The economic impact of the University of South Carolina system

A century ago, South Carolina's industrial economy developed along rivers and streams where sources of power could be found for budding manufacturers. Today, knowledge powers economic progress. Intellectual capital now ranks as a critical input to sustained economic growth. For obvious reasons, the entrepreneurs who propel the new economy often locate new businesses near superior educational resources. Firms set up plants and offices close to the research talent that only universities provide, creating jobs and pumping income into local economies. In this rapidly evolving information age, education has become the most valuable resource that a state or locality can cultivate.

The substantial local economic benefits of higher education are increasingly recognized. It is well known that, with a college degree, workers earn much higher salaries over the course of their lifetime. The higher earnings translate into more spending and, ultimately, more income for citizens throughout the community. Stores spring up to take advantage of student and university spending. Sporting events bring tourists. Overall, universities make a unique contribution to the quality of life in many communities.

Despite being the first institution of higher learning in the United States to be supported fully by its state, the University of South Carolina (USC) System's economic effects have never been adequately assessed. Yet the state's flagship university system plays a vital economic role throughout every region of South Carolina. In 2001, millions of dollars will be injected into local communities through operations on eight regional campuses. Few institutions have such a broad and far-reaching impact on the state. From research activities to sporting events, the university generates jobs and earnings for the communities.

As this article details, the total economic impact of USC combines the enhanced alumni earnings and the effects of university and related spending. While the university clearly enhances the state in many other ways, it is not possible to quantify those effects. We can, however, document the many USC System programs that support the overall quality of life in South Carolina. Accordingly, the article also covers some of the qualitative and nonquantifiable aspects of USC involvement in state and local development.

Even though many of the real benefits of a university cannot be quantified, the economic effects that can be traced in South Carolina turn out to total nearly $4 billion. These results, based on an analysis of USC for fiscal year 1998-99, point to the university's significant role in the state's economy as the USC System celebrates its bicentennial. This article explains the impacts of the university, both on the state and on communities across South Carolina. We begin by reviewing the overall impact of USC and then look at the effects in different regions around the state.

The Economic Ripple Effect

In many respects, the South Carolina economy of the early 21 st century is the strongest it has ever been, and the USC System plays a critical role in that achievement. The economic impacts extend beyond those of other business or governmental institutions. Notably, universities develop human capital, defined as the accumulation of investment in the skills and knowledge of the population. As mentioned in the introduction, workers with more education, on average, earn far more than workers with less education. In fact, college graduates in the United States earn 84 percent more than those who end their education with high school. This gap is projected to grow over time, as firms will pay more for educated workers because they are more productive. This translates into higher local earnings and greater local spending power.

Let's begin by looking at the measurable economic impact. The sources of the economic stimulus include university operations and capital spending, student spending, sports, and additional earnings of USC alumni who earn higher wages and salaries because of their education. Like other business and governmental institutions, the University of South Carolina's expenditures provide a source of jobs and income for residents that ripple throughout South Carolina. University spending consists of construction outlays, equipment and supply purchases, and spending by staff and students for locally supplied goods and services. These expenditures create an economic "multiplier effect." Local purchases by the institution and by students generate income for local residents, leading to further spending and income for local economies. Thus, university-related spending supports many enterprises and individuals not directly connected to the system.

Essentially, the multiplier effect of the university system spending is a combination of direct, indirect, and induced impacts on local economies. The direct impact is the economic activity generated by the system's purchases, including everything from lab equipment to football helmets. These purchases indirectly generate more spending. As suppliers and local vendors spend income received from USC, businesses benef it further upstream. Moreover, wages are paid to employees as a result of the direct and indirect expenditures. The wage income then exerts an increase in expenditures via the local consumption of goods and services. These effects are called "induced impacts." The sum of the direct, indirect, and induced impacts is the total economic impact.

Impact Definitions

Direct Impact These are expenditures that are injected into the state's economy from the USC System. They are based on the survey of all campuses discussed earlier.

Indirect Impact These are the ripple effects on other industries based on input-output analysis.

Induced Impact. These are impacts of household expenditures from wages and salaries.

Total Impact The sum of the direct, indirect, and induced impacts.

Impacts were calculated for three categories that reflect the contribution of USC to the state and local economy:

1. Output: the contribution to overall economic activity.

2. Employment: the contribution to the job base.

3. Earnings: the contribution to wages and salaries.

Output is the broadest impact measure. It is the total contribution made by the university to the economy. Earnings, by contrast, are a segment of the output effect - just the wages and salaries generated, directly and indirectly, by university activities. Associated with these earnings is employment - a measure most people can readily grasp. The impacts of output, employment, and earnings on the state and local economies were calculated for each branch campus. The total impact of the branches sums to the systemwide impact.

