The Economic Impact of Universities

The Economic Impact of Universities

The economic impact of universities is one of the most important issues of debate today. Is higher education a worthy investment or a costly failure? Is there room for compromise? What are its drawbacks? Through a case study of the Spanish University System, this article proposes a methodological approach based on growth modeling and counterfactual assumptions to estimate universities’ economic impact in their local communities.


The author’s research used a panel model with four stages: private community college, public community college, trade school, and post-secondary (trade) school. Each stage is matched with a set of private, government, and non-profit colleges to form a targeted sample. We also note that this study uses data from the 2016 Economic Impact of Universities study published in Applied Economics. Our analysis is therefore based on three years (from 2007 to 2012) of data.


A key question is whether higher education can be seen as a cost or as an investment. On the one hand, higher education can bring a significant return on investment over the short run and even over the long run, especially if you are choosing a career field with a very short labor market share and competitive compensation. If you want to spend your time and money on furthering your education, you can be sure of a return on investment. However, these investments can also come with some risks. So, can the cost of attending college be viewed as an investment?

earning a college degree

Our answer is a cautious, yes. The costs of earning a college degree through traditional college access are increasing rapidly, especially since state governments have been slashing higher education funding in recent years. At the same time, labor markets are becoming less competitive. In response, employers have tightened the purse strings, and employee compensation has declined for many years. This leaves much college-age youth who seek employment with no bargaining power and few options available to increase their wages.


As mentioned above, the cost of earning degree completeness varies by institutional factors such as class size, faculty rankings, teaching resources, location, and students’ quality attending the institution. Some colleges have the most expensive per-student spending, while others have more moderate rankings in these categories. As mentioned in the previous figure 1, average spending on college quality has declined for many institutions over the last five years.


As is evident from the previous figure, public colleges and universities’ situation is very different from those of for-profit colleges and universities. For public institutions, the cost of providing a high-quality degree completion product can be seen as an investment. In fact, funding for the average student is expected to rise faster than inflation over the next several years. Thus, the investment may yield a large return for the institution in the form of increased revenue from tuition and institutional charges. Consequently, higher educational institutions are expected to continue enjoying positive public relations due to the positive effects of a higher degree completion rate for many individuals (especially males) who have chosen to follow this path.

colleges offering the programs

If you’re a recent high school graduate, you should start looking for colleges offering the programs you wish to pursue. You must check your state’s Higher Education Agency to determine which public universities and community colleges offer the degree or certificate program you wish to pursue. Then you can compare the annual cost of attendance, financial aid package, and student loans to determine which institution best suits your needs. You can also use the College Board’s student assessment tool to compare the institution’s graduation rates across various campuses and various course types.


It is important to realize that public institutions have varying reputations when it comes to spending. While colleges in some high-cost states may spend more than required by their contract with the federal government, low-cost institutions frequently meet or exceed state spending requirements. Whether you’re interested in obtaining a four-year degree completion or just taking summer courses, you’ll likely discover an institution that best meets your needs. A simple online search can give you a list of schools with affordable degree completion packages that you can choose from.

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