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The impact of universities on theUK economy

Fourth report

48157 UniUK Impact on Economy:43586 UniUK Variable Tuition 09/10/2009 11:22 Page i

This report was produced for Universities UK byUrsula Kelly, Donald McLellan and EmeritusProfessor Iain McNicoll of the University ofStrathclyde.

The impact of universities on the UK economy:fourth report

The copyright for this publication is held by Universities UK. The material may becopied or reproduced provided that the source is acknowledged and the material,wholly or in part, is not used for commercial gain. Use of the material forcommercial gain requires the prior written permission of Universities UK.

The opinions in this publication are not necessarily those of Universities UK. Whilstevery effort has been made to ensure the completeness and accuracy of thispublication, the authors and Universities UK give no warranty in that regard andaccept no liability for any loss or damage incurred through the use of, or relianceupon, this report or the information contained within.

48157 UniUK Impact on Economy:43586 UniUK Variable Tuition 09/10/2009 11:22 Page ii

3 Preface

4 Summary1

7 Introduction

28 University income

311 Employment profiles of UK universities

413 University expenditure and its knock-on impact

on the economy

516 Additional impact of international students and

visitors

618 The higher education contribution to UK Gross

Domestic Product

719 The sector’s effectiveness in generating

economic impact

821 Conclusions

Appendix22 Notes on modelling methodology 24 Notes25 Select bibliography

Contents

Universities UK The impact of universities 1

The impact of universities on the UK economy:fourth report

48157 UniUK Impact on Economy:43586 UniUK Variable Tuition 09/10/2009 11:22 Page 1

2

6 Table 1 Overall impact of the higher educationsector on the UK economy, 2007/08

8 Chart 1 University revenue, 2007/08

9 Chart 2 Industry comparisons: sectoral grossoutputs, 2007/08 (£ million)

9 Table 2 Estimated sources of university income,2007/08

9 Chart 3 Sources of university revenue, 2007/08

10 Chart 4 Sources and types of increased incomebetween 2003/04 and 2007/08

11 Table 3 Employment in UK universities, 2007/08

11 Chart 5 University full-time-equivalentemployment profile, 2007/08

13 Table 4 Output generated in the economy byuniversities, 2007/08

14 Chart 6 Total output generated by UK universities2007/08

14 Chart 7 Secondary output generated by UKuniversities by sector, 2007/08

14 Chart 8 Secondary employment generated byuniversity expenditure, 2007/08

15 Chart 9 Employment generated by UKuniversities, 2007/08

15 Chart 10 Occupational profile of employmentgenerated by universities, 2007/08

17 Table 5 Impact of international student andvisitor expenditure, 2007/08

18 Table 6 The contribution of the higher educationsector to UK GDP, 2007/08

18 Chart 11 Higher education contribution to GDP (O)compared to other sectors, 2007/08

19 Table 7 Total impact per £1 million expenditure,2007/08

19 Table 8 Impact efficiency rankings, 2007/08

20 Chart 12 GDP impact comparisons, 2007/08

21 Table 9 Overall impact of the higher educationsector on the UK economy, 2007/08

Index of charts and tables


Universities UK The impact of universities

Such activity depends on a continuing mix of publicand private investment in the sector. Income fromprivate sources amounts to 26 per cent of allhigher education income – with considerablevariations between institutions – but publicinvestment (61 per cent of the total) will continueto play a vital role in the development of the sector.It is evident from the findings of this report thatsuch investment has a direct impact on the UKeconomy and employment levels as well asmaintaining the health of the sector.

Professor Steve Smith

President

Universities UK

This is the fourth study of the impact of thehigher education sector on the UK economywhich has been published by Universities UK. Itupdates earlier studies published from 1997.Since the first report appeared the economicimportance of higher education has been muchmore widely recognised and its contribution tonational and regional economic development isan important influence on policymaking. Highereducation is seen in the UK as being of keyimportance in the creation and transfer ofknowledge to the economy through its teaching,research and other activities.

The latest report provides new evidence of theimpact of universities as independentbusinesses (additional to their role in increasingthe stock of human capital). The economicactivity generated by university expenditure (theaspect of the sector’s economic contributionwhich is most readily quantifiable) is substantial.The scale of university activity across the UK alsomeans that this can be very important at themacroeconomic level. The higher educationsector is comparable to the printing andpublishing and legal activities industries andlarger than the pharmaceutical, aircraft andspacecraft and advertising industries in the UK.

The report confirms the growing economicimportance of the sector, which had an income of£23.4 billion a year in 2007/08 (compared with£16.9 billion in 2003/04), gross export earnings of£5.3 billion and employed more than 1 per cent ofthe UK’s total workforce. In terms of its widereconomic impact the sector generated over£59 billion of output. The equivalent figure fiveyears ago was nearly £45 billion, confirming arapid growth in economic impact. The studydemonstrates that the effectiveness of the highereducation sector in generating impact is relativelyhigh compared to other sectors of the economy.

The report also confirms the substantialemployment effect of higher education activity,with around 670,000 jobs being created throughoutthe economy in 2007/08. Of these some 372,000people were directly employed by universities andcolleges. It provides further evidence of theimportance of international students to the sectorand the wider economy. One significant impact isthe volume of personal off-campus expenditure ofthese students, which amounted to £2.3 billion in2007/08.

3

Preface


4

Methodology and data sources

The study is based on the 166 universities andcolleges included in Higher Education StatisticsAgency (HESA) data for the academic year2007/08. (These institutions are referred to asuniversities throughout this report.) The studyexamined the key economic characteristics ofuniversities and the impact generated by theiractivity. It also considered the impact of the off-campus expenditure of EU and internationalstudents (that is, all non-UK domiciled students)studying at UK universities. Modelled estimateswere also made of the impact of the off-campusexpenditure of international visitors attracted tothe UK by the universities. The off-campusexpenditure of UK domiciled students wasexcluded as this may not be regarded asadditional to the UK economy as a whole.

The model used was a purpose designed andspecially constructed ‘type II’ input-outputmodel based on actual UK data derived from theOffice of National Statistics’ input-output tables(2006) together with data from its ‘Blue Book’(2008)1.

Data on university finance, staffing and studentswere obtained from HESA. Other data sourcesincluded Travel trends (Office of NationalStatistics) and a student expenditure survey(2009), published by the former Department forInnovation, Universities and Skills, as well as theLabour Force Survey and Annual BusinessInquiry.

Key findings

The overall impact of the higher educationsector

p Higher education sector impact is defined inthis study to be that of the universitiestogether with that of their internationalstudents and visitors.

p Through both direct and secondary ormultiplier effects, this generated over £59 billionof output and over 668,500 full time equivalentjobs throughout the economy. The totalemployment generated was equivalent toaround 2.6 per cent of all full time equivalentemployment in 2007.

Introduction

The role of higher education in the economy isattracting growing attention in all developedcountries. In particular its potential contributionto economic prosperity, through innovation andknowledge exchange to the wider society, isregarded as vitally important for economicdevelopment and growth. At a time of globaleconomic crisis governments across the worldare looking to their universities to supportnational and regional economies, through thedevelopment of new ideas, products and servicesfrom research as well as through continuing toraise the education levels of citizens andincrease the national capacity to innovate andadapt. In the UK it is increasingly recognised thatthe higher education sector forms a core part ofthe economic infrastructure, generatingemployment and output, attracting exportearnings and contributing to the gross domesticproduct (GDP). The strength of the sector and itseffectiveness in generating economic activity hasbecome all the more important in a severerecession when other sectors of the economy arecontracting.

