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The payoff of higher education: benefits from expanding enrollments at the university of Memphis.

There are many reasons why people attend a university. Some are related to consumption and are linked to the desire to learn or encounter all the things that encompass the "university experience." Others view college as the pathway to a career, and the impact that attending a university has on lifetime earnings is a measure of success. For those people who are inclined toward viewing the university experience as a method to improve their productivity, economic impact analysis measures the cost and benefits of investments in higher education and calculates a rate of return that is comparable to the return on other investments. In general, investments in higher education for the individual and for society reflect some basic understanding that the returns to both the person and the state are sufficiently large to justify the expenditure.

It should be noted that not all education and not all learning occurs in a formal setting like a university or even a high school. Many people learn in the old-fashioned "school of hard knocks," and far too many others simply do not learn at all. Others learn on the job. The investment in job-specific learning is occurring at the workplace far more frequently than in the past. But by its very nature, employers and workers are investing in job-specific education and training because it pays off for one or both of the parties. Corporate universities are a new structure and a new model for delivering higher education and are an example of the traditional investment process taking another path. Similarly, online universities reflect a different delivery system for higher education and clearly meet the needs of some students.

The following tables contain some basic information on the incomes of people with various levels of education. Many different factors inherent in individual behavior, attributes, and the experience of going to work determine a person's income. But, general trends and correlations suggest that higher income levels and higher educational levels are at least highly correlated variables.

For example, while Table 1 shows a significant return simply for completing high school, an even greater return is available to those who complete a bachelor's degree or higher. In fact, the holder of a bachelor's degree earns nearly three times as much as someone who has not completed high school.

Table 2 shows lifetime income by educational investment level for men and women. Over a lifetime of work, beginning at age 25 for comparison purposes, an advanced-degree-holding male will earn more than five times as much as will a male who has not completed high school. Similarly, an advanced-degree-holding female will earn four times as much as her female counterpart who has not completed high school. Thus, the financial returns to the individual for investing in education make a tremendous difference in choices and standard of living, especially when considered over a lifetime.

In addition to receiving greater lifetime income than their less-educated counterparts, higher educated persons also are more likely to be employed. Table 3 shows employment rates by educational investment level. The data show substantially higher employment rates as the educational investment level rises. Over 97.0 percent of advanced degree holders were employed, while only 87.0 percent of persons without a high school diploma were employed during the same time period.

There are multiple benefits to an individual and society for investments in higher education. The state benefits in the form of higher taxes, while society benefits in the form of an educated population. While the tax benefits from having a higher income population may be obvious to legislators, the positive impact of having an educated society is frequently overlooked. Portions of this country have a history of investing more in education than do other areas. In many cases, the traditionally poorer areas of the country have a long history of under-investing in education at all levels. Equally important is the realization that the same areas continue to lag behind the rest of the nation in supporting educational investments. Either they knowingly choose to invest in other areas, such as health care in Tennessee, or they chose to keep taxes low instead of investing in the future of the state and local communities. Undervaluing public education at all levels is a tradition and unfortunate legacy for many of the poorer and less competitive areas of this country. Many areas are struggling with the loss of jobs and with the challenge of competing in a global marketplace. Yet, when faced with the choice of higher taxes to support investments in education, they choose lower taxes. It is little wonder some areas and some communities are falling further and further behind. They have simply failed to invest in their future and have failed to recognize the importance of investments in education.

Chart 1 shows the average distribution of expenditures for persons living in the southern U.S. Out of each new dollar spent by Tennessee residents, an average of 31.6 percent goes toward housing. Another 3.2 percent goes toward charitable contributions. An additional 19.8 percent is spent on transportation. Food purchases account for another 13.7 percent of each new dollar spent. Thus, the spending of new income by better-educated Tennesseans is spread across the full spectrum of goods and services in Tennessee's economy.

