Thursday, January 8, 2015

Economic Impact Overestimate of the Day ... (updated): I

It comes from the University of Washington

A new economic study says the University of Washington generates $12.5 billion in economic impact and supports 1 out of every 48 jobs in the state.

$12.5 billion?  

Well, here's another excerpt:
Of the $12.5 billion in economic impact, UW Medicine — which includes Harborview Medical Center, Northwest Hospital, UW Medical Center and a network of clinics — accounts for $7.8 billion. And UW Medicine was directly or indirectly responsible for 45,330 of the more than 79,000 jobs generated by the university.
To put this economic impact into perspective, for an enrollment of about 1/20 of the size, Susquehanna University's economic impact is about $100 million.  By extrapolating, a reasonable starting point for the economic impact of the University of Washington would be $2 billion, not $12.5 billion.  However, the $2 billion extrapolation figure is probably overestimating the economic impact of the University of Washington.  Given that Susquehanna is in an isolated area, it's reasonable to assume that almost all students who come to SU would not be living in the local area if it weren't for attending college.  

But the University of Washington is in Seattle.  There are other schooling options in that area, so it is likely that some of the people who attend UW would live in the Seattle area even if they didn't attend UW.  Thus, excluding the medical facilities, my initial thought is that it should be less than $2 billion.  

What about the hospital?  Does the hospital really create an $8 billion economic impact?  That is doubtful.  Hospitals are valuable to society, of course, but to have such a large economic impact, one would need significant numbers of people who visit that hospital who instead would have visited a hospital outside of the local area.  I can't find the actual study online to check how they came up with their $8 billion estimate, but that seems far-fetched.  If I can find it - I'll post an update with my analysis.


I have now received a copy of the full economic impact report.  The analysis section contains too few details for anybody to really know whether this is accurate.  I think we can say, however:

1. There are almost no details on how they came up with specific calculations.
2. They did not appear to pose a "counterfactual", i.e., what is this economic impact judged against.  It appears that they assume that every dollar spent by the University of Washington would not have been spent in the area (whether the area is the state or local area) if it were not for the University.  That, of course, is a flawed assumption.
3. The economic impact of the University of Washington is going to be large, the question is "how large".  The assumptions used seem to inflate the estimate.
4. The amount of federal (external) research funding received is impressive - and that will have a big local and state impact.

The biggest problem I have with this study is that there is no way for an economist like me, who knows economic impact studies, to verify their estimates.  I'm quite certain that this estimate is inflated above the "true" economic impact.  But I can't be certain of the amount it is inflated

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