This study presents key economic features of UKhigher education in the academic year 2007/08and those aspects of its contribution to the UKeconomy that can be readily measured. It doesnot, therefore, include any assessment of thevalue of the sector’s collaboration with businessor the impact of new ideas generated byuniversities or their graduates. The sector isanalysed as a conventional industry, highlightingthe major economic characteristics of UKuniversities, including their sources of revenue,employment created, output generated andexport earnings attracted. Modelled estimatesare made of the economic activity generated inother sectors of the economy through thesecondary or ‘knock-on’ multiplier effects ofexpenditure by universities and their staff, aswell as by international students and visitors.Additional analysis is undertaken of the overallcontribution of the higher education sector toGross Domestic Product (GDP) and its efficiencyin generating impact is compared with a range ofother sectors of the economy.

The study calculates that through both direct andsecondary effects the higher education sectorgenerated over £59 billion of output and over668,500 full time equivalent jobs throughout theUK economy in 2007/08.

Summary



International students and visitors

p Personal (off-campus) expenditure of EU andinternational students attending UKuniversities in 2007/08 was estimated to be£2.3 billion. This was equivalent to over 14 per cent of all receipts from overseasvisitors to the UK for the year 20072.

p Higher education makes a key contribution toUK business tourism. Personal (off-campus)expenditure of international business andrecreational visitors to UK universities wasestimated to be just over £135 million.

p The expenditure of international students andvisitors also generated output andemployment throughout the UK.

p International student expenditure generated£3.3 billion of output across the economy andover 27,800 jobs.

p International visitor expenditure generatedaround £189 million of output and over 1,600jobs.

Higher education’s contribution to GDP

The importance of higher education to theeconomy can be seen through the generation ofsignificant levels of output and employment.However a key measure of its contribution to thenational economy is its impact on GDP. GDP isused by all countries as an annual measure ofthe total value of all goods and servicesproduced by an economy.

In the year 2007/08, universities contributed over£31 billion to UK GDP. The off-campusexpenditure of their international students andvisitors made a further £2.4 billion contributionto GDP. Taken together this contribution came toover £33.4 billion – equivalent to 2.3 per cent ofUK GDP in 20083.

Universities: direct income, expenditure andemployment

p In 2007/08, the total revenue earned by UKuniversities amounted to £23.4 billion. Thiswas comparable in sectoral gross outputterms to the printing and publishing industryand considerably larger than thepharmaceuticals industry in the UK.

p Revenue from ‘core’ public sources (definedas funding council grants and tuition feepayments) accounted for 48 per cent of alluniversity income.

p Total revenue from all UK public sourcesamounted to £14.3 billion or 61 per cent of allincome.

p International revenues (institutional grossexport earnings) amounted to over £2.9billion, representing nearly 13 per cent of alluniversity income.

p In 2007/08, universities spent £22.9 billion,with the single largest component ofexpenditure being labour costs.

p Universities directly employed over 372,400people, which equated to approximately314,600 full time equivalent jobs. This wasequivalent to 1.2 per cent of all full time UKemployment in 2007.

Universities: secondary or ‘knock-on’multiplier effects

p The expenditure of universities and their staffgenerated additional output and employmentacross the economy.

p For every 100 full time jobs within theuniversities themselves, more than 100 otherfull time equivalent jobs were generatedthrough knock–on effects. Over 324,400 fulltime equivalent jobs in other sectors of the UKeconomy were dependent on the expenditureof the universities.

p For every £1 million of university output afurther £1.38 million of output was generatedin other sectors of the economy. This meantthat an additional £32.4 billion of output wasgenerated outside the universities as a resultof their expenditure.


6

Table 1

Overall impact of the highereducation sector on the UKeconomy, 2007/084

Universities International International Higher educationstudents visitors sector

OUTPUT

Direct output £23.44 billion 0 0 £23.44 billion

Secondary output £32.36 billion £3.26 billion £0.19 billion £35.81 billion

Total output generated (direct plus secondary) £55.80 billion £3.26 billion £0.19billion £59.25 billion

GDP(O)

Direct GDP(O) £15.16 billion 0 0 £15.16 billion

Secondary GDP(O) £15.86 billion £1.51 billion £0.88 billion £18.25 billion

Total GDP(O) £31.02 billion £1.51 billion £0.88 billion £33.41 billion

EMPLOYMENT

Direct employment 314,632 0 0 314,632

Secondary employment 324,456 27,868 1,163 353,937

Total employment generated (direct plus secondary) 639,088 27,868 1,613 668,569

EXPORT EARNINGS

Export earnings £2.9 billion £2.3 billion £0.14 billion £5.3 billion

Source: Universities UK economic impact modelling system (2009) constructed for this study

Note: All employment figures are full time equivalents



The institutions covered in this analysis arediverse in origin, mission and size. They includeuniversities (six of which are ‘ancient’, withorigins going back to medieval times), artcolleges, conservatoires, colleges of highereducation, university colleges, agriculturalcolleges and research institutes. Their studentnumbers range in size from fewer than 500students to over 30,000, with an annual turnoverranging from less than £9 million to over£600 million; 131 are located in England, with19 in Scotland, 12 in Wales and four in NorthernIreland.

While the institutions under examination are themajor suppliers of higher education in the UK,some further education colleges also offercourses at this level. There are significantnumbers of higher education studentsregistered at further education colleges andprivate institutions but relevant data on these arenot included in HESA publications and are notavailable in a comparable format from othersources. While this report will therefore capturemost of the economic impact of higher educationas an activity, its overall impact will besomewhat greater.

This study follows on from, and updates, earlieranalyses of the economic impact of highereducation, which have been published since19976. The study follows essentially the samemethodological approach as the earlier reports.Direct comparisons with previous results are notappropriate, however, as a new input-outputmodel, with a different specification, has beendeveloped and there are also a number ofdefinitional differences in the data sources.

The role of higher education in the economy isattracting growing attention in all developedcountries. In particular its potential contributionto economic prosperity through innovation andknowledge exchange to wider society is regardedas vitally important for economic developmentand growth. At a time of global economic crisisgovernments across the world are looking totheir universities to provide ways to supportnational and regional economies, through thedevelopment of new ideas, products, andservices from research as well as throughcontinuing to raise the education levels ofcitizens and increase the nation’s capacity toinnovate and adapt. It is increasingly recognisedin the UK that the sector has become a core partof the economic infrastructure of the country andits regions, generating employment and output,attracting export earnings and contributing togross domestic product (GDP). The strength ofthe sector and its effectiveness in generatingeconomic activity become all the more importantin an economic recession when other sectors arecontracting.

This report provides an up-to-date analysis ofkey economic aspects of UK universities in theacademic year 2007/08. Analysis is made of theimpact of the sector as a conventional industry,highlighting the major economic characteristicsof UK universities, including their sources ofrevenue, employment created, output generatedand export earnings attracted. Modelledestimates are made of the economic activitygenerated in other sectors of the economythrough the secondary or ‘knock-on’ multipliereffects of the expenditure of the universities,their staff and that of their international studentsand visitors5. In this study, for the first time,estimates are also made of the sector’scontribution to GDP.

For the purposes of this study the sector isdefined as the 166 universities and collegesincluded in the Higher Education StatisticsAgency (HESA) data for the study year (2007/08)together with the personal off-campusexpenditure of their international (non-UKdomiciled) students and visitors. The personalexpenditure of UK-domiciled students isexcluded since such expenditure is notadditional to the UK economy but may take placeanyway, irrespective of student status.