The USC System Impacts on South Carolina

Multiplier Impact of USC Spending Overall, the USC System spent $819.8 million during FY 1998-99. Of this amount, $546.6 million was operating expenditures, $243.2 million was student spending, and $30.1 million was athletics expenditures. This initial impact resulted in a total economic impact of $1.4 billion (Figure 1). This spending generated an earnings impact of more than $510 million, and supported about 22,400 jobs (Figure 2).

The system's spending also includes capital projects. Capital expenditures by the USC System in 1998-99 totaled $54.4 million. This amount generated a total economic impact of $103.8 million on the state. These expenditures supported 2,397 jobs. In addition, in 1998-99, salary expenditures of the USC System were $294.7 million, which resulted in a total output impact of $469 million. This spending generated an earnings impact of $203.6 million and supported 5,496 jobs.

There is also an economic ripple effect that stems from research and athletics.

An initial research expenditure of $91.4 million more than doubled to $185.5 million for total output impact. Research activities engendered a total earnings impact of $87.3 million and a jobs impact of 4,286. An initial direct expenditure for athletics of $30.1 million per year nearly doubled to a total impact of $58.9 million. Associated with this was a total earnings impact of $33.4 million and 889 total jobs resulting from athletics expenditures. While sports is much more in the public eye than research activities, the surprising result here is theenormous impact of university research on the state's economy - it is much larger than sports. This impact should be considered a major benefit to the state.

What Was the Return?

The most common means of evaluating the economic impact of any activity is the multiplier effect from expenditures, as summarized in the last section. Yet, the influence of the USC System on the state's economy extends beyond those impacts related to its spending, student expenditures, research, and sports. Educational institutions have additional effects; unique and lasting impacts that no other form of activity can claim. Graduates attain a higher level of human capital, and thus higher lifetime earnings. Many USC graduates stay in South Carolina. The increased earnings from the USC degree pay dividends not only to the graduates in terms of enhanced earnings, but also to the state in terms of increased tax revenue from higher wages and salaries over the course of the graduate's lifetime.

Thus, in addition to the multiplier analysis of university-related spending, we estimated the return on education: future state revenue from additional taxes as a result of higher income from USC college degrees (discounted to present value) versus the cost of the degree to the state of South Carolina.

The return on a bachelor's degree from the state of South Carolina is 3.45 percent. The return on a graduate degree from the state of South Carolina is 6.79 percent. There are few risk-free investments that pay a real return of more than 3 percent. This shows that South Carolina, in purely fiscal terms, gains from its investment in USC. The many other benefits associated with USC graduates only bolster the positive return.

Individuals who graduate from the USC System benefit even more than the state government. For individuals, the return on education - the student cost outlay compared with the payback in terms of increased lifetime earnings - is more than 20 percent. The average student's career differential earnings amount to $639,830, compared with an average cost of $42,625 to obtain the degree. This incremental income has a multiplier effect, as well.

Given that the estimated incremental income of USC alumni is $1.3 billion, the total output generated by this is $2.1 billion (Figure 3). Total earnings from the incremental income are $572.2 million, and more than 24,000 jobs are supported.

Summarizing the Statewide Impact

The total impact of the USC System is substantial. Total output, i.e., the overall contribution to the state economy, amounted to $3.8 billion. This level of economic activity supported 54,000 jobs and provided $1.3 billion in total earnings. Few other institutions could match the magnitude of this impact of almost $4 billion.

Even so, the real value of the USC System to South Carolina is impossible to quantify in all its dimensions. The university elevates the intellectual capabilities of citizens and enhances the cultural life of South Carolina communities.

Effects on Regional Economies

Although USC's main campus is located in Columbia, the economic impact of USC's individual campuses and its alumni reverberates across the state. All the campuses offer a variety of programs designed to improve the quality of life for the area's residents. This section provides background on the regional campuses and looks at the regional economic effects in each case.

The Upstate Region

The Upstate Region comprises 11 counties in the northwest corner of the state. The campuses of USC Union and USC Spartanburg are situated in this region.

