Analysis of the Return on Investment and Economic Impact of Education T H E E C O N O M I C VA L U E O F O K L A H O M A S TAT E U N I V E R S I T Y I N S T I T U T E O F T E C H N O L O G Y
April 2017
EXECUTIVE SUMMARY
Executive summary Oklahoma State University Institute of Technology (OSUIT) creates value in many ways. The university plays a key role in helping students increase their employability and achieve their individual potential. It provides students with the skills they need to have a fulfilling and prosperous career. Further, it supplies an environment for students to meet new people, increase their selfconfidence, and promote their overall health and well-being.
The value of OSUIT influences both the lives of students and also the state economy. The university serves a range of industries in Oklahoma, supports local businesses, and
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Economic impact analysis
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Investment analysis
benefits society as a whole in Oklahoma from an expanded
All results reflect student and financial data for Fiscal Year
economy and improved quality of life. The benefits created
(FY) 2015-16. Impacts on the state business community are
by OSUIT even extend to the state government through
reported under the economic impact analysis. Results are
increased tax revenues and public sector savings.
measured in terms of added income. The return on invest-
The purpose of this study is to investigate the economic impacts created by OSUIT on the business community and the benefits that the university generates in return for the
ment to students, taxpayers, and society are reported under the investment analysis. Both analyses are described more fully in the following sections.
investments made by its key stakeholder groups—students, taxpayers, and society. The university serves the state of Oklahoma. The following two analyses are presented:
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Economic impact analysis OSUIT promotes economic growth in Oklahoma in a variety of ways. The university is an employer and buyer of goods and services, and the living expenses of students benefit local businesses. In addition, OSUIT is a primary source of education to Oklahoma residents and a supplier of trained workers to Oklahoma industries.
OPERATIONS SPENDING IMPACT OSUIT is an important employer in Oklahoma. In FY 2015-16, the university employed 416 full-time and part-time faculty and staff. Of these, 100% lived in Oklahoma.
TABLE 1: Impacts created by OSUIT in FY 2015-16
Total payroll at OSUIT was $24.8 million, much of which was spent in the state for groceries, rent, dining out, clothing, and other household expenses. OSUIT is itself a large-scale buyer of goods and services. In FY 2015-16 the university spent $19.2 million to cover its expenses for facilities, professional services, and supplies. OSUIT added $29.1 million in income to the state during the analysis year as a result
ADDED INCOME
JOBS
$29.1 million
501
Operations spending impact
of its day-to-day operations. This figure represents the university’s payroll, the multiplier effects generated by the spending of the university and its employees, and a
$2.1 million
downward adjustment to account for funding that the university received from state sources. The $29.1 million in added income is equivalent to supporting 501 jobs.
60
Student spending impact
$190.9 million
IMPACT OF STUDENT SPENDING Around 10% of students attending OSUIT originated from outside the state in
2,811
Alumni impact
FY 2015-16, and some of these students relocated to Oklahoma to attend OSUIT. These students would not have come to the state if the university did not exist. In
$222 million
addition, a number of in-state students would have left the area for other educa-
3,372
tion opportunities if not for the existence of OSUIT. While attending the university, Total impact
these relocator and retained students spent $4.6 million to purchase groceries, rent accommodation, pay for transportation, and so on. A significant portion of these expenditures occurred in the state, generating $2.1 million in added income in the state economy during the analysis year, which is equivalent to supporting 60 jobs.
ALUMNI IMPACT The education and training OSUIT provides for state residents results in the greatest impact. During the analysis year, a large number of former students were active
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FIGURE 1: OSUIT alumni working in-state today
in the state’s workforce. Figure 1 illustrates how the total number of active former students is calculated. We begin by looking at the total number of students who received an education 30 years ago. We take that number and subtract the former
Retired, out-migrated since graduation
2+29433+ 11372140+ 27433545+ 100
students who have left the region’s workforce due to retirement, death, migration,
Still employed in-region today since graduation
or unemployment. This tells us how many of the students who left the OSUIT that year are still active today. This process is repeated for each subsequent year. When the head counts for each year are added together, the total number of alumni active in the state workforce is found. During the analysis year, past and present students of OSUIT generated $190.9 million in added income for the state. This figure represents the higher earnings that students earned during the year, the increased output of the businesses that employed the students, and the multiplier effects that occurred as students and their employers spent money at other businesses. This $190.9 million in added income is equivalent to supporting 2,811 jobs.