1Introduction


Other sources of revenue for universities caninclude consultancy and intellectual propertyincome, such as that from royalties. There is acurrent drive by government to encourageuniversities to exploit intellectual propertythrough patents, licensing and spin-outs.However, at the moment the income formallyattributable to the exploitation of intellectualproperty rights in the form of royaltiesrepresents a relatively small proportion ofoverall university revenue (£37 million) and isconcentrated in a minority of institutions. In totalonly 54 institutions reported income from thissource in 2007/08 and only nine reported suchincome exceeding £1 million. While HESA doesnot disaggregate consultancy income, the highereducation-business and community interactionsurvey for 2007/08 reported nearly £335 millionincome from consultancy, which wasconsiderably higher than that from licensing androyalties.7

The report on intellectual property by ProfessorPaul Wellings for the former Secretary of Statefor Innovation, Universities and Skills in 2008highlighted the fact that that the most importantbenefits arising from university inventions andinnovations may be the social and economicbenefits accruing to society at large. Theseeconomic benefits will not always be captured byan analysis of the income streams fromintellectual property as their value to society islikely to be greater than the direct financialreturns to universities8. This suggests thatuniversity success in making an impact throughinnovation can go beyond that reflected in termsof the intellectual property income they receive.Studies of the wider social and economicbenefits of universities, including the benefits ofknowledge transfer, are currently beingundertaken in a major research initiative on theimpact of higher education institutions onregional economies, which is funded by theEconomic and Social Research Council (ESRC)and the higher education funding councils.9

In national accounting terms, university annualturnover is equivalent to sectoral gross output asdefined for all firms and industries. Withrevenues of £ 23.4 billion, the higher educationsector is a significant UK industry. To put this intocontext, chart 2 gives examples of similarly sizedindustries10. It shows that the higher educationsector was comparable in size to the printing andpublishing and legal activities industries, slightlylarger than the advertising industry andconsiderably larger than the pharmaceutical andaircraft and spacecraft industries.

8

The 166 universities and colleges included in thisstudy cover a wide range of types. As individualenterprises they vary in mission, size and scaleof operations. All are legally independententities and are classified as non-profitinstitutions serving households in the UKnational accounts. Taken together theyrepresent a significant sector of the nationaleconomy. Their total financial turnover in2007/08 amounted to £23.4 billion.Chart 1

University revenue, 2007/08(£23.4 billion)

Source: HESA, Resources of higher education institutions, 2007/08

Chart 1 presents an overall picture of universityincome sources as classified by HESA Mostrevenue is directly associated with teaching andresearch activity (with income from fundingcouncil grants, tuition fees and research grantsand contracts amounting to 79 per cent of thetotal); however, 19 per cent of university revenuewas earned from the delivery of other services.Further examination of the HESA data providessome additional insight into the sources of otherincome earned by universities. For example, asignificant amount of other income comes fromresidence and catering operations (whichamounted to £1.3 billion in 2007/08). Residenceand catering income is not only derived fromindividual students and staff but is also securedby providing conference and seminar facilities toother organisations. Universities play animportant role in promoting and supportingbusiness tourism – a small proportion of theircontribution is reflected in the income directlygenerated from conferences, although many oftheir large events provide a wider benefit bygenerating income to their host regions sincemost of the relevant business will go to localhotels. This is discussed in more detail inSection 5.

2University income

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Chart 2

Industry comparisons: sectoralgross outputs, 2007/08 (£ million)

Source: Industry comparisons from ONS UK Input-Output SupplyTable (2007)

With an industry of the comparative significanceof higher education (as highlighted in chart 2), itis important to analyse who pays for its services.Further analysis of university income data givesan insight into its wide client base. HESA recordsthe sources of revenue for research grants andcontracts as well as for some elements of otherincome generated. It also records tuition feerevenue from non-EU sources and providessome information on the sources of other tuitionfees (for example, where they are paid by publicsector agencies such as the Scottish StudentAwards Agency), which enables estimates to bemade of private fee payments. Information wasalso sought from other sources including theAssociation of College and University BusinessOfficers’ (CUBO) annual reports, which wereused to inform estimates of the sources of otherincome generated, such as that from residenceand catering operations. The outcome of thisanalysis is shown in table 2 below.

Table 2

Estimated sources of universityincome, 2007/08

The majority of university income is from thepublic sector (making up 61 per cent of totalrevenue) but it is worth noting that institutionsalso attract income from a wide range of otherclients. Sources of income are summarised inchart 3 below.

Chart 3

Sources of university revenue,2007/8 (£23.4 billion)

Source: Analysis of HESA data

Chart 3 shows that 39 per cent of universityrevenue derives from private sector andinternational sources. ‘Core’ public sectorincome (defined as all funding council grantstogether with tuition fee payments from publicsources) accounted for 48 per cent of alluniversity income in 2007/08. Universitiesattracted a further 13 per cent of revenue fromother public sources – these monies are usuallywon on a competitive basis for a range ofservices, including some research contracts.

Source of income (£ million)International sources

Type of income (public and privateUK public sources UK private sources including EU) Totals

Funding council grants 8,508 0 0 8,508

Tuition fees and education grants 2,636 1,731 1,887 6,254

Research grants and contracts 1,997 1,176 548 3,722

Other services rendered 492 734 245 1,471

Other general income 681 2,037 259 2,977

Endowment and interest 0 508 0 508

Totals 14,314 6,186 2,939 23,440

Sources: Analysis derived from HESA

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10

In a general sense universities compete for allpublic monies in one way or another. However,competition for ‘core’ public sector fundingtends to be ‘intra-sectoral’ – with institutionsmainly competing against each other fordomestic students and with funding councilmonies being tied to student numbers, researchassessment exercise outcomes and progress inmeeting other government targets. ‘Other’public funding reflects more ‘inter-sectoralcompetition’, and to attract this revenue UKuniversities will have been in competition withgovernment research institutes, privateconsultancy firms and other bodies within theUK and internationally.

Revenue from international sources (that is, allnon-UK sources) represents export earnings forthe UK. In 2007/08, the sector attracted nearly£3 billion of international revenue, whichequates to universities’ gross export earnings.This estimate was achieved by analysing theincome sources within the classificationsreported in HESA. The outcome figure of£3 billion is likely to be an underestimate of theamount of institutions’ export earnings as, forexample, HESA does not entirely differentiatebetween UK income and that from other EUcountries (a distinction is made in some incomecategories but not all).

While the sector’s revenue has risensubstantially since we published our last study in2006 (by 39 per cent: from £16.9 billion in2003/04 to £23.4 billion in 2007/08), the overallbalance of revenue sources remains similar. Thissuggests that universities continue to be able toleverage significant levels of private andinternational revenue to match increases inpublic sector income. The underlying trends inthe increase in revenue between 2003/04 and2007/08 were compared. Chart 4 illustrates fromwhere the additional £6.5 billion of revenue hascome and the broad types of income involved.

Chart 4:

Sources and types of increasedincome between 2003/04 and2007/08 (Total £6.5 billion)

Source: Analysis of HESA data

Of the total increase of £6.5 billion, 30 per centcame in the form of funding council grants and33 per cent was made up of additional tuitionfees from public, private and internationalsources. 15 per cent of the increase came fromresearch grants and contracts while otherservices rendered and general income (whichincludes, for example, residence and cateringand consultancy income) rose by 18 per cent.The universities also increased the income theyreceived from endowments and interestpayments. Income from these sources morethan doubled (a 115 per cent increase) between2003/04 and 2007/08.

Chart 4 shows the underlying balance in termsof income from the UK public sector, the privatesector and international sources. Overall61.7 per cent of the additional £6.5 billion camefrom the public sector, with 23.8 per cent fromthe private sector and 14.5 per cent frominternational sources. This is very similar touniversities’ overall income profile and isevidence that they can leverage additional fundsfrom the private sector and from internationalclients to keep pace with increased public sectorsupport.