USC Union

The USC Union campus was founded in 1965 and is within easy commuting distance for most students in the Upstate of South Carolina. USC Union offers most of the first two years of the curriculum offered at the main campus. Direct expenditures at USC Union consisted of $1,743,219 for the university and $1,906,750 for students. The impacts on the Upstate Region were $2.6 million for the university and $2.6 million for the students, for a total output impact of nearly $5.3 million. The direct expenditures supported 81 jobs and had a total earnings impact of $1.6 million.

USC Spartanburg

In 26 years, USC Spartanburg (USCS) has grown from a small, twoyear campus into an important center of higher education for the entire metropolitan Upstate. The first 12 bachelor's degree programs were approved in 1975. From the beginning, USCS has operated in partnership with school districts, health care institutions, businesses, and industries to develop academic and public service programs tailored to the needs of the region it serves.

Expenditures to operate the Spartanburg campus totaled $28.4 million, which resulted in an output impact of $48.1 million in the Upstate Region. Student expenditures amounted to $18.3 million, which resulted in an output impact of $27.7 million. Athletics expenditures of $257,377 resulted in an output impact of $506,430. The total output impact on the Upstate economy was $76.3 million. These impacts generated earnings impacts of $17.5 million in the case of campus operations, $7.2 million in the case of student spending, and $331,267 in the case of athletics spending. The total earnings impact was $25.0 million. Athletics spending generated eight jobs, student spending generated 294 jobs, and operations expenditures generated 870 jobs, for a total of 1,172 jobs generated.

USC Alumni in the Upstate

Alumni spending generated $113.7 million in total earnings and 4,788 jobs for the Upstate Region. The estimated taxes of USC alumni were $37.2 million. This generated an output impact of $68.9 million, with an earnings impact of $43.5 million and a jobs impact of 1,508.

Summary Impact for the Upstate

The total impact on the Upstate Region of the USC System - its two campuses and alumni in the Upstate Region - is the sum of their impacts. Figure 4 shows the total output impact to be $490.2 million, with an earnings impact of $140.3 million and a jobs impact of 6,041.

The Lowcountry Region

Four counties make up the Lowcountry Region, the southernmost area of South Carolina. USC has two campuses in this area: USC Beaufort and USC Salkehatchie.

USC Beaufort

USC Beaufort's history dates back to the original Beaufort College charter in 1795. From its beginning in 1959, USC Beaufort has grown to offer undergraduate and graduate regional studies courses to 1,400 students. USC Beaufort holds offsite classes at the Parris Island Marine Corps Recruit Depot, the Marine Corps Air Station, and Hilton Head Island.

The estimated expenditures of operating USC Beaufort were $6.1 million. Students spent an estimated $5.5 million. These initial expenditures resulted in an output impact of $10.7 million for operations and $8.4 million for students, for a total of $19.1 million. These impacts generated earnings of $6.6 million for the Lowcountry Region and supported a total of 286 jobs in the area. Operating expenditures supported 190 jobs with $4.2 million in earnings, while student spending yielded $2.3 million in earnings and supported 96 jobs.

USC Salkehatchie (Walterboro Campus)

In late 1964, residents from Allendale, Bamberg, and Hampton counties organized to create a regional campus of USC, and approval was granted in 1965. USC Salkehatchie's Walterboro campus offered courses beginning in 1978. Of the five counties served by USC Salkehatchie, Colleton, and Hampton counties are in the Lowcountry Region, and the remaining counties are in the Augusta-Aiken region. USC Salkehatchie, however, does not maintain separate accounting for the two regions. Thus, a fair apportionment is two-fifths of the impact in the Lowcountry with the remainder of the impact in Augusta-- Aiken. Given this, two-fifths of the annual expenditures by the university on operations was $1.6 million, by students was $1.7 million, and for athletics (including fans) was $9,067. And this economic activity supported 73 jobs, representing earnings of $1.4 million.

USC Alumni in the Lowcountry

Alumni spending generated $21.5 million in total earnings and 907 jobs for the Lowcountry. Taxes generated an output impact of $13.0 million with an earnings impact of $8.2 million, and a jobs impact for the state of 286.

Summary Impact on the Lowcountry

The total impact on the Lowcountry Region of the USC System - its two campuses and alumni in the Lowcountry Region - is shown in Figure 5. The total output impact was $101.3 million, with an earnings impact of $29.5 million and a jobs impact of 1,266.

The Charlotte-Rock Hill Region

The Charlotte-Rock Hill Region (mid-northern part of South Carolina) is composed of only three counties: Chester, Lancaster, and York.