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TOTAL IMPACT
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=
1985 1990 1995 2000 2005 2010 2016
The overall impact of OSUIT on the local business community during the analysis
Year Graduated
year amounted to $222 million in added income, equal to the sum of the operations spending impact, the student spending impact, and the alumni impact. The total impact is also expressed in terms of the jobs supported by the added
TABLE 2: Top industries impacted by OSUIT
income; they are calculated by jobs-to-sales ratios specific to each industry. Overall, the $222 million impact supports 3,372 jobs. A portion of the total $222 million is broken out into an industry-by-industry impact ordered by added income. Table 2 outlines the top industries impacted by OSUIT. Because industries have different jobs-to-sales ratios, the associated jobs supported
TOTAL INCOME
JOBS
$22,495,692
394
Construction
by the OSUIT impact differ by industry. Nonetheless, these are impacts that would
$19,759,228
not have been generated without the university’s presence.
296
Government, Non-Education
$15,450,052
293
Health Care & Social Assistance
$14,332,252
126
Manufacturing
$14,239,429
224
Professional & Technical Services
$135,723,665
2,039
All other industries
$222,000,318
3,372
Total impact
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Investment analysis
02532+4057+
Investment analysis is the process of evaluating total costs and measuring these against total
benefits to determine whether or not a proposed venture will be profitable. If benefits outweigh costs, then the investment is worthwhile. If costs outweigh benefits, then the investment will
lose money and is considered unprofitable. This study considers OSUIT as an investment from the perspectives of students, taxpayers, and society. The backdrop for the analysis is the entire Oklahoma economy.
STUDENT PERSPECTIVE In FY 2015-16, OSUIT served 3,683 credit students and 301 non-credit students. In order to attend college, students paid for tuition, fees, books, and supplies. They also gave up money that they would have otherwise earned had they been working instead of attending college. The total investment made by OSUIT’s students in FY 2015-16 amounted to $50 million, equal to $11.5 million in out-of-pocket expenses plus $38.5 million in forgone time and money. In return for their investment, OSUIT’s students will receive a stream of higher future earnings that will continue to grow through their working lives. As shown in Figure 2, mean earnings levels at the midpoint of the average-aged worker’s career increase as people achieve higher levels of education. For example, the average associate degree completer from OSUIT will see an increase in earnings of $8,300 each year compared to someone with a high school diploma or equivalent. Over a working lifetime, this increase in earnings amounts to an undiscounted value of approximately $348,600 in higher earnings. The present value of the higher future earnings that OSUIT’s students will receive over their working careers is $149.5 million. Dividing this value by the $50 million in student costs yields a benefit-cost ratio of 3.0. In other words, for every $1 students invest in OSUIT in the form of out-of-pocket expenses and forgone time and money, they receive a cumulative of $3.00 in higher future earnings. The average annual rate of return for students is 12.8%. This is an impressive return, especially when compared to the 10-year average 7.2% return to the U.S. stock market (Figure 3).
TAXPAYER PERSPECTIVE OSUIT generates more in tax revenue than it takes. These benefits to taxpayers consist primarily of taxes that the state government will collect from the added revenue created in the state. As OSUIT students earn more, they will make higher
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FIGURE 2: Higher earnings by education level at career midpoint in Oklahoma
$56,500
$40,300
$32,000
$24,500
Less than high school
High Associate Bachelor’s school
Source: Emsi complete employment data.
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2614+1 FIGURE 3: Student rate of return
tax payments. Employers will also make higher tax payments as they increase their
output and purchase more supplies and services. By the end of the FY 2015-16
students’ working careers, the state government will have collected a present value of $39.3 million in added taxes.
12.8%
Benefits to taxpayers consist of the savings generated by the improved lifestyles of students and the proportionally reduced government expenditures. Education is statistically correlated with a variety of lifestyle changes that generate taxpayer
savings across three main categories: 1) health, 2) crime, and 3) unemployment.
7.2%
Improved health habits lower the students’ demand for national health care services.
Students are also less likely to commit crimes, so the demand for law enforce-
ment and criminal justice services is reduced (study references are available in the main report). Students are also more employable, so the demand for welfare
0.6%
and unemployment benefits, such as earnings assistance and welfare benefits, is reduced. For a list of study references to these statistical benefits, please contact
Average Annual Return for OSUIT Students
the university for a copy of the main report. All of these benefits will generate a present value of $7.3 million in savings to state taxpayers.
Total benefits to taxpayers equal $46.6 million, equal to the sum of the added
Stock Market 10-year Average Annual Return*
Interest Earned on Savings Account (National Average)**
taxes and public sector savings. Comparing this to the taxpayer costs of $21.2 mil-
* Forbes’ S&P 500, 1994-2014.
lion—equal to the funding that OSUIT received from the state government during
** FDIC.gov 12-2016.
the analysis year—yields a benefit-cost ratio of 2.2. This means that for every $1 of public money invested in OSUIT, taxpayers receive a cumulative value of $2.20 over
the course of the students’ working lives. The average annual rate of return is 6.3%, a solid investment that compares favorably with other long-term investments in both the private and public sectors (Figure 3).