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One of the most important roles that universitiesplay in the economy relates to how many staff theyemploy. They tend to be labour-intensiveenterprises and can be very large employers.Their importance as employers is well recognisedat the regional level, since they are frequentlyamong the largest employers in their regions.Universities are recognised for providing skilledand relatively high paid employment and attractinghighly qualified people to an area (which in itselfcan contribute to increasing a region’s capacity toabsorb new ideas and innovations, making it morecompetitive). However, they are also important inproviding employment in occupations across theentire skills spectrum.

HESA first published comprehensive data onhigher education staffing in 2005 and this is nowregularly collected; staff roles have also beenidentified and mapped to standard occupationalclassifications11. This means that the full rangeand diversity of university employment can now beobserved and compared with the employmentprofiles of other industries. In 2007/08, over372,000 people were employed in universities andcolleges across the UK. Table 3 below shows therange of employment within institutions.

Table 3:

Employment in UK universities,2007/08

Employment in UK universities Total Percentage (‘headcount’) of totalManagers 14,910 4.0Academic professionals (including 174,930 47.0professors, lecturers, researchers and other academic posts)Non-academic professionals 25,820 6.9Laboratory, engineering, building, IT 27,125 7.3and medical technicians (including nurses)Student welfare workers, careers 9,360 2.5advisers, vocational training instructors, personnel and planning officersArtistic, media, public relations, 5,795 1.6marketing and sports occupationsLibrary assistants, clerks and 52,575 14.1general administrative assistantsSecretaries, typists, receptionists 18,200 4.9and telephonistsChefs, gardeners, electrical and 5,105 1.4construction trades, mechanical fitters and printersCaretakers, residential wardens, sports 5,155 1.4and leisure attendants, nursery nurses and care occupationsRetail and customer service occupations 1,225 0.3Drivers, maintenance supervisors 1,435 0.4and plant operativesCleaners, catering assistants, security 30,780 8.3officers, porters and maintenance workersTotals 372,415 100.0

Source: HESA

The total ‘headcount’ number of staff includesboth full time and part time employment.According to HESA, this equates to 314,632 full time equivalent jobs, which is equivalent to1.2 per cent of 2007 UK full-time equivalentemployment12. The full time equivalentemployment profile of universities in 2007/08 isshown in chart 5 below.

Chart 5

University full-time-equivalentemployment profile, 2007/08

Source: HESA

Chart 5 illustrates the broad range of highereducation employment, which reflects the multi-faceted nature of activities in which universitiesengage. The overall ratio of academic to othersupport staff (45 per cent academic, 55 per centother support staff) remains broadly similar tothat observed in previous studies.

The university employment profile reflects themany inputs required to support the delivery ofhigher education services. Institutions need tomanage a substantial infrastructure, includingthe maintenance of estate and buildings. Apartfrom laboratories, lecture theatres and offices,this includes residential accommodation,catering facilities, sports and recreation centres.The competitive environment in whichuniversities operate also requires a diverserange of support professionals – for marketingand student recruitment as well as for businessdevelopment and research management. Agrowing emphasis on enhancing the ‘studentexperience’ (coupled with students paying alarger proportion of the cost than previously andharbouring greater expectations of the servicesprovided) requires additional support staff, suchas welfare officers and careers advisers.

3Employment profiles of UK universities

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12

Moreover, a proportion of university activity(particularly commercial operations such asresidence and catering or conference business)aims to generate revenue not only to cross-subsidise the ‘core’ teaching and researchportfolio, but also to enable the institution tosupport other, less financially rewarding,activities that are in keeping with their particularinstitutional mission. This can include summerschools for young people or maintainingmuseums and galleries or artistic and scientificcollections of historical importance. Suchactivities also require a range of specialist staff.The complex nature of the higher educationbusiness is reflected in the sector’s non-academicstaff profile with, for example, over 5,700 peoplebeing employed in ‘artistic, media, publicrelations, marketing and sports occupations’ andover 1,200 staff in ‘retail and customer serviceoccupations’ as well as more traditional supportstaff roles (such as library assistants, laboratorytechnicians, cleaners and security staff).



Details of the major components of universityexpenditure were available from HESA and theseprovided the basic initial expenditure datarequired. However, this data alone is insufficientfor modelling purposes, because the pattern ofuniversity expenditure (which types of goods andservices they buy, and the proportion ofexpenditure on UK, rather than imported, goodsand services) will determine the pattern ofdemand arising in different industries. The teammade detailed estimates of universityexpenditure types, using data from a range ofsources. These included data from a sector widesurvey conducted for previous studies, togetherwith observations of detailed patterns ofexpenditure from a number of individualuniversities studied by the team, and informationobtained from higher education purchasingconsortia. This facilitated the construction of adisaggregated university expenditure vector forincorporation into the model, which enabled thecalculation of the economic activity generated inother industries in terms of:

p sectoral gross output: this is measured inmonetary units and for most industries it isapproximately equivalent to the level ofturnover or gross receipts. For the distributionand transport industries it is a measurereflective of gross margins.

p employment: measured in terms of full timeequivalent jobs (physical units) where one parttime job = 0.5 of a full time job.13

Analysis was also undertaken of the contributionto GDP, which is discussed in Section 6. Theresults for the impact of university expenditureare summarised below in table 4.

Table 4

Output generated in theeconomy by universities,2007/08 (£000)

University gross output (definitionally £23.44 billionequivalent to university revenue)

University expenditure £22.88 billion

Secondary or knock-on output generated £32.36 billionin other UK sectors

Total output generated by universities £55.80 billion(university output plus knock-on output)

Source: HESA and the Universities UK economic impact modellingsystem (2009)

As can be seen from the previous sections,universities make up a substantial UK industry,with an annual turnover of £23.4 billion andproviding over one per cent of full timeequivalent employment in the UK. In 2007/08,university expenditure amounted to £22.9 billion,which was almost the same amount as theyearned (which is to be expected for non-profit-making organisations). In addition to their ownoutput and employment, universities’expenditure generated additional output andemployment in other sectors of the economythrough secondary or ‘knock-on’ multipliereffects.

These ‘knock-on’ or multiplier effects aregenerally recognised as comprising two types ofeconomic interaction:

p indirect effects: universities purchase goodsand services from other sectors in order tosupport their own activity, thereby stimulatingactivity within those industries. The supplyingindustries also buy from other suppliers inorder to fulfil university orders, and thosesuppliers in turn buy, so that there is arippling-out effect.

p induced effects: universities pay wages andsalaries to employees, who in turn spend thisincome on consumer goods and services. Thiscreates wage income for employees in othersectors, who also spend their income and soon, creating a ripple effect throughout theeconomy as a whole.

In order to produce estimates of these ‘knock-oneffects’, it is necessary to develop an operationalmodel of the national economy. For the purposesof this study a complete type II input-outputmodel was constructed, based on Office ofNational Statistics’ UK input-output tables(2006). The model also included a labour marketextension, derived from official Labour ForceSurvey data. The model enabled the impactgenerated by university expenditure to be tracedthrough the economy. The specification of themodel is described in the appendix.

4University expenditure and its knock-on impacton the economy


14

As table 4 shows, universities spent £22.88 billionin 2007/08 (of which some £19.5 billion wasestimated to have been spent on UK, rather thanimported, goods and services) and thisexpenditure generated £32.36 billion of output inother UK industries.

As has been highlighted earlier, the universities’own direct output (equivalent to annualturnover) amounted to £23.44 billion. Thereforethe total output generated by universities (theirown direct output combined with the secondaryoutput in other industries) came to £55.80 billion.This is illustrated in chart 6.

