DRAFT REPORT
NOT FOR EXTERNAL CIRCULATION OR QUOTATION
Institute of Government and Public Affairs
University of Illinois at Urbana-Champaign
and
Department of Geography and Earth Sciences
University of North Carolina at Charlotte
December 1997
The University of Illinois is an important economic activity in the state. With three separate
campuses and a variety of administrative functions, the university system is a major employer
with significant contributions to the state's economy. Employing over 31,600 persons with a
1995 appropriated payroll of nearly $600 million, the university system expends over $1.9 billion
annually to operate and maintain the institutions. However, the economic impact of the
university system does not stop there. Much of the $1.9 billion direct expenditure is spent within
the state which places new demands, thereby generating economic activity, in other sectors of the
state's economy. The spending of nearly $600 million in wages and salaries by over 31,600
employees also generates new rounds of spending which helps to create jobs and generate
income associated with consumer spending. Consequently, the impact of the University of
Illinois on the state's economy is both substantial and complex.
To estimate the economic impact of the university system, input-output analysis has been used to
capture the interdependencies of the state's economy with the university. Because all industries
in the state are to some degree linked to one another, a change in one sector of the economy will
ripple through other parts of the economy. The estimation of these ripple effects (called
multiplier effects) is the main objective of economic impact assessment. Through the use of
input-output models, we are able to capture industry linkages and estimate the economic impact
of the University of Illinois on the state's overall economy.
The input-output models used for this study are mathematical representations of the Illinois
economy. Set-out in matrix form, each economic activity is represented as both a purchaser of
industrial inputs and the seller of its output. Industries are linked via their buying and selling
patterns with one another. The input-output models developed for this study cover every county
in the state and represent 528 industrial sectors, the highest level of detail possible. The detail
provided by input-output models is one reason why input-output analysis has become the
accepted standard for impact assessments of this type.
Assumptions and Caveats
This economic impact analysis of the University of Illinois rests on the assumption that, within
the state's economy, the university system functions in a manner similar to other industries in the
state. That is, the University of Illinois produces a service called higher education, and makes
purchases of supplies and inputs from other Illinois industries in order to produce this service.
At the same time, there are other forms of economic activity associated with the university
beyond simply providing classroom space and employing faculty and staff. These forms of
economic activity include research grants and contracts awarded to faculty, auxiliary student
spending on textbooks, school supplies, entertainment, etc. and spending by outside visitors as
they attend conferences, workshops, concerts, campus museums, sporting events, and the like.
Thus, there are many ways in which the university system generates economic activity beyond
the immediate confines of campus. However, any study of this nature must make certain
assumptions and set certain parameters for the evaluation of economic impacts.
Assumptions:
1. Illinois and its sub-regional economies exist in a state at, or near, equilibrium.
2. The University of Illinois system functions as an economic industry that provides a service,
and is uniquely linked to other sectors of the state economy in a manner similar to other service
sectors.
3. Expenditure levels and student enrollment characteristics for 1995 are representative of past
levels and are likely to continue in the future.
4. Auxiliary spending of students and visitors to campus from out of state would not take place
in Illinois if the University of Illinois did not exist.
5. In the absence of the University of Illinois, no other similar state-supported function would
exist.
Caveats:
1. The economic impact estimates are based on continued financial support of the University of
Illinois system.
2. It is assumed that the ability of faculty and staff to obtain similar levels of outside funding will
continue.
3. The effects of education and human capital acquisition are not considered in the economic
impact estimates. No attempt has been made to determine the extent to which higher education
makes its recipients more productive, consequently contributing to a more efficient state
economy.
4. No attempt has been made to determine the long-run impact of new technologies or new
patents and inventions developed at the University of Illinois.
