workers in the community. The heightened educational attainment results in other societal benefits, including enhancing the ability of the community to compete for economic development.

Individual Income Enhancements
Individual earnings are strongly related to educational attainment, with a large boost on average resulting from a university degree.

Spillovers to Other Workers
Empirical work in econometrics suggests that after controlling for differences in amenities and individual wages, an increase in the share of college graduates in the labor force leads to significant increases in productivity and wages for all workers. (See E. Moretti, "Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-Sectional Data," Journal of Econometrics 121 (July/August 2004): 175-212.)

Nonmonetary Societal Benefits
Nonmonetary societal benefits in regions with high proportions of college graduates include lower crime rates, greater and more informed civic participation, and improved performance across a host of socioeconomic measures. Intergenerational social benefits may be very large as degree attainment today translates into higher probabilities of degree attainment in future generations.

Productivity
Productivity is the efficiency with which goods or services are produced by a given set of inputs, such as capital and raw materials. Empirical evidence across long time periods and many economies reveals a strong correlation between economic growth/prosperity and the productivity of an economy. Educational attainment and productivity are highly related.

Knowledge Creation

The research activities of universities produce knowledge that advances science and technology and results in innovation. New products and processes are created. This too enhances the ability of the community to compete for economic development, particularly related to the knowledge economy. Increased funding from the federal government and other nonlocal sources also benefits the community.

Research Dollars
Salter and Martin (See Salter, A. and B. Martin, "The Economic Benefits of Publicly Funded Basic Research: A Critical Review," Research Policy 30 (March 2001): 509-532) note six forms of benefits from publicly funded research:

  1. Increasing the stock of knowledge.
  2. Training skilled graduates.
  3. Creating new instrumentation and methodologies.
  4. Forming networks and stimulating social interaction.
  5. Increasing the capacity for scientific and technological problem solving.
  6. Creating new firms.

Innovation, Technology and Product Development
Innovations and technological advances enhance productivity and lead to new products in the marketplace.

Productivity
Productivity is the efficiency with which goods or services are produced by a given set of inputs, such as capital and raw materials. Empirical evidence across long time periods and many economies reveals a strong correlation between economic growth/prosperity and the productivity of an economy. Innovation and technological advances are important drivers of enhanced productivity.

Ultimate Outcomes

Universities contribute to higher incomes of individuals and the community as a whole, higher-quality jobs, enhanced economic development, and improvements in prosperity and quality of life.

Aggregate Income
All university activities contribute to increases in the overall income within a community, and more broadly, to the economic size of the community.

Prosperity and Quality of Life
Universities enhance prosperity (economic well-being) and quality of life (broader aspects of well-being, including social and environmental considerations) through its roles of educating individuals and creating knowledge.

Quality Job and Business Creation
Educational attainment enhances job quality of the individual achieving a university degree and of other workers, through spillover effects. A highly educated workforce helps attract quality employers. Knowledge creation has similar effects.