Chart 6

Total output generated by UKuniversities, 2007/08 (£55.80billion)

Source: Universities UK economic impact modelling system (2009)

The ratio of total output to direct output isdefined as the sectoral gross output multiplier,with a calculated value for UK universities of2.38. Therefore, for every £1 million of directuniversity output a further £1.38 million wasgenerated in other sectors of the economy. Chart7 illustrates the pattern of total output generatedby universities across the UK economy. It showsthat the secondary output was spread across arange of other sectors, particularlymanufacturing, wholesale and retail trade, andbusiness activities. Although the institutionsthemselves had a very high propensity topurchase UK goods and services (includinglabour services), the overall impact wasmoderated by the fact that significant fractionsof their labour payments were ‘leaked’ from theeconomy in the form of staff import purchasesand tax payments.

Chart 7

Secondary output generated byUK universities by sector,2007/08 (£32.36 billion)


Employment generated by universities

As well as universities being large employers intheir own right, their expenditure leads to jobsbeing generated in other industries. The teamwas able to analyse the impact on employmentacross the economy arising through secondaryor ‘knock-on’ effects of expenditure byuniversities and their employees.

Analysis showed that an estimated 324,456full-time-equivalent jobs were generated inother industries outside the higher educationsector. The pattern of employment across otherindustries is shown in chart 8 below.

Chart 8

Secondary employmentgenerated by universityexpenditure, 2007/08 (324,456full time equivalent)


Universities

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As chart 8 shows, employment was generatedacross all sectors of the economy, withparticularly notable impacts on manufacturing,the wholesale and retail trade as well asbusiness activities. The employment impact is areflection of the types of purchases made byuniversities and their staff as well as the processthrough which they were made. For instance,universities make major capital and equipmentpurchases as well as relying on a range ofbusiness services. Staff expenditure will be moreoriented towards individual consumer purchases- food, clothes, and other general consumergoods - buying from shops and other retailoutlets. Wholesale and retail distributors ofconsumer goods will benefit from this (as theyattract a retail margin even when the goodsthemselves are imported).

As discussed earlier, the HESA data shows thatuniversities directly employed over 372,400people in 2007/08, which equates to 314,632 fulltime equivalent jobs. This means that in total,both through employing staff directly andthrough generating jobs in other industriesthrough secondary effects, universitiesgenerated an estimated 639,088 full timeequivalent jobs in the UK economy in 2007/08.

This gives an employment multiplier (defined astotal employment divided by direct employment)for universities of 2.03, indicating that for every 100jobs created directly within an institution, another103 jobs are generated elsewhere in the economy.

Chart 9

Employment generated by UKuniversities, 2007/08 (639,088full time equivalent)


Section 3 discussed the diverse pattern ofemployment within universities. However, theoccupational profile of the secondaryemployment generated is more similar to that ofthe UK as a whole. It is also possible to comparethe occupational profile of university directemployment with that of the jobs generated bythe universities elsewhere in the economy. Thisis shown in chart 10.

Chart 10

Occupational profile ofemployment generated byuniversities, 2007/08

Source: HESA and the Universities UK economic impact modellingsystem (2009)

Chart 10 compares the occupational profile ofuniversity employment with that generatedelsewhere in the economy by universityexpenditure. This highlights the specialisednature of some of the employment withinuniversities (with a high concentration inprofessional occupations and a greaterproportion in associate professional and clericaloccupations compared to that generated throughsecondary effects). It is clear that directemployment in higher education shows a lowerproportion of management occupationscompared to those in the secondary employmentgenerated. However, this is predominantly anissue of classification, as many people whomight be classified as managers in other sectorsare included in the professional or associateprofessional occupations in university statistics(for instance, academic managers such as headsof academic departments may be classified asacademic professionals).

Employment generated

in other industries

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universities51%

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16

International students

Universities attract a substantial number of EUand international students, studying atinstitutions throughout the UK. In 2007/08, therewere 341,810 students from outside the UKregistered at UK institutions. These made upnearly 15 per cent of the total studentpopulation14. These students all make paymentsdirectly to universities for their fees,accommodation and other costs and the impactof these monies is captured within thecalculation of university impact (income fromresidence and catering operations is covered insection 2). However, students also buy a widerange of goods and services off-campus. Forexample, the private rented sector benefits fromstudents’ need for accommodation (while manyinstitutions have a stock of studentaccommodation, few – if any – can accommodateall their students), local supermarkets providefood and drink and local pubs and clubsfrequently rely heavily on student trade. Even acasual observer will note that around anyuniversity or college there is a proliferation ofcafes, snack bars, pubs and shops that seem todraw a large proportion of their business fromstudents. The contribution of students to theprosperity of university cities is a subject ofincreasing interest and is also currently beingstudied as part of the research looking at theimpact of higher education institutions onregional economies, supported by ESRC and thehigher education funding councils15.

Expenditure by international students fromoutside the UK makes an injection into thenational economy, as well as representingexport earnings. It is important to note that theexpenditure of all non-UK domiciled students isrelevant, whether they are from the rest of theEU or from further afield. While EU students paythe lower domestic fee they spend money off-campus in the same way as students from othercountries.

There are regular surveys of UK studentexpenditure: the most recent was published bythe former Department of Innovation,Universities and Skills (DIUS) in April 200916. Thissurvey data – about English-domiciled students– was used to estimate student expenditure andin the absence of survey data on internationalstudent expenditure, it was assumed that suchexpenditure would be similar to that of domesticstudents.

To avoid any double-counting, the overallestimate of expenditure was reduced to allow forpayments made to institutions for catering,residence charges and other items17. This gave afinal total estimated off-campus expenditurefigure for international students studying in theUK of £2.3 billion in 2007/08.

International visitors

There is another area of university activity thatshould be noted, which is the role that institutionscan play in attracting visitors to the UK, which inturn is a significant contribution to nationalbusiness tourism. The expenditure of universitybusiness and leisure visitors contributes to the UKeconomy in the same way as that of students.

The part that universities play in business tourismis beginning to be more widely recognised. Forexample, many cities have established‘conference ambassador programmes’ to supportsenior academics and other professionals inattracting major international conferences to aregion18. University staff can be pivotal to thesuccess of local conference business asinternationally renowned academics are in aposition to influence major learned societies andresearch associations in their choice ofconference location. Universities also frequentlyprovide holiday accommodation for leisurevisitors, group tours and summer schoolparticipants, as well as for individual visitingscholars. The annual report of the Association ofCollege and University Business Officers for 2008indicates that there are 134,000 bed spaces in itsmember institutions (which include 90 of the 166institutions on which this study is based). Virtuallyall universities let out accommodation to visitorsduring the vacations.

In order to make an estimate of internationalvisitor expenditure, the study team drew onprevious survey based information (a previousstudy had collected data on university visitornumbers). These numbers were adjusted in linewith the overall trend in visitors to the UK19. Thisgave an estimate of 1,148,695 business and468,384 leisure visitor bednights in 2007/08. Perdiem expenditure rates were sourced from theOffice for National Statistics’ Travel trends. It wastherefore possible to derive an estimate of totalinternational visitor expenditure in 2007/08. Thistotal figure was also reduced in order to takeaccount of monies paid directly to universities(for example, for residence and cateringoperations) and a final estimate of personaloff-campus expenditure for international visitorsamounted to £135 million. This also representsexport earnings for the UK.

5Additional impact of international students andvisitors



Expenditure figures for international studentsand international visitors were disaggregatedinto the format required for the model (withexpenditure vectors constructed that reflectedthe ‘individual consumer’ oriented nature ofstudent and visitor spend). The resulting impacton the UK economy is shown in table 5.

