Universities and Regional Economies: Multiplier Effects and the Impact of COVID-19

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Student impact on Output, Gross Value Added and Jobs

In this blog, Tasos Kitsos, André Carrascal-Incera and Diana Gutiérrez-Posada discuss the potential impact of decreasing numbers of students to the UK economy.

COVID-19:  The economic cost for Universities

The COVID-19 economic crisis is expected to significantly affect the UK and global economies. Education is one of the sectors where there is growing concern and discussion in the public domain. UK universities, seeing that a drop of international students to zero would mean £6.9bn in lost income, requested support but the government as of April 27 is denying special treatment to the sector.

Adding evidence to this discussion, it is worth considering the wider impacts of student spending, and what its reduction means for different regional economies. In a previous blog, we highlighted the multiverse of university contributions to regional economies and looked at the benefits of student spending from one region to the rest of the UK ones.

Student impact on Output, Gross Value Added and Jobs

Here, we look at the impact of students in terms of output, Gross Value Added (GVA) and jobs. To calculate the impacts below we use City-REDI’s Socio-Economic Impact Model for the UK (SEIM-UK) and data from the Higher Education Statistics Agency (HESA) and Living Costs and Food Survey (LCFS). We also assume that the average student spends somewhere between £16,000 and £20,000 per year including their course fees. Based on these calculations, the 2.2 million students in the UK generate approximately £50-62bn of output, £30-38bn of GVA and support between 520,000-650,000 jobs (Table 1).

As was discussed in our previous blog, we find important variations by region in the benefits generated by student spending. For example, in the West Midlands (NUTS2), the region that generates the largest multiplier for the UK economy, student spending generates between 4 and 5 billion pounds of output, 2 to 3 billion of GVA and supports between 44 and 55 thousand jobs.

These figures suggest that student spending, as one of a multitude of university contributions to regional development, generates between 1.6% and 2% to the national GVA and up to 4.2% of the West Midlands GVA. In employment terms, Student expenditure directly supports up to 2% of national employment and up to 4.2% of employment in the West Midlands. This means that for each 3 to 5 students not starting in September 2020, a job is at risk.

Table 1: the impact of student spending on the UK and West Midlands Economy

Number of students Output (£ billion) GVA (£ billion) Employment (thousands)
UK 2,198,720 50 – 62 30 – 38 520 – 652
WM 161,270 4 – 5 2 – 3 44 – 55
The Bigger Picture

Universities are crucial for the development of their local areas for many reasons. Here we just look at student expenditure and highlight how regional performance and resilience to the oncoming crisis is interconnected to the continuous development of the education sector. Student expenditure generates a range of multiplier effects that go far beyond their University’s balance sheet. Fewer students do not just mean less income for universities, it means less income for regional economies and fewer jobs across all different sectors. The next steps in our research will try to uncover what these relationships look like at the sectoral level as well as the job impacts by qualification level.

Acknowledgements

This work includes analysis based on data from the Living Costs and Food Survey, produced by the Office for National Statistics (ONS) and supplied by the Secure Data Service at the UK Data Archive (UKDA). The data is Crown copyright and reproduced with the permission of the controller of HMSO and Queen’s Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS or the Secure Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets that may not exactly reproduce National Statistics aggregates. All the outputs have been granted final clearance by the staff of the SDS-UKDA.


City-REDI / WM REDI have developed a resource page with all of our analysis of the impact of Coronavirus (COVID-19) on the West Midlands and the UK. It includes previous editions of the West Midlands Weekly Economic Monitor, blogs and research on the economic and social impact of COVID-19. You can view that here.


This blog was written by Tasos Kitsos, André Carrascal-Incera and Diana Gutiérrez-Posada, Research Fellows, City-REDI  / WM REDI, University of Birmingham.

Disclaimer: 
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.

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