USC Lancaster

Established in 1959, USC Lancaster was originally housed in an old residence in downtown Lancaster. Steady growth, community support, and a tract of land acquired in 1965 moved the campus to its present site, just an hour from either Columbia or Charlotte. USC Lancaster is easily accessible to students from several counties in both South Carolina and North Carolina.

The total expenditures at USC Lancaster were $7.6 million by the university and $4.9 million by students. University spending multiplied into a total impact of $12.1 million in the region; student expenditures into $6.6 million. The total output impact of the Lancaster campus on the area economy was $18.8 million. The total earnings impact of the university in the region was $6.2 million, supporting a total of 270 jobs. Student spending supported 69 jobs, and university spending supported 200 jobs.

USC Alumni in Charlotte-Rock Hill Region

Alumni spending generated $27.0 million in total earnings and 1,137 jobs for the area. Their incremental income generated $8.8 million in taxes. These state taxes generated an output impact of $16.4 million with an earnings impact of $10.3 million and a jobs impact of 358.

Summary Impact on the CharlotteRock Hill Region

Figure 6 shows the total impact on the Charlotte-Rock Hill Region of the USC System, composed of alumni and USC Lancaster. The total output impact was $115.8 million, with an earnings impact of $33.2 million and a jobs impact of 1,407.

The Midlands Region

Eleven counties make up the Midlands Region of South Carolina. There are two campuses: USC Sumter and USC Columbia.

USC Sumter

USC Sumter was originally a campus of Clemson University (begun in 1965), but operations were transferred to the University of South Carolina in 1973. In 1978, USC Sumter began offering a program of evening courses to meet the needs of nontraditional students who could attend classes only at night. A similar program is offered for military personnel at nearby Shaw Air Force Base.

The Sumter campus had a $13.4 million initial impact on the Midlands' economy ($7.2 million for operations and $6.2 million for students). The total output impact of this spending on the regional economy was $22.0 million (Figure 7). The earnings impact was $4.5 million from operations and $2.6 million from student spending, for a total earnings impact of $7.1 million. The total jobs impact was 307.

USC Columbia (including the Medical School)

Chartered in 1801 as South Carolina College, the University of South Carolina was the first state university to be supported continuously by annual state appropriations. In the years before the Civil War, it achieved a reputation for academic excellence in the classical tradition. Campus buildings were used for other purposes during the Civil War. The institution reopened in 1865 and underwent six reorganizations and name changes during the latter part of the 19th century. The college added a graduate school and was re-chartered in 1906 as the University of South Carolina. Today, USC Columbia encompasses the USC Medical School and is part of a statewide network of campuses offering diverse and innovative education programs.

The total operating expenditure for the Columbia campus was $465.3 million. This resulted in an output impact of $829.9 million. Student expenditures totaled $186.6 million, which resulted in a total impact of $291.9 million. Athletics expenditures were $29.5 million, yielding a total impact of $54.8 million. Thus, the total output impact of university expenditures on the Midlands economy was nearly $1.2 billion (Figure 8). The university expenditures on operations generated an earnings impact of $314.0 million in the Midlands. Student expenditures generated $79.4 million, and athletics expenditures generated $32.3 million. The total earnings impact for the Columbia campus was $425.7 million. These impacts supported a total of 18,586 jobs. USC Alumni in the Midlands

The total output impact of alumni spending was $948 million. For the Midlands, this translates into $263.7 million in total earnings and 11,109 jobs. The total output impact resulting from taxes on alumni incremental income was $159.8 million, with an earnings impact of $101.0 million and a jobs impact for the state of 3,499.

Summary Impact on the Midlands Region

The USC System - USC Sumter, USC Columbia, and USC alumni has a significant impact on the Midlands Region (Figure 9). The total output impact was $2.1 billion, with an earnings impact of $696.5 million and a jobs impact of 30,002. The Augusta-Aiken Region

The west-central region, Augusta-- Aiken, has five counties: Aiken, Allendale, Bamberg, Barnwell, and Edgefield. USC Salkehatchie (the Allendale campus) and USC Aiken are located in this region. USC Salkehatchie (Allendale Campus)

Undergraduate enrollment increased more than ten-fold from its beginning in the fall of 1965 to the fall of 1992. Courses offered at campuses in Walterboro and Allendale enable residents of those areas to complete most of the academic courses required by USC. The Salkehatchie Consortium, composed of USC Salkehatchie and school districts in surrounding counties, serves teachers and administrative personnel with graduate courses and staff development activities. This program, begun in the fall of 1989, enables teacher's aides to become certified.