Table 5

Impact of international studentand international visitorexpenditure, 2007/08

Overseas Overseasstudents visitors

Total personal expenditure £2.3 billion £135 million(off campus)

Knock–on output generated £3.26 billion £189 millionthroughout UK economy

Knock-on employment 27,868 full time 1,613 full timegenerated equivalent jobs equivalent jobs


It is clear that while the mainstream activity ofuniversities has the most significant impact onthe econom y, the economic activity generated bythe off-campus expenditure of internationalstudents and visitors is also important and addsan additional dimension to the role of highereducation within the economy.


18

The analysis of higher education gross valueadded revealed that in the year 2007/08universities contributed over £31 billion tonational GDP through both direct and secondaryeffects. The off-campus expenditure ofinternational students and visitors made afurther £2.4 billion contribution to GDP.Therefore taken together the contribution to GDPcame to over £33.4 billion – equivalent to 2.3 percent of GDP in 2008. This figure excludes anycontribution to GDP of the off-campusexpenditure of the UK’s domestic highereducation students (nearly 2 million) since it isassumed that they may have incurred theirexpenditure in any event.

Higher education’s contribution to GDP (O) isclearly significant. Further analysis wasundertaken to assess the impact of universitieson GDP compared with a number of other UKsectors.

Chart 11

Higher education’s contributionto GDP (O) compared to othersectors, 2007/08


As chart 11 shows, the sector’s contribution toGDP (O) in 2007/08 was comparable to that madeby computing services and recreational servicesand greater than that of public administrationand industry research and development.

The importance of higher education to theeconomy can be seen through the generation ofsignificant levels of gross output andemployment. However, a key measure of highereducation’s contribution to the national economyis its contribution to gross domestic product(GDP), which is a net measure. While measuresof industry output can give a clear indication ofthe contribution of an industry in terms of itsmagnitude and the scale of its generation ofeconomic activity, when looking at the economyas a whole gross output measures inevitablyinvolve an element of double counting, sincesome of one industry’s output also forms part ofanother industry’s output.

GDP is used by all countries as a measure of thenet change in their wealth or prosperity as awhole over a year. There are three measures ofGDP:

p GDP (I), where the measure is taken ofnational income;

p GDP (E) where GDP is measured throughanalysis of certain groups of expenditures;

p GDP (O) which is measured through analysisof industry outputs20.

Gross value added (GVA) is the industry measureof GDP (O). It is a net measure and its principalcomponents are: emp loyment income, rents andgross profits. It is a production measure of thenet change in wealth or prosperity in the UKeconomy as a whole over the year. Therefore ananalysis of higher education gross value addedcan provide policy relevant information and thiswas undertaken as part of this study. The resultsare shown in table 6.

Table 6

The contribution of the highereducation sector to UK GDP,2007/08 (£ billion)

Universities Inter- Inter- Highernational national education

students Visitors sector

Direct GDP (O) £15.16 0 0 £15.16

Secondary £15.86 £1.51 £0.88 £18.25GDP(O)

Total GDP (O) £31.02 £1.51 £0.88 £33.41


6The higher education contribution to UK GrossDomestic Product

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p sectors generating higher numbers of jobsper £1 million unit of expenditure tend to bethose with relatively low output per employeesand they also tend to purchase from othersectors with low output per employee.

p high GDP (O) generated per unit ofexpenditure tends to be in sectors which inthemselves have high value added per unit ofoutput and which also tend to purchase fromsectors which have high value added per unitof output.

p sectors which generate high GDP per capitaare those which tend to be have a high incomeper employee and high productivity peremployee – in other words sectors that tend tohave higher paid and highly productiveemployees.

Household final income tends to be low acrossall categories both because of leakage throughtax payments made together with a trendtowards more import purchases.

The selected comparators were rankedaccording to their effectiveness in generatingGDP per £1 million of expenditure and GDP (O)generated per capita (that is, per full timeequivalent) and the results are shown in table 8.

Table 8

Impact efficiency rankings,2007/08

GDP (0) per £1m Per capita GDP

Computing services 1 6

Universities 2 2

Education (non-tertiary) 3 10

Recreational services 4 5

Health 5 9

Public administration 6 8

Construction 7 3

Research and Development 8 7

Electronic components 9 1

Household final income 10 4

Source: Derived from the Universities UK economic impactmodelling system (2009)

This study focuses on the economic impactgenerated by higher education expenditure. Thepolicy interest in its impact is primarily driven byvalue for money considerations and the desire onthe part of funding agencies, research councilsand government itself to see a wider social andeconomic return on their investment in highereducation. To inform this discussion further theauthors therefore considered ways in which toassess the effectiveness of higher education ingenerating impact. Analysis was undertaken toexamine the impact generated per £1 millionexpenditure by universities compared to thatgenerated by a number of other UK industrysectors.21 The results are shown in table 7.

Table 7

Total impact per £1 millionexpenditure, 2007/08

Total Total Per capita output employment GDP(0) GDP(£1m) (FTE) £1m (£1000)

Universities 2.44 27.9 1.35 48.39

Electronic 1.97 17.0 0.87 51.18components

Construction 1.90 20.27 0.96 47.36

Health 3.18 37.49 1.24 33.08

Education 2.60 41.58 1.32 31.75(non-tertiary)

Public 2.64 33.82 1.22 36.07administration

Household 1.37 15.56 0.69 44.34final income

R & D 1.88 24.31 0.93 38.26

Computing 2.39 33.20 1.39 41.87services

Recreational 2.58 30.46 1.31 43.48services


In considering the different types of impactcreated per £1 million of expenditure it may beobserved that the measures reflect a range ofdifferent characteristics:

p output generated per unit of expendituretends to reflect the purchasing patterns of theindustry in question. Output generated perunit of expenditure tends to be higher insectors with a relatively high concentration ofexpenditure on UK (rather than imported)goods and services. (Table 7 shows thatuniversities generate a relatively high outputper unit of expenditure, exceeded in theseselected comparators only by the health andpublic administration sectors.)

7The sector’s effectiveness in generatingeconomic impact


20

Table 8 shows that among the selectedcomparators higher education was one of themost effective sectors in generating GDP per£1 million unit of expenditure and per capita GDP(that is per full time equivalent) This calculationis shown in chart form below.

Chart 12

GDP impact comparisons,2007/08


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Higher education was also a major servicesector export earner, attracting £5.3 billion ofinternational revenue, £2.9 billion of which waspaid directly to universities for their services.

Analysis of the revenue base shows that whilethe public sector remains the largest singleclient of universities, 39 per cent of their revenuewas derived from private sector andinternational sources.

Overall the higher education sector contributed£33.4 billion to GDP in 2007/08.

The study did not set out to examine highereducation’s broader social and economic impact,such as that achieved through knowledgetransfer and innovation or cultural andcommunity engagement. Neither did it seek toplace a value on the work undertaken by highereducation22. It is nevertheless clear that highereducation is a core part of the national economicinfrastructure, generating significantemployment and export earnings and making asubstantial contribution to GDP.

The overall impact of the higher education sector(taking the impact of institutions together withthat of the off-campus expenditure ofinternational students and visitors) is presentedin table 9.

This study presents an analysis of key economiccharacteristics of UK universities and colleges inthe academic year 2007/08. It also presentsmodelled analyses of the impact of universityexpenditure in generating additional output andemployment in other parts of the nationaleconomy. It highlights the additional injection tothe economy made by international students andvisitors and analyses the overall contribution ofthe sector to UK GDP. The study focuses onuniversities as business entities and the impactof their expenditure on the economy, which is theaspect of the sector’s contribution to theeconomy that is most readily quantifiable.

