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The Economic Impact of
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[Download full report as pdf file.]
Executive Summary
In this report, we measure the contribution of higher education to economic growth in Hawai‘i since statehood (1959). We then summarize the results of the first systematic attempt at measuring the economic impact of the University of Hawai‘i system (UH) on Hawai‘i’s economy. The study focuses on both the short-run and the long-run economic impacts of the University Hawai‘i. The short-run analysis assesses the economic size of UH in relationship to the rest of the economy and ascertains how UH education-related spending impacts the local economy. The long-run analysis assesses the rates of return to the student (private return) and to Hawai‘i taxpayers in their investment in a UH education.
Using growth accounting methodology pioneered by Edward Denison and adapted by George Psacharopoulos, we estimate that Hawai‘i’s work force accounted for more than half (53 percent) of the state’s economic growth between 1959 and 1989. Capital and other factors accounted for the rest. Higher education’s effect on raising labor earnings in Hawai‘i alone (conservatively) accounts for 14 percent of Hawai‘i’s economic growth between 1959 and 1989.
In 1999, UH represented about 3 percent of Hawai‘i’s economy (gross state product) of nearly $40 billion. By comparison, agriculture’s contribution to Hawai‘i gross state product was only 1.1 percent; the communications industry, 3.1 percent; utilities, 2.4 percent; finance, 1.7 percent; insurance; 1.6 percent; business services, 2.7 percent; legal services, 1.2 percent; wholesale trade, 3.9 percent; and construction, 4.2 percent. Thus, the University of Hawai‘i is a major economic sector in Hawai‘i.
In FY 1999, total education related expenditures at the University of Hawai‘i —including spending by students and out-of-state visitors attending UH athletic events and conferences, UH Foundation and the Research Corporation of the University of Hawai‘i-- were $1.086 billion dollars of which $983 million were spent in-state and the rest were purchases out-of-state. Taking into account the multiplier effects, the $1.086 billion education-related spending at UH generated $1.552 billion in business sales, 29,048 full-time equivalent jobs, $1.095 billion in household earnings, and $183 million in state and local taxes. These represented approximately 3.77% of total business sales, 3.88% of total number of job s, 4.74% of household earnings, and 4.74% of state and local taxes in the entire state.
The University is able to leverage money spent by the state on UH so that for every dollar of General Funds spent on UH, the University generates another $1.87 of direct education related spending in the economy for a total of $2.87 (=$1.086 billion divided by $379 million in general fund expenditures) in direct higher education related spending in the state.
For a student attending the University of Hawai‘i, the annual (real) return on investment for a typical Hawaii resident in a University of Hawai‘i education is estimated at 15.8 percent for those who receive a bachelor’s degree and 19.1 percent for a graduate degree. Comparing these rates of return on investment to other long-term investment opportunities, we find that a University of Hawai‘i education is an outstanding investment for most Hawaii residents.
We estimate that a Hawaii resident who obtains a bachelor’s degree and remains in Hawaii will pay nearly $137,000 more in state and local taxes over his/her lifetime (at current tax rates) than a resident with only a high school degree. The additional tax revenues collected from the graduate over his/her lifetime represents a 3.4 percent annual return on the initial public investment of $53,000 in his/her education.
We note that the University of Hawai‘i assists existing businesses, fosters new businesses, and creates long-term job growth. The University contributes in a longer-term way to the overall health of the community through the development of our human resources and a basic knowledge infrastructure. The University promotes innovation and capitalizes on the state’s unique natural and cultural attributes. The University is a laboratory for the creation of new knowledge and a warehouse for additions to the pool of knowledge. Integrating Hawai‘i into the global, academic, business, and technology communities is not possible without the University. In sum, the University of Hawai‘i makes Hawai‘i a better place for every one of us.