European Regional Science Association 27-31 August 2008, Liverpool
Special Sessions on The Impact of HEIs on Regional Economies
The overall regional impact of Scottish HEIs:
An illustrative CGE analysis of the impact of their “demographic challenge”
Kristinn HermannssonKaterina Lisenkova
Peter McGregorNikos PappasKim Swales
Fraser of Allander Institute, Department of Economics, University of Strathclyde; Centre for Public Policy for Regions (CPPR), Universities of Glasgow and
Strathclyde
One major gap we are tackling in our project is the macroeconomic or system-wide impact of HEIs on the host region: especially the neglect of the supply side.
HEI-disaggregated input-output (IO) analyses are a useful contribution• Extremely useful databases created; results transparent
But, as the best practitioners (many of whom are on our team!) recognise, these studies:
• Embody a restrictive view of host region’s economy (excess capacity, significant unemployment) – passive supply side • Focus on the demand-side effects and are “one-shot” in nature
We develop a CGE approach, but here focus simply on the demand effects implied by the “demographic challenge” facing Scottish HEIs.
Introduction
The “demographic challenge” for HEIs
• Demographic changes in the UK are projected to result in a fall in the number of students
• Recent Universities UK report makes projections of likely numbers of students
• We provide a CGE analysis of likely impacts on Scottish economy of Universities UK scenarios
30%
40%
50%
60%
Total Male Female
Age Participation Index
Population aged 18-20Scotland
2006-based principal GAD/ONS projection
150,000
160,000
170,000
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190,000
200,000
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In 2007 71% of the first year full-time UK-domiciled undergraduates were aged 18-20
-16.9%
-11.0%
UUK projections
• Two types of projections in UUK report:
– Baseline projection – based on demographic factors• Projected age/gender/ethnicity composition of the UK
population• Projected population of EU countries• Projected number of non-EU students• Projected conversion rate from undergraduate to
postgraduate study (increasing in line with recent trends)
– Three scenarios – take into account how HEIs may react to these changes
140000
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Projected total number of students (FTE*): UUK baseline
Source: Universities UK, own calculations
-11.4%
-6.8%
*FTE – full-time equivalent; part-time students added with coefficient 0.5
140000
150000
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Baseline Alternative baseline
Projected total number of students (FTE): baselines?
Source: Universities UK, own calculations
Alternative baseline is proportional to the population of 18-20 year olds
Description of scenarios
Scenario 1Slow adaptation to change
Scenario 2Market-driven and competitive
Scenario 3Employer-driven flexible learning
Participation of young people
Participation of older people
Employer engagement
Competition (UK)
Technology-based learning
As now but with some switch from full-time to part-time
Reduced participation in full-time but increased participation in part-time
Substantial reduction in full-time, but on headcount basis participation at current level
Modestly increased Substantially increased Substantially increased
Modestly change, mainly through increased influence on the curriculum
Increased but not necessarily primarily with publicly funded HEIs
Substantially increased – employers are the primary drivers of large proportion of public funding
Increased competition amongst publicly funded providers
Significant expansion of the range of private providers – fierce competition for UK students
Highly stratified and polarised system with only limited competition
Competition (int-l) UK HEIs compete effectively despite increased competition
UK HEIs compete less well With the exception of elite HEIs, UK HEIs compete less well. However, they engage with technology-based borderless education
Some increase in e-learning, but face-to-face learning is the predominant mode
Substantial increase in e-learning
E-learning is the predominant mode
Academic staffing As now with academic staff undertaking teaching and research
Two streams: one – research and teaching in large HEIs, the other – teaching in small HEIs
Flexible academic workforce. Increased movement between academia and business. Significant part of academic staff becomes self-employed, contracting work at several HEIs
Projected total number of students (FTE): all scenarios
Source: Universities UK, own calculations
140000
150000
160000
170000
180000
190000
2000002
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Baseline
Scenario1
Scenario2
Scenario3
Alternative baseline
Two types of impact of declining number of students
• Loss of income by HEIs– Some sources of HEIs’ income depend on number of
students– An assumption is that per student funding will stay at
the 2005 level (HESA data)– Different types of funding depend on number of each
type of student
• Loss of non-Scottish student’s expenditures– A decline in the number of non-Scottish students will
lead to lower demand in other sectors
Sources of Scottish HEIs income
• Funding Council grants– Recurrent grants (Teaching) –proportional to the number of Scottish
students (FTE)– Recurrent grants (Research)– Recurrent grants (other)
• Tuition fees & education grants & contracts– Home & EU domicile
• Full-time fees – proportional to the number of full-time home and EU students
• Part-time fees – proportional to the number of full-time home and EU students
– Non-EU domicile – proportional to the number of non-EU students (FTE)