The evidence confirms that higher education(defined as the universities together with theexpenditure of their staff, international studentsand international visitors) is a substantial industry,with a significant impact on the national economy.It also reveals that higher education is particularlyeffective in generating GDP per capita, comparedto several other sectors of the economy.

The higher education sector generated £59.3billion of industry output in the national economy.Universities directly provided over 314,600 full timeequivalent jobs, representing more than one percent of the workforce in employment. Over 353,900additional jobs were generated throughout theeconomy through secondary effects, taking thetotal employment dependent on higher educationexpenditure to more than 668,000 full timeequivalent jobs – or around 2.6 per cent of full timeemployment in the UK in 2007.

8Conclusions

Table 9

Overall impact of the highereducation sector on the UKeconomy, 2007/0823

Universities International students International visitors Higher education sector

OUTPUT

Direct output £23.44 billion 0 0 £23.44 billion

Secondary output £32.36 billion £3.26 billion £0.19 billion £35.81 billion

Total output generated £55.80 billion £3.26 billion £0.19billion £59.25 billion(direct plus secondary)

GDP(O)

Direct GDP(O) 15.16 billion 0 0 15.16 billion

Secondary GDP(O) 15.86 billion 1.51 billion 0.88 billion 18.25 billion

Total GDP(O) 31.02 billion 1.51 billion 0.88 billion 33.41 billion

EMPLOYMENT

Direct employment 314,632 0 0 314,632

Secondary employment 324,456 27,868 1,613 353,937

Total employment generated 639,088 27,868 1,613 668,569(direct plus secondary)

EXPORT EARNINGS

Export earnings £2.9 billion £2.3 billion £0.14 billion £5.3 billion

Source: Universities UK economic impact modelling system (2009)Note: All employment figures are full time equivalents.


22

The model used was a purpose designed andspecially constructed ‘type II’ input-outputmodel of the UK economy, based on actual dataderived from the Office of National Statistics’input-output tables (2006) together with LabourForce Survey data24.

Methodology and model specification

Creating the Leontief matrix

The Leontief matrix is a vital starting point withinthe economic model. The team used the Officefor National Statistics’ (ONS) input – outputtables (2006) and it proved possible to create atype I and then a type II model from this datasource. One additional source used was thenational accounts data (Blue Book, 2008) inorder to estimate wages (compensation ofemployment in national accounts terminology)as a proportion of the total household incomefrom all sources. If non-wage income was notincluded in the denominator then the type IImodel would overestimate the impact of knock-on effects throughout the economy. The C-Mapprogram was used in order to invert the 124 x124 matrix.

First, we estimated a domestic money flowsintermediate matrix, XDD, and a domestic moneyflows final demand vector (excluding exports),YDD. We also extrac ted the vector of exports, E,from the input-output tables. Following this weused the matrices from above to calculate thevector of domestic gross outputs, XD, to be usedas control totals and for the estimation ofcoefficients; i.e.

(1) XD = XDD + YDD + E.

Following this we calculated the domestic flowscoefficient matrix,

(2) ADD =

We then calculated the type I Leontief inverse as:

(3) {I-ADD}-1

This was then validated by calculating thefollowing: (this is known as a recreate base or abase year test)

(4) X* = {I – ADD}-1{YDD + E}As calculated X* was found to equal actual XD,then the type I Leontief inverse was correct sinceit replicates the ‘model’ base year outcomes.

For the type II Leontief we needed to add a row ofemployment income coefficients and a column ofhousehold consumption coefficients to the ADD

matrix. For the income coefficients we thencalculated for all industries:

(5) YEi / XDi

Where YEi is compensation of employees inindustry I and XDi is domestic output of industry Ifrom above. Total household income YT wasestimated as employment income YE (estimatedfrom the input-output tables), plus other incomeYO from the Treasury Blue Book (2008.)

From the simulated domestic final demandmatrix YDD estimated earlier, we used the columnvector of domestic household consumption CDD.From this the column vector of consumptioncoefficients is calculated as:

(6) CDD / YT

The type II Leontief inverse was now calculated.As above, validation involved ensuring that theexpanded model was able to replicate actualbase year outputs, including in this case totalhousehold income.

Extensions to model framework

UK employment figures by industry werecreated, using the Labour Force Survey wherepossible. Using this and the type II Leontief, theemployment/output ratios can be calculated.This allows the creation of the employmentsub-matrix.

The UK occupation-by-industry submatrix wasformed using primary data. The occupation byindustry data was compiled from previousTourism Satellite Accounts, compiled by theauthors for the former Department for Culture,Media and Sport,25 which used the Labour ForceSurvey.

The extended labour market input-outputmodel

The following describes both the use of the dataalready described in the creation of the modeland the nature of the extended input-outputmodel used as the main engine of analysis.

The basic UK input-output equation here is:

(7)

where:

i, j = industrial sectors 1 to 124 including households

XUK = vector of gross outputs

XUK = total household income

AppendixNotes on modelling methodology

XDD

XD

XUK = � XUK + YUKj

i=1ij

h



Which is occupation by industry equating withoverall full time equivalent employment acrossthe UK. This will operate through the impact ofexpenditure within the economy in a consistentmanner.

Overall the key results of the UK extended input-output labour market model are derived fromthe following equations:

Sectoral gross outputs

XUK = [I-AUK]-1 YUK

Sectoral total employment

EUK = ê[I - AUK]-1 YUK

Employment by occupation

OUK = oUK ê[I - AUK]-1 YUK

Model Gross Value Added (GVA) is calculated byderiving the matrix, gUK, of UK GVA sharescoefficients with elements given by:

(16) gUK = GUK / XUK G = 1 ……. 123 GVA

j = 1 …….. 123 sectors

Where: GUK is actual GVA within industry j.

Then a vector, GUK, of total UK GVA for a giveninput-output is obtained as:

(17) GUK = gUK [I - AUK]-1 YUK

XUK = matrix of volumes of sales from UK sector ito UK sector j

XUK = employment income paid by sector i

YUK = matrix of UK sectoral sales to final markets

YUK = UK household non-employment income

Taking the conventional input-outputassumption that:

(8) XUK = aUK XUK

or, in matrix form:

(8a) XUK = AUK XUK

where: AUK is a matrix of parametric constants,whose typical element aUK gives the inputsrequired from UK industry i per unit of output ofUK industry j.

Substituting (8a) into (7):

(9) XUK = AUK XUK + YUK

and solving (9) for XUK:

(10) XUK = [I-AUK]-1 YUK

where [I-AUK]-1 is the UK Type II Leontief Inverse

In the extended input-output model we define avector of aggregate industry employment-outputcoefficients, e, with elements given by:

(11) e = EUK /XUK i = 1 to 123 sectors

where: EUK is total full time equivalentemployment in UK industry i. Then, the vector EUK

of total UK sectoral employments is:

(12) EUK = êXUK

Or alternatively,

(12a)EUK = ê[I - AUK]-1 YUK (by substitution from (10))

For the creation of the occupation by industrymatrix26 we define a matrix, oUK, of UKoccupational employment shares coefficientswith elements given by:

(13) oUK = OUK/EUK o = 1 ……. 371 occupations

j = 1 …….. 123 sectors

where: OUK is full time equivalent employment inoccupation o in industry j.

Then a vector, OUK, of total UK employment ineach occupation is obtained as:

(14) OUK =oUK ÊUK

and from (12a):

(15) OUK = oUK ê[I - AUK]-1 YUK

ij

hi

h

ij

ij

ii

i

i

ij

ij j ij

A

oj oj j

oj

oj oj j

oj


24

19 From Office for National Statistics (2009) Travel trends 2007. Cardiff:Office for National Statistics. Online at www.statistics.gov.uk/downloads/theme_transport/Travel_Trends_2007.pdf

20 All three measures share the same accounting identity. In otherwords they are three different ways to measure the same thing andthe final outcome measurement should be identical. If there areobserved differences between the measures this is a result of datadiscrepancies.

