Economic Impact of Southeast Missouri State University
On the Cape Girardeau Area and Its Service Region
Southeast Missouri State University students, faculty, staff and the business operations of the University have a profound impact on the regional economy. The Donald L. Harrison College of Business was charged with the task of estimating the economic impact on output, employment and income as a result of spending by students, employees and the University for both its day-to-day operations and for construction.
Dr. Bruce Domazlicky, professor of economics and director of the Center for Economic and Business Research, estimated the multiplier effects of the spending by the three groups (students, employees and the University). He used IMPLAN software to construct a model that closely approximates the regional economy and then used the model to simulate the effects of the spending by the three groups.
There are three effects associated with an increase in spending in a region: direct, indirect and induced. When students purchase a good or service from a local merchant, the value of the purchase constitutes the direct effect. The merchant who sells to the students may, in turn, increase his or her purchases from other merchants in the region in order to supply the good or service, which constitutes the indirect effect. Finally, when economic activity increases due to more spending, incomes in the region rise, leading to additional spending, which is the induced effect. The sum of the indirect and induced effects is commonly known as the multiplier effect.
Information on student spending for this study was gathered from a survey completed in fall 2011. A representative sample of the student population at Southeast was chosen. The study was commissioned by the Office of the President. The original survey was designed by Dr. Charles Wiles, professor emeritus of marketing, who initiated the study of the economic impact of the University in 1970 and replicated the study in later periods. The most recent survey instrument went through a major update in 2003 by Dr. Judy Wiles, professor of marketing, with the assistance of students in an upper-level marketing course, Introduction to Business Research. Dr. John Cherry, professor of marketing, made additional updates to the survey in 2011. In fall 2011, students in his Introduction to Business Research course assisted in the implementation of the survey and presented initial results to an audience that included the president and the provost.
Averages from the survey respondents’ reported spending categories were used to project to the greater student body to calculate a total economic impact. The survey and its estimates were based on an academic year (nine months).
It was estimated that students spend $63.6 million in the academic year in the Cape Girardeau area. The accompanying table shows the wide variety of goods and services purchased by students. Note that these expenditures do not include on-campus spending on items such as books, supplies, room and board, etc.
In addition, the study projected that students work 2.9 million hours during an academic year in both on-campus and off-campus employment with estimated earnings of more than $40 million.
University payroll data, adjusted for taxes and other employee deductions, were used to calculate the economic impact of employee spending in the 24-county service region. By definition, the impact of such spending of income is an induced impact.
University spending for day-to-day operations includes purchases from vendors within the University’s 24-county service region. University purchases include a variety of goods and services, such as educational supplies, office supplies, equipment and repairs, basic maintenance, cleaning supplies, and advertising and printing, to name just a few.
Construction spending includes recognition of the $58.3 million in projects currently underway (Academic Hall, Magill Hall, deferred maintenance, conversion of power plant to natural gas installation) on the main campus. Contract amounts awarded to local contractors are used to estimate the impact of University spending for construction. It is likely that the impact of construction spending is underestimated since many out-of-region contractors use local subcontractors; however, it was not possible to determine the extent of subcontracting from the data that were available.
Human Capital Effect
The primary purpose of Southeast Missouri State University is to increase the human capital of its students. Human capital is defined by economists as the ability of individuals to contribute to the output of the nation’s goods and services. Human capital is dependent upon innate intelligence, educational attainment and work experience.
By increasing educational attainment, Southeast raises individuals’ productive ability and therefore, contributes to economic growth and development in southeast Missouri, the state of Missouri and the nation.
A simple approach to measure Southeast’s contribution to the human capital of individuals is to compare the annual average earnings of college graduates with high school graduates. The U.S. Census Bureau reports that in 2010, individuals in Missouri with a bachelor’s degree earned an average of $16,720 more per year than individuals with only a high school diploma (or GED). In a capitalist economy such as in the United States, workers are paid according to their productivity. This differential between the two groups is a reasonable estimate of the additional annual output produced by Southeast graduates.
Given that 36,010 Southeast graduates live in the 24-county region served by Southeast plus St. Louis County and the city of St. Louis, the human capital effect is estimated to exceed $600 million per year. This is easily the largest impact that the University makes on the region.
The additional income from the 36,010 Southeast graduates in the region adds:
- 36 million to state income tax revenue
(based on Missouri's marginal tax rate of 6%)
- $205 million in retail sales
(retail sales are approximately 34% of income nationwide)
- $8.65 million in state sales tax revenue
(based on the state sales tax rate of 4.225%)
|HUMAN CAPITAL ESTIMATES|
|County||Number of Southeast Graduates||Estimated Human Capital|
|New Madrid||67||1 $11,219,120|
|St. Louis County||9,262||$154,860,640|
|St. Louis City||1,260||$21,067,200|
John Cherry, DBA, Professor of Marketing
Bruce Domazlicky, PhD, Professor of Economics
Judy Wiles, DBA, Professor of Marketing
and students in the fall 2011 Introduction to Business Research Course