FIGURE 4: Present value of higher earnings and social savings in Oklahoma
SOCIAL PERSPECTIVE
6+94+H $30.2 million
Society as a whole within Oklahoma benefits from the presence of OSUIT in two
Social savings
major ways. The first and largest benefit that society receives is an increased state economic base. As discussed in the previous section, the higher student earnings and increased business output occurs across the state. This raises prosperity in Oklahoma and expands the economic base for society as a whole. Benefits to society also consist of the savings generated by the improved lifestyles of students. Similar to the taxpayer section above, education is statistically correlated with a variety of lifestyle changes that generate social savings. Note that these costs are avoided by the consumers, and are distinct from the costs avoided by taxpayers outlined above. Health savings include avoided medical costs associated with smoking, alcoholism, obesity, drug abuse, and mental disorders. Crime savings include reduced security expenditures and insurance administration, lower victim
$443.1 million
costs, and reduced criminal justice system expenditures. Unemployment savings include the reduced employer contributions towards unemployment claims. For a
Higher earnings
list of study references to these statistical benefits, please contact the university for a copy of the main report.
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Figure 4 shows the present value of the higher earnings and social savings that will occur in Oklahoma over the working lifetime of the FY 2015-16 student population at OSUIT. Higher earnings amounts to a present value of $443.1 million due to the increased lifetime earnings of students and associated increases in business output. Social savings amount to $30.2 million, the sum of health, crime, and unemployment savings in Oklahoma. Altogether, total benefits to society equal $473.3 million (in present value terms). Society invested $86.8 million in OSUIT educations during the analysis year. This includes all expenditures by OSUIT, all student expenditures, and all student opportunity costs. For every dollar of this investment, society as a whole in Oklahoma will receive a cumulative value of $5.50 in benefits, equal to the $473.3 million in benefits divided by the $86.8 million in costs. These benefits will occur for as long as OSUIT’s FY 2015-16 students remain employed in the state workforce.
SUMMARY OF INVESTMENT ANALYSIS RESULTS Table 3 presents the results of the investment analysis for all three of OSUIT’s major stakeholder groups—students, taxpayers, and society. As shown, students receive great value for their educational investment. At the same time, the investment made by state taxpayers to the university creates a wide range of benefits to society and returns more to government budgets than it costs.
TABLE 3: Summary of investment analysis results STUDENT PERSPECTIVE
TA X PAY E R P E R S P E C T I V E
SOCIAL PERSPECTIVE
$149,525,353
$46,588,511
$473,306,379
Costs (thousands)
$50,030,998
$21,244,882
$86,779,695
Net present value (thousands)
$99,494,356
$25,343,629
$386,526,684
3
2.2
5.5
12.8%
6.3%
N/A*
Present value benefits (thousands)
Benefit-cost ratio
Rate of return
* The rate of return is not reported for the social perspective because the beneficiaries of the investment are not necessarily the same as the original investors.
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Conclusion The results of this study demonstrate that OSUIT creates value from multiple perspectives. The university benefits local businesses by increasing consumer spending in the state and supplying a steady flow of qualified, trained workers into the workforce. It enriches the lives of students by raising their lifetime earnings and helping them achieve their individual potential. It benefits state taxpayers through increased tax receipts across the state and a reduced demand for governmentsupported social services. Finally, it benefits society as a whole in Oklahoma by creating a more prosperous economy and generating a variety of savings through the improved lifestyles of students.
ABOUT THE STUDY Data and assumptions used in the study are based on several sources, including the FY 2015-16 academic and financial reports from the university, industry and employment data from the U.S. Bureau of Labor Statistics and U.S. Census Bureau, outputs of Emsi’s Multi-Regional Social Accounting Matrix model, and a variety of studies and surveys relating education to social behavior. The study applies a conservative methodology and follows standard practice using only the most recognized indicators of investment effectiveness and economic impact. For a full description of the data and approach used in the study, please contact the university for a copy of the main report.
Economic Modeling Specialists International, a CareerBuilder company, is a leading provider of economic impact studies and labor market data to educational institutions, workforce planners, and regional developers in the U.S. and internationally. Since 2000, Emsi has completed over 1,200 economic impact studies for educational institutions in four countries. Visit www.economicmodeling.com for more information about Emsi’s products and services.
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