21 These are a small group of sectors selected on the basis of interestand for illustrative purposes. It is not a full ranking of all 123industries within the model.

22 In other studies the authors have constructed a framework to enableeconomic valuation of higher education outputs – for moreinformation see: http://strathprints.strath.ac.uk/7179/

23 Summary figures are rounded

24 This UK model was constructed specifically for this study; in addition12 regional extensions to the model have been developed, coveringevery part of the UK. The UK model and the 12 regional extensionsform part of the system known as the Universities UK economicimpact modelling system, which is purpose designed to model theimpact of universities on both the regional and national economies.

25 Jones C, Munday M, Bryan J, Roberts A, McNicoll I H, McLellan D.(2004) UK tourism satellite account - first steps project, prepared byCardiff Business School for Department for Culture, Media andSport. London, DCMS. Accessed at www.culture.gov.uk/images/research/tsafirststepprojectreportpt1.pdf

26 From Labour Force Survey data

1 The input-output tables issued in 2006 were the most recentavailable during model construction.

2 Office of National Statistics (2007) Labour Force Survey August-October 2007. 668,569 full time equivalent jobs were equivalent to2.6 per cent of all full time equivalent employment (all persons inemployment, including self-employed and government trainees) in2007 (taking 1 part time job as equal to 1 full time job.)

3 Office for National Statistics (2009) Travel trends 2007 Cardiff: Officefor National Statistics. Online at www.statistics.gov.uk/downloads/theme_transport/Travel_Trends_2007.pdf

4 From Office for National Statistics data for 2008 nominal GDP incurrent prices

4 Summary figures are rounded

5 A type II UK input-output model was constructed specifically for thisstudy; in addition 12 regional extensions to the model were furtherdeveloped, covering every part of the UK. The model and the 12regional extensions are designed to model the impact on both theregional and national economies. Details of the UK input-out modelspecification are included in the appendix.

6 McNicoll I H, McCluskey K, Kelly U (1997) The impact of universitiesand colleges on the UK economy: A report for CVCP London:Committee of Vice Chancellors and Principals; Universities UK(2006); The economic impact of UK higher education institutions[authors U Kelly, I McNicoll and D McLellan]; Universities UK (2002)The impact of higher education institutions on the UK economy.[authors: U Kelly, R Marsh and I McNicoll] London: Universities UK

7 The higher education business and community interaction survey figurefor total intellectual property rights income in 2007/08 was £66million, which differs from the HESA figure for definitional reasons(for example, it includes the sale of shares). Online at:http://www.hefce.ac.uk/econsoc/buscom/hebci/

8 ‘A policy framework pushing universities …. to maximise financialreturns to the university rather than social and economic benefitsfor society, government and industry is, on the balance ofprobabilities, doomed to fail in the long run’. From Wellings P (2008)Intellectual property and research benefits.

9 See www.impact-hei.ac.uk for more information about this researchinitiative

10 Comparator sectoral gross outputs are taken from the Office forNational Statistics (2007) UK input-output tables online athttp://www.statistics.gov.uk/about/methodology_by_theme/inputoutput/latestdata.asp

11 Further details of the staff classifications are given by HESA. Seehttp://www.hesa.ac.uk/index.php/content/view/291/161/1/1/

12 Office of National Statistics (2007) Labour Force Survey August-October 2007. 314,632 full time equivalent jobs were equivalent to1.2 per cent of all full time equivalent employment (all persons inemployment, including self-employed and government trainees) in2007 (taking 1 part time job as equal to 1 full time job).

13 This is the standard conversion rate used by the Office for NationalStatistics.

14 Total student population in 2007/08 was 2,306,130 (HESA)

15 ‘Students as catalysts for city and regional growth’: see website ofImpact of higher education institutions on regional economies initiative,at www.impact-hei.ac.uk/Projects/Studentsascatalysts.aspx

16 The most recent is Johnson, et al (2009) Student income andexpenditure survey 2007/08 Research report 09/05, published forDepartment of Innovation, Universities and Skills (DIUS). Accessedat www.dius.gov.uk/research_and_analysis/research_reports

17 The final per capita estimate used for international student off-campus expenditure came to £6801

18 For example, the Newcastle Gateshead Ambassador Programmewww.newcastlegateshead.com/243/Conference_Ambassador_Programme.html

Notes



Select bibliography

Association of College and University Business Officers (CUBO)(2009) Annual report 2008/09. Wysall:CUBO. Accessed atwww.cubo.org.uk/publications/

Higher Education Funding Council for England (HEFCE) (2009) Highereducation business and community interaction survey 2007/08 London:HEFCE. See www.hefce.ac.uk/pubs/hefce/2009/09_23/

Higher Education Statistics Agency (2009) Resources of highereducation institutions 2007–2008 Cheltenham:HESA

Higher Education Statistics Agency (2009) Students in highereducation institutions 2007–2008 Cheltenham:HESA

Johnson C, Pollard E, Hunt W, Munro M, and Hillage J (2009) Studentincome and expenditure survey 2007/08: English-domiciled studentsResearch Report 09 05 for Department of Universities, Innovationand Skills. Brighton: National Centre for Social Research and theInstitute for Employment Studies. Accessed atwww.dius.gov.uk/research_and_analysis/research_reports>

Kelly U, McLellan D,and McNicoll I, (2004) The impact of theUniversity of Strathclyde on the economy of Scotland and the City ofGlasgow, Glasgow: University of Strathclyde Publishing

Lord Sainsbury of Turville (2007) The race to the top: A review ofGovernment’s Science and Innovation Policies London: HM Treasury

McNicoll I H, McCluskey K, Kelly U (1997) The impact of universitiesand colleges on the UK economy: A report for CVCP London:Committee of Vice Chancellors and Principals

Office for National Statistics UK National Accounts – The Blue Book(2008) Online at http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=1143&Pos=1&ColRank=1&Rank=272

Office for National Statistics Input–output tables (2006 & 2007)Supply and Use: UK National Accounts Online at:http://www.statistics.gov.uk/about/methodology_by_theme/inputoutput/

Office for National Statistics (2008) Labour Force Survey (2007 data),Online at http://www.statistics.gov.uk/StatBase/Source.asp?vlnk=358&More=Y

Office for National Statistics (2009) Annual business inquiry (2007data) Can be accessed online at:http://www.statistics.gov.uk/abi/default.asp

Office for National Statistics (2009) Travel trends 2007 Cardiff: Officefor National Statistics. Online at www.statistics.gov.uk/downloads/theme_transport/Travel_Trends_2007.pdf

Rogers, T (2003) Business tourism briefing: An overview of the UK’sbusiness tourism industry London: Business Tourism Partnership:accessed atwww.businesstourismpartnership.com/pubs/briefing.pdf

Universities UK (2002) The impact of higher education institutions onthe UK economy [authors: U Kelly, R Marsh and I McNicoll] London:Universities UK

Universities UK (2006) The economic impact of UK higher educationinstitutions London: Universities UK [authors: Kelly U, McLellan Dand McNicoll I] accessed at www.universitiesuk.ac.uk/Publications/Documents/economicimpact3.pdf

Wellings, P (2008) Intellectual property and research benefits. Reportprepared for the Rt Hon John Denham, MP, Secretary of State forInnovation, Universities and Skills. Lancaster: Lancaster University.Accessed at www.dius.gov.uk/higher_education/shape_and_structure/he_debate/~/media/publications/I/int_property_and_research_benefits_131008


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