In addition to the benefits that Tennessee's businesses reap from an individual's higher income, the state also gains additional tax revenue. Table 4 presents average tax collections per $1 and per $1,000 of income for residents of Tennessee. For every $1,000 in new income of the higher-educated citizen, the state receives an additional $86.34 in tax revenue. In sum, the financial benefits from an individual's decision to invest in higher education accrue not only to the individual, but also to Tennessee's businesses through greater spending and to all citizens of the state through increased tax revenue.

Further, on average, the amount of state taxes paid rises with the level of education. The average high school graduate pays around $1,362 in state taxes per year. The typical bachelor's degree holder pays an average of $2,225, while the advanced degree holder pays an average of $4,115 per year, more than three times greater than the average amount of state taxes paid by high school graduates.

Similarly, Table 5 shows lifetime state tax payment estimates by gender and educational investment level. Over a lifetime, an advanced-degree-holding male will pay more than $550,000 in state taxes, while the average non-high-school-graduate male will pay just over $118,000, a difference of over $433,000. Similarly, an advanced-degree-holding female will pay over $221,000 more in state taxes over her lifetime than will a female who has not graduated from high school.

Higher education institutions are part of the economic development program available in communities throughout the state. No community wants to lose their homegrown college or university. The public expenditures that are required to maintain a higher education institution are a vital and direct injection of dollars into a community each year. In addition, the loss of many of the community's best and brightest students would be escalated by the absence of higher education opportunities in the local area. It is consequently important to recognize the accuracy of the observation that great cities are built on the foundation of an educated population.

The impact of higher education institutions is multidimensional, but the gains and output, earnings, and jobs can be estimated. For example, the economic impact of The University of Memphis in 2003-2004 was estimated to be $1.43 billion, generating $456 million in earnings and support for 18, 070 jobs. The University of Memphis has a large, positive impact on the Memphis-area economy and to the extent it can grow, the positive impact will increase over time.

The Educational Achievement of the Workforce Is Increasing

The demand for a more highly educated workforce has been increasing for decades, and the educational achievement levels shown in Table 6 have increased in response. In 1988, 45.4 percent of the nation's civilian workforce 25-64 years of age had attended one or more years of college and 25.7 percent had attended four years or more. By 1999, 57.4 percent of the labor force had attended some college and 30.0 percent had attended four or more years. In slightly more than a decade, the percentage of the labor force that had some experience with higher education had increased by 26.4 percent and the percentage of workers with four years or more of college had increased by 16.7 percent.

At the same time that educational attainment levels were increasing rapidly in the nation, they were also increasing in the Memphis MSA. From 1970-2000, the percentage of the Memphis workforce that graduated from college increased from 9.1 percent to 22.7 percent, a 149.5 percent increase (Table 7). While the Memphis MSA continues to lag behind other MSAs in educational achievement levels, it has experienced a dramatic improvement and is closing the education gap that for so long has been a barrier to economic growth and prosperity. Perhaps even more impressive is the fact that the percentage of workers with less than a high school education fell as a percentage of the labor force from 52.3 percent to 20.2 percent between 1970 and 2000. To a great extent, the current prosperity found in Memphis can be attributed to the dramatic increases in educational attainment that have occurred in Memphis over the last three decades. If Memphis can close the educational gap that exists, it will generate massive amounts of positive economic and social capital essential for generating a world class city.

The population of the Memphis MSA has increased from 858,730 in 1970 to 1,135,614 in 2000, a growth of 32.7 percent (Table 8). To a great extent, the MSA's growth has been associated with urban sprawl and not with growth of the core city. The city of Memphis proper has grown through the annexation of adjacent unincorporated properties in Shelby County.

By comparison, the headcount enrollment for the fall semester at The University of Memphis was 18,780 in 1970, 22,326 in 1975, and 20,668 in 2004 (Table 9). In the 25 years prior to 1975, The University of Memphis expanded by 800.6 percent. Clearly, the University was on a growth path that would have made it the largest university in the state and one of the largest urban research universities in the nation. Since its enrollment peaked nearly three decades ago, enrollments have declined 7.4 percent.

