The Economic Difference Between In-County and Out-of-County Students.
In any public university a proportion of the student body comes from the local area. It can be argued that the fees the university collects from these students is money that would have been spent elsewhere in the county had these particular students not attended the university. Thus, it could be argued that the local students contribute no new economic impact to the area. The new economic impact to the county would come only from out-of-county (including out-of-state) students, contracts and research grants from out-of-county sources, private gifts from out-of-county sources, royalties and other payments, and spending by out-of-county visitors to the campus.
Yet it is most likely that many local students would have enrolled in another university if The University of Alabama did not exist in Tuscaloosa County. In other words, the existence of the University prevented these expenditures from leaking out of the area. Therefore, including the expenditures derived from local students is a legitimate part of the economic impact of a university.
The University's Expenditures in Tuscaloosa County.
In 1996 The University of Alabama's expenditures in Tuscaloosa County amounted to slightly more than $186.3 million. Local expenditures have been adjusted to reflect leakages out of the county from purchases and payrolls. The University's total spending exceeded $280 million. Forty percent of the University's purchases are made to vendors outside the county and 10 percent of payroll goes to employees who live outside the county.
Student Expenditures.
In addition to the University's expenditures in the local economy, student expenditures in Tuscaloosa County for housing, food, books, clothing, etc. are estimated at $128.5 million in 1996. If the University were to close, it is argued that these expenditures would be made in another county, either in-state or out-of-state.
Total Direct Impacts.
By adding the University's direct expenditures of $186.3 million to the student expenditures of $128.5 million, we arrive at an estimate of direct expenditures of $314.8 million. It is important to note that this does not include visitor spending (parents, tourists, supporters of athletic events, etc.) and thus should be viewed as a conservative estimate of direct economic impacts.
Indirect Impacts.
Direct expenditures, in turn, generate additional economic impacts on the region's economy known as "indirect" impacts. The direct expenditures are wages, salaries, and business income paid to the county's residents. When these people spend their income, an "indirect" impact is created. The size of these indirect impacts will depend upon things such as: how much of this income is saved, how much is spent, and whether the money is spent inside or outside the county.
The Expenditure Multiplier.
The expenditure multiplier has been estimated to be 1.89 for Tuscaloosa County. This means that for each $1.00 of direct spending, there is an additional 89 cents of indirect impact, or a total impact of $1.89. The size of the direct economic impact of the University has been estimated at $314.8 million. With the expenditure multiplier of 1.89, the total economic impact on the Tuscaloosa County economy would be $595.1 million.
Comparing the Economic Effect with Tuscaloosa's Economy.
A direct comparison of this economic impact with the estimated size of the Tuscaloosa economy is difficult. The size of the economy in terms of the value of total output (equivalent to Gross Domestic Product) only measures the value of "final goods and services." This avoids the double counting of the value of product and the value of all of its ingredients or inputs. The multiplier impact of the University includes the value of end products as well as the value of the intermediate products or ingredients, so it double counts. This makes a direct comparison impossible. However, a direct comparison is possible using employment, rather than expenditures, as the direct impact.
In 1996 The University of Alabama employed 3,403 full-time workers and 522 non-student, part-time workers. Assuming the part-time workers worked exactly half-time, then 522 part-time workers would be the equivalent of 261 full-time workers, for a total full-time equivalent permanent workforce of 3,664. Another 3,280 students are also employed part-time by the University. Assuming that these part-time students work ten hours a week, the full-time equivalent total employment becomes 4,484.
Employment Multiplier.
For the same reason that expenditures have indirect impacts, so too does employment. The employment multiplier is estimated to be 1.5 for Tuscaloosa County, suggesting that the total direct and indirect jobs created by The University of Alabama in Tuscaloosa County is 6,726. Since employment in Tuscaloosa County was estimated to be 73,200 in 1996, The University of Alabama was responsible for approximately 9.2 percent of the total employment in the county.
Note: This Research Brief was taken from a larger study that also looked at the value of education as an investment.
1/31/97