5. The fiscal impact of funding the University of Illinois system is not considered.
Interpretation of Impact Results
The tables to follow provide a summary of the economic impact of the University of Illinois
system on the state of Illinois. All three campuses that comprise the university system, their
operating expenditures, student and visitor expenditures, as well as administrative functions are
represented in the analysis to follow. For purposes of illustration, the economic impact of the
University system has been divided into three categories of impact and is presented for three
geographic levels. Since the Illinois economy can be measured in terms of industrial production,
level of employment, or the payroll associated with employment, the analysis presents economic
impacts in terms of all three categories of economic activity. The results are also presented at
three geographic levels: Statewide, the Chicago Region consisting of the counties of Cook,
DuPage, Kane, Lake, McHenry and Will, and the Downstate Region (the state less the Chicago
Region).
Interpretation of the tables presented below requires an understanding of (a) how the economic
impact model was used to derive the impact estimates, and (b) terminology used in economic
impact assessment. The sum total of all expenditures and economic activity directly attributable
to the University of Illinois system were entered into the economic impact model so that various
secondary, or multiplier effects, could be estimated. Tables labeled "Statewide" impacts include
the impact of all three campuses and all forms of university spending on the economy of the
entire state of Illinois. Tables labeled "Chicago Region" represent the economic impact of UIC
on the six county region centered on Chicago, while "Downstate" impacts simply represent the
difference between the statewide totals and the Chicago impacts.
Critical to any economic impact assessment is the definition of the actual impact to be estimated
and the geographic region over which the impacts are measured. The objective of economic
impact analysis is to determine the total effect of one or more changes in final demand. Final
demand consists of goods and services that are demanded by end-users or consumers. In the
current case, the consumption of university educational services and other related consumption
represents the relevant source of final demand. These sources of final demand constitute
expenditures that are directly related to the university system and include direct university
operating expenditures (wages, salaries, grounds, maintenance, physical plant, etc.), student
expenditures (housing, text books, recreation, etc.) and other university-based activities that bring
visitors and guests to the university community (sporting events, workshops, conferences, etc.).
Because they are directly related to the University of Illinois system, and represent the source of
final demand to be entered into the economic model, they are called direct effects.
With direct effects identified, the impact analysis then seeks to determine how much other
economic activity is supported by, or related to, operating the university system. Estimation of
other economic activity is the purpose of multiplier analysis. Proper definition of direct effects
and appropriate use of economic models allows estimation of the volume of "spin-off" activity
that is related to operation of the university system. These spin-off are frequently decomposed
into two categories: indirect effects and induced effects. Indirect effects measure the secondary
production-related impacts set into motion by the demand for goods and services attributable to
the direct effects. As direct and indirect effects are initiated, regional employers pay wages and
salaries to labor, who in turn spend part of their earnings in the regional economy causing
another "round" of spending and demands for goods and services. These latter effects are called
induced effects. The sum of direct, indirect, and induced effects represent the total economic
impact of the University of Illinois measured in terms of industrial production, employment, and
employee compensation.
Economic Impact of the University of Illinois
The first column of Table 1 shows the direct effects of the University system on the state's
economy. Presented in millions of dollars, it is estimated that over $2.2 billion enter the state
economy as a direct result of the university. Much of this direct effect ($1.9 billion) comes from
the operating budget of the University, and is mostly recorded in the service sector of the
economy. However, other sectors are direct recipients of university and related spending
including approximately $13 million spent by students on various forms of transportation,
communications and public utilities (TCPU), $221 million in the trade sector, $169 million
mostly in rental real estate (FIRE) and a substantial sum in other service activities. The indirect
effects of this spending amounts to an additional $928 million in supporting industries
throughout the state with the construction ($317 M), FIRE ($213 M), and services ($164 M)
being the most strongly linked to university operations. On the other hand, the spending of
wages and salaries by those directly and indirectly employed by the university adds an additional
$1.487 billion in economic activity across the state. The total impact on industrial production of
all three campuses across the state amounts to over $4.6 billion.