While the University's inability to grow has been a setback for the Memphis community, the massive number of graduates over that period have made a huge contribution to the social and economic fabric of the area. The final portion of this article examines the impact of potential enrollment increases on the local economy.

Expanding Enrollments at The University of Memphis

Given the important contribution that The University of Memphis makes in defining the economic and social conditions in Memphis and the Mid-South, it is critical that the state of Tennessee and the communities in the Mid-South support the University. The new economic environment demands a high quality labor force, and The University of Memphis will play an increasingly important role in preparing the workforce of the future. The community must rally behind the University and understand that Memphis cannot grow and prosper without The University of Memphis. The emergence of Memphis as a high-tech, health-care-based economy with a focus on quality of life issues will depend on The University of Memphis' ability to grow in stature and enrollment. If the University grows and prospers, so will the Memphis community.

If enrollments at The University of Memphis were to expand in the future, the increased number of graduates would have a large positive impact on the Memphis community. Unlike many state universities, a high percentage of the graduates of The University of Memphis live and work in Memphis, both before and after leaving the University. This is a unique feature of an urban university. The community benefits more from the contribution of the University than traditional "college towns" benefit. Employed college graduates with a bachelor's degree had an average income of $51,194 in 2003 and had lifetime earnings in excess of $3.4 million. Clearly, expanding the number of college graduates in the local community is one way to expand the economic base of the region. High-income residents pay more taxes, support the social and economic infrastructure of the community, and depend on fewer social services. By contrast, a poorly prepared workforce means lower average wages and incomes, slow rates of growth, and an absence of long-term economic opportunities. Increasing the number of University of Memphis graduates by 5,000 over the next decade would add over $17 billion in lifetime earnings to the Memphis economy. The growth of enrollments at The University of Memphis is highly correlated with the growth of Memphis. It is essential that community leaders, state legislators, and others come together in an effort to promote the University as the engine for economic growth in West Tennessee.
Table 1. Annual Income by Educational Attainment Levels, 2003

 Increment from
Levels of Attainment Mean Income Last Level

Less Than High School $18,826 --
High School $27,280 $8,454
Associate Degree $31,046 $3,766
Bachelor's Degree $51,194 $20,148
Advanced Degree $72,824 $21,630

Source: U.S. Bureau of the Census, Current Population Survey,
Annual and Social and Economic Supplement. 2003, June 2004.

Table 2. Lifetime Income by Educational Attainment Level

Levels of Attainment Men Women

Less Than High School $1,374,408 $873,429
High School $2,032,775 $1,315,303
Associate Degree $2,490,497 $1,551,328
Bachelor's Degree $4,475,325 $2,358,536
Advanced Degree $6,396,312 $3,433,529

Source: U.S. Bureau of the Census, Annual Social and Economic
Supplement: 2003, June 2004, and estimate by SBBER/CMS, The
University of Memphis.

Table 3. Employment Rates by Educational
Attainment, March 2003

Levels of Attainment Employment Rate

Less Than High School 87.0%
High School 92.7%
Associate Degree 95.1%
Bachelor's Degree 96.5%
Advanced Degree 97.6%

Source. U.S. Bureau of the Census. Annual Social and Economic
Supplement: 2003, June 2004, and estimate by SBBER/CMS,
The University of Memphis.