• Research grants & contracts; Other income
• Effectively a regional, empirical, general equilibrium variant of the Layard, Nickell and Jackman (LNJ) model. So the supply side is crucial (and, of course, non-passive)
• Multisectoral CGE calibrated on 2006 Scottish Social Accounting Matrix, with HEIs as one sector:
– 25 sectors, cost minimisation– 3 domestic transactor groups
• Goods markets modelled as competitive, with equilibrium relative prices determined simultaneously by demand and supply
– Demands fairly conventional – Trade flows sensitive to relative prices
• Labour market imperfectly competitive, though unified – characterised by regional bargaining - wage curve (w, u negatively related) - LNJ variant
AMOS-HEI: a CGE model of the Scottish economy
• Second element of flexibility - population is– Fixed or Harris-Todaro (w, u positively related) - LNJ variant– When combined with wage curve the two relations tie down w, u
• Final element of flexibility relates to treatment of capital stocks, which are– either fixed (total and composition)– or gradually adjusted to optimal level, driven by gap of rental rates and user costs
• Dynamics in model are recursive: sectoral capital stocks updated each period through investment functions; population updated via the migration function
• Financial markets fully integrated and not modelled explicitly
• How does AMOS-HEI relate to IO models of HEI impacts?– Full specification of the supply side– Can therefore capture heterogeneity among regions (e.g. supply constraints?)– Relative prices (competitiveness) endogenously determined– But, if supply-side is passive, AMOS-HEI converges on comparable IO models
AMOS-HEI (continued)
Impact of the loss of income by HEIs: baseline
2006 2010 2015 2020 2025
UUK baseline
GDP (£m) 0.000 10.434 -15.325 -62.043 -73.158
Total employment ('000) 0.000 0.261 -0.378 -1.633 -2.020
Unemployment (%) 5.797 5.792 5.806 5.815 5.798
CPI (%change) 0.000 0.016 -0.029 -0.063 -0.017
Real wage (% change) 0.000 0.010 -0.018 -0.034 -0.001
HEI sector employment('000) 0.000 0.346 -0.594 -1.670 -1.152
Impact of the loss of income by HEIs: all scenarios
2006 2010 2015 2020 2025 2026
UUK baselineGDP (£m) 0.000 10.434 -15.325 -62.043 -73.158 -74.869Employment ('000) 0.000 0.261 -0.378 -1.633 -2.020 -2.051CPI (%change) 0.000 0.016 -0.029 -0.063 -0.017 -0.016
Scenario1GDP (£m) 0.000 15.015 -2.767 -40.618 -42.942 -39.913Employment ('000) 0.000 0.379 -0.042 -1.057 -1.210 -1.123Unemployment (%) 5.797 5.790 5.804 5.812 5.795 5.793CPI (%change) 0.000 0.022 -0.019 -0.052 -0.004 0.002Real wage (% change) 0.000 0.013 -0.013 -0.029 0.004 0.007HEI sector employment('000) 0.000 0.486 -0.299 -1.246 -0.621 -0.479
Scenario2GDP (£m) 0.000 7.359 -23.555 -75.941 -93.255 -98.651Employment ('000) 0.000 0.182 -0.598 -2.007 -2.558 -2.680CPI (%change) 0.000 0.012 -0.035 -0.070 -0.025 -0.029
Scenario3GDP (£m) 0.000 -3.808 -53.704 -127.030 -165.986 -179.044Employment ('000) 0.000 -0.104 -1.402 -3.380 -4.506 -4.822CPI (%change) 0.000 -0.003 -0.059 -0.097 -0.055 -0.065
Alternative baselineGDP (£m) 0.000 1.681 -38.773 -99.895 -116.499 -116.197Employment ('000) 0.000 0.037 -1.004 -2.657 -3.188 -3.172CPI (%change) 0.000 0.004 -0.047 -0.081 -0.026 -0.018
GDP impact of the fall in student numbers: baseline
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£m
UUK baseline Alternative baseline
GDP impact of the fall in student numbers: baseline
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£ m
HEI income only Including student's expenditures
GDP impact of the loss of income by HEIs : all scenarios
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£m UUK baseline
Scenario1
Scenario2
Scenario3
Alternative baseline
Employment impact of the fall in student numbers: baseline
2397
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HEI income only Including student's expenditures
Employment impact of the loss of income by HEIs : all scenarios
2397
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UUK baseline
Scenario1
Scenario2
Scenario3
Alternative baseline
Sectoral impact (excluding HEI): baseline, 2006 % change
-0.2
-0.15
-0.1
-0.05
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0.05
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The impact of meeting Universities Scotland’s claim for a 15% real increase in government expenditure on HEIs. (Assuming no supply-side impacts.) (Externally funded by UK Government; internally funded through cutting other Scottish government expenditures)
2006 2007 2008 2009 2010 2011 Externally funded
GDP (£m) 0.00 12.62 27.95 45.07 63.10 82.93 Real wage (£000’s) 0.00 0.00 0.00 0.01 0.01 0.01 Unemployment rate 5.80 5.79 5.79 5.78 5.78 5.77 Employment (no of jobs) 0 265 601 1010 1467 1948 Price of Exported goods % change 0.00 0.03 0.06 0.08 0.09 0.11 CPI % change 0.00 0.02 0.04 0.05 0.06 0.08
Internally funded 2006 2007 2008 2009 2010 2011 GDP (£m) 0.00 2.70 6.31 9.01 11.72 14.42 Real wage (£000’s) 0.00 0.00 0.00 0.00 0.00 0.00 Unemployment rate 5.80 5.80 5.80 5.81 5.81 5.81 Employment (no of jobs) 0 -120 -216 -337 -409 -529 Price of Exported goods % change 0.00 0.01 0.02 0.03 0.04 0.04 CPI % change 0.00 0.00 0.01 0.01 0.01 0.01
Conclusions and future research
• Explore UUK scenarios in more detail, providing sensitivity analyses of their demographic and scenario projections
• Capture the supply-side impacts of HEIs – Need to generate new micro-econometric evidence on both skill and
spillover impacts;
– student and graduate migration flows, and incorporate these into the CGE
• Extension to other countries of the UK
• Then extend to close other gaps in our knowledge– disaggregation of HEIs?
– interregional context
– wider impacts of HEIs