Research: U-M benefits state economy

Updated 4:00 PM July 28, 2003

Research: U-M benefits state economy

By Bernie DeGroat
News Service

U-M contributes nearly 66,000 jobs to the Michigan economy, more than $3.5 billion in personal income and $271 million in state tax revenue, according to a study by economists at the U-M Institute of Labor and Industrial Relations (ILIR).

"The effect on the Michigan economy of the presence of U-M can legitimately be characterized as impressive," says researcher George Fulton of ILIR, which is directed by the Business School and School of Social Work. "And so is the return to the state on its public investment in U-M. Few investments could lay claim to higher yields."

Using data from fiscal year 2001 (the latest year for which a complete set of data is available), Fulton and ILIR colleagues Donald Grimes and Stanley Sedo studied the impact on the state economy of U-M's "university operations," which includes teaching, research, services, student support, related activities, and spending in the community by students and visitors to U-M.

Their analysis did not include the amenities associated with the presence of the University (i.e., the intellectual, cultural and recreational enrichment, which helps the state attract higher-paying jobs) or U-M's education premium (derived from higher earnings and greater spending in Michigan by U-M graduates, and the resulting larger state tax revenue).

According to the study, there are 2.5 jobs created in total for every U-M job—that is, one job on the University payroll and 1.5 spin-off jobs. In fiscal 2001, the presence of 26,317 U-M jobs generated another 39,602 spin-off jobs. The majority of these spin-off jobs were in services (11,188) and retail trade (10,639), with the goods-producing sector, consisting of manufacturing and construction (9,004 combined), also contributing significant spin-off employment.

Overall, 69 percent of the jobs (both direct and spin-off) generated by U-M can be attributed to the University's educational and general activities. Another 25 percent are associated with the operations of the U-M hospitals, 5 percent with student expenditures and 1 percent with visitors to the hospitals.

The $271 million in state tax revenue generated by U-M operations and its spin-off activities in fiscal 2001, including income, sales and other tax revenue, represented about 74 percent of its state appropriation that year ($368 million).

"If the impact of the education premium and amenities were included, the impact would be even larger, according to earlier studies and studies now underway," Grimes says.

Compared with other public universities in the state, U-M makes the largest total contribution to the Michigan economy. It also makes, by far, the largest "export" contribution to the state, the researchers say. Export activities included in the University's total contribution to the state are those that would be lost completely to other states if U-M did not exist, i.e., they would not be transferred elsewhere within Michigan.

Export activities include tuition and fees from would-be students whose second college choice is an out-of-state school, the expenditures those students make in the community, federal grants and contracts, gifts and endowment income not redirected in-state, U-M Health System patient services lost to out-of-state facilities, and expenditures by their visitors.

The export contribution of U-M's operations is nearly 41,000 jobs, about $2.3 billion in personal income and more than $175 million in state tax revenue in fiscal 2001, the study shows.

"U-M's export component is so large because of its almost unrivaled success in attracting federal research funds and the high quality of its student body, many of whom identified nationally ranked out-of-state schools as their second college option if they couldn't attend U-M," Sedo says.

The University's research activities brought in about $450 million in federal funds during fiscal 2001 because of U-M's position as one of the country's top research institutions, the researchers say.

"Overall, the economic impact estimates in our study do not even begin to document the value of an institution such as U-M to society," Fulton says. "What the results of the study do confirm, though, is that not only is the overall health of the state important to the health of U-M, but the health of U-M is also important to the overall health of the state."

Research: U-M benefits state economy

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