Table 4. Distribution of Tax Collections Per $1 and Per $1,000 of
Wages and Salaries

 Revenue Per $1 of Revenue Per $1,000 of
Class of Tax Wages and Salaries Wages and Salaries

Franchise 0.0048557 $ 4.86
Excise 0.0058044 $ 5.80
Income 0.0016882 $ 1.69
Inheritance and Estate 0.0011545 $ 1.15
Gasoline 0.0066841 $ 6.68
Petroleum Special Tax 0.0007066 $ 0.71
Tobacco 0.0009644 $ 0.96
Beer 0.0001842 $ 0.18
Motor Vehicle Registration 0.0025553 $ 2.56
Motor Vehicle Title 0.0001228 $ 0.12
Mixed Drinks 0.0004121 $ 0.41
Business 0.0002451 $ 0.25
Privilege 0.0024102 $ 2.41
Gross Receipts 0.0002493 $ 0.25
TVA--In Lieu 0.0023019 $ 2.30
Alcoholic Beverage 0.0003581 $ 0.36
Sales and Use 0.0536188 $ 53.62
Motor Vehicle Fuel 0.0020083 $ 2.01
Coal Severance 0.0000085 $ 0.0085
Gas and Oil Severance 0.0000044 $ 0.0044
Coin Amusement 0.0000004 $ 0.0004
Total 0.0863373 $ 86.34

Source: Tennessee Department of Revenue, U.S. Bureau of Economic
Analysis, and SBBER/CMS estimate.

Table 5. Estimated Lifetime State Taxes Paid by
Educational Attainment Level

Levels of Attainment Men Women

Less Than High School $ 118,663 $ 075,410
HighF School $ 175,504 $ 113,560
Associate Degree $ 215,023 $ 133,937
Bachelor's Degree $ 386,387 $ 203,630
Advanced Degree $ 552,240 $ 296,442

Source: Estimate by SBBER/CMS, The University of Memphis.

Table 6. Percentage Distribution of the Civilian
Labor Force, 25-64 Years of Age, by
Educational Attainment, U.S.,1988-1999

 Less Than 4 Years of 4 or More
 High High 1-3 Years Years of
Year School School of College College

1988 14.7% 39.9% 19.7% 25.7%
1989 14.0% 39.6% 20.0% 26.4%
1990 13.4% 39.5% 20.7% 26.4%
1991 13.0% 39.4% 21.7% 26.5%
1992 12.2% 36.2% 25.2% 26.4%
1993 11.5% 35.2% 26.3% 27.0%
1994 11.0% 34.0% 27.7% 27.3%
1995 10.8% 33.1% 27.8% 28.3%
1996 10.9% 32.9% 27.7% 28.5%
1997 10.9% 33.0% 27.4% 28.6%
1998 10.7% 32.8% 27.4% 29.1%
1999 10.3% 32.3% 27.4% 30.0%

Source: Handbook of U.S. Labor Statistics, 4th Edition, p. 130.

Table 7. Educational Attainment, Population 25+, 1970-2000

 All MSA/PMSA Counties Memphis

 Less Less
 Than High 4 Years of Than High 4 Years of
 High School College or High School College or
Year School Only More School Only More

1970 45.4% 42.9% 11.7% 52.3% 38.6% 9.1%
1980 31.3% 51.0% 17.7% 36.8% 48.8% 14.4%
1990 23.1% 54.6% 22.3% 26.9% 54.4% 18.7%
2000 18.7% 54.7% 26.6% 20.2% 57.1% 22.7%

Source: Woods & Poole Economics, Inc., 2003, pp. 125 and 645.

Table 8. Population in the
Memphis MSA,

 Memphis Percent
 MSA Change

1970 858,730 --
1980 937,650 9.2%
1990 1,007,306 7.4%
2000 1,135,614 12.7%

Source: U.S. Census Bureau.

Table 9. Fall Semester Head Count at
The University of Memphis,

Year Head Count Percent Change

1950 2,479 --
1960 5,279 +113.0%
1970 18,780 +255.7%
1975 22,326 + 18.9%
1980 20,656 - 7.5%
1990 20,688 + 0.2%
2000 19,986 - 3.4%
2004 20,668 + 3.4%

Notes: 1975 was the year enrollment peaked.

Source: The University of Memphis.

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Author:Gnuschke, John E.; Wallace, Jeff
Publication:Business Perspectives
Geographic Code:1U6TN
Date:Sep 22, 2004
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