Three-fifths of the annual expenditures by the university (three of the five counties served by USC Salkehatchie are in the Augusta-Aiken region) was $2.5 million, and expenditures by students were $2.6 million. The total impact of the university was $7.1 million (Figure 10). These expenditures generated a total earnings impact of $2.0 million. The total expenditures were responsible for 109 jobs in the region.

USC Aiken

This campus is located near the city of Aiken, famous for its thoroughbred horses and stately homes built during an era when the city rivaled Palm Beach as a place for the wealthy to spend their winters. Established in 1961, USC Aiken quickly grew in number of students and degrees offered. In December 1977, it became fully accredited as a senior college.

Expenditures for university operations at USC Aiken were $26.2 million, translating into a total output of $39.6 million. Students spent an estimated $15.4 million, yielding a total impact of $20.4 million. Athletics spending of $343,728 resulted in a total impact of $565,200. The total economic impact of the Aiken campus on the local economy was $60.6 million. These initial expenditures generated an earnings impact of $398,010 for athletics spending, $4.5 million for student spending, and $14.4 million for university operations, which adds up to $19.4 million. Student spending generated 203 jobs, athletics spending generated five jobs, and university spending resulted in 768 jobs, for a total of 976 jobs.

USC Alumni in the Augusta-Aiken Region

The total output impact of alumni spending was $135.5 million, supporting $37.7 million in total earnings and 1,588 jobs. Alumni incremental income generated taxes estimated at $12.3 million. The total output impact resulting from these taxes was $22.8 million, with an earnings impact of $14.4 million and a jobs impact for the state of 500. Summary Impact on the Augusta-- Aiken Region

The total output impact was $203.2 million, with an earnings impact of $58.8 million and a jobs impact of 2,871 (Figure 11).

While the final three regions studied in this report do not have University of South Carolina campuses, the university has an impact through its alumni living in these areas, as summarized below.

The Charleston Region

Along the southern coast in the Charleston Region, there is no USC campus. Nevertheless, the region benefits from USC alumni who live there.

Figure 12 shows the impact of the incremental income of the USC alumni living in the Charleston Region. Beginning with incremental income of $100.5 million, a total output of $159.9 million was generated. As a result, the total earnings output was $44.5 million, and 1,874 jobs were supported. This incremental alumni income generated direct taxes of $14.5 million, which, in turn, generated a total output impact of $27.0 million, with an earnings impact of $17.0 million and 590 jobs supported.

The Pee Dee Region Like the Charleston Region, the seven-county Pee Dee Region in the northeastern part of the state has no USC campus.

USC alumni living in the region have incremental income of $64.6 million, generating an output impact for the region of $102.9 million (Figure 13). The impact on earnings from this incremental income was $28.6 million, and 1,205 jobs were supported. Taxes from the income were $9.4 million, resulting in a total impact of $17.3 million. USC alumni taxes yielded $11.0 million in earnings and supported 380 jobs for the state.

The Grand Strand Region

Georgetown and Horry counties compose the Grand Strand Region, the eighth economic region in South Carolina. There is no USC campus within these two counties, but the university does have an impact on the area.

The incremental income of USC alumni living in the area was $80.1 million. This generated a total output impact of $127.5 million (Figure 14), with a total earnings impact of $35.5 million and a total jobs impact of 1,494. Taxes on the incremental income of these alumni were $11.6 million. The ripple effect of these taxes was a total output of $21.5 million, total earnings of $13.6 million, and total jobs of 470 for the state. Conclusion Clearly, higher education is a critical investment that ensures the future well-being of South Carolina. Although many citizens sense that a link between education and economic development exists, the actual contribution is not often made explicit. This article aims to present an up-to-date and accurate assessment of the economic impact of USC, and to contribute to our understanding of the effects of the USC System on the state's economy.

It should be stressed that a university's primary mission is to enhance the personal development and intellectual life of individuals, not to promote economic development. Research, teaching, and service remain the essential functions of higher education. But the economic impact potential can no longer be ignored. In the incipient knowledgebased economy of the 21 st century, information and knowledge create economic value. States cultivate advanced knowledge through higher education. The potential is great, as other state university systems suggest - especially leading institutions such as Michigan, Virginia, and North Carolina that have achieved Association of American Universities (AAU) status. Linkages between leading state universities and local businesses generate billions of dollars for the economy. In the future, USC's impact is destined to grow even larger.