Table 1 Statewide Impact of University of Illinois on Industrial Production ($Million)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 8 | 11 | 19 |
| Mining | 0 | 1 | 2 | 3 |
| Construction | 0 | 317 | 58 | 375 |
| Manufacturing | 0 | 105 | 196 | 301 |
| TCPU | 13 | 72 | 101 | 186 |
| Trade | 221 | 33 | 303 | 558 |
| FIRE | 169 | 213 | 324 | 706 |
| Services | 1,840 | 164 | 463 | 2,467 |
| Government | 0 | 15 | 27 | 42 |
| Other | 0 | 0 | 3 | 3 |
| TOTAL | 2,244 | 928 | 1,487 | 4,659 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
The impact of the UIC campus on industrial production in the Chicago region is presented in
Table 2. The direct effect of the UIC campus on business volume in the Chicago area amounts to
over $1 billion, again with most of the direct effect being in (higher education) Services. Smaller
direct effects are found in TCPU, Trade, and FIRE. Regional indirect effects associated with the
UIC campus amount to $406 million in industrial production. These impacts are distributed in a
manner similar to the statewide results with Construction ($143 M), FIRE ($96 M) and Services
($73 M). The consumption-induced effects add another $629 million to industrial output in the
Chicago region bringing the total regional industrial production impact over $2 billion annually.
Table 2 Chicago Region Impact of UIC on Industrial Production ($Mill)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 2 | 1 | 3 |
| Mining | 0 | 0 | 0 | 0 |
| Construction | 0 | 143 | 24 | 167 |
| Manufacturing | 0 | 41 | 76 | 116 |
| TCPU | 5 | 31 | 43 | 79 |
| Trade | 86 | 14 | 132 | 233 |
| FIRE | 71 | 96 | 142 | 309 |
| Services | 848 | 73 | 198 | 1,119 |
| Government | 0 | 6 | 12 | 19 |
| Other | 0 | 0 | 1 | 1 |
| TOTAL | 1,011 | 406 | 629 | 2,046 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
The impact of the remainder of the system on the downstate industrial production is illustrated in
Table 3 where the direct effects of the University system are an estimated $1.233 billion.(1)
Indirect effects add an additional $522 million to production levels while $858 million associated
with related spending of wages and salaries brings the downstate industrial production impact to
over $2.6 billion. Clearly, the University system contributes significantly to the economic health
of the state and its regions.
Table 3 Impact of University of Illinois on Downstate Industrial Production ($Mill)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 5 | 10 | 15 |
| Mining | 0 | 1 | 1 | 2 |
| Construction | 0 | 174 | 34 | 208 |
| Manufacturing | 0 | 64 | 120 | 185 |
| TCPU | 8 | 41 | 58 | 107 |
| Trade | 135 | 19 | 171 | 325 |
| FIRE | 97 | 118 | 182 | 397 |
| Services | 992 | 92 | 265 | 1,349 |
| Government | 0 | 8 | 15 | 23 |
| Other | 0 | 0 | 1 | 1 |
| TOTAL | 1,233 | 522 | 858 | 2,613 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
Industrial production is translated into employment in Table 4. Although the University directly
employs over 31,000, other forms of spending by students and campus visitors generate a total of
over 41,000 jobs as a direct result of the University of Illinois. The indirect production of $928
million of goods and services shown in Table 1 generates an additional 8,623 jobs throughout the
state while inclusion of the 19,555 jobs generated through induced consumer spending brings the
statewide job impact to 68,877. Fully two-thirds of these jobs are found in Services, while
Trade, Fire, and Construction make-up the major sources of employment across the state.
Table 4 Statewide Employment Impact of University of Illinois (Number of Jobs)
| Sector Description | Direct | Indirect | Induced | Total |
| Agriculture | 0 | 189 | 156 | 345 |
| Mining | 0 | 9 | 23 | 32 |
| Construction | 0 | 2,228 | 418 | 2,646 |
| Manufacturing | 0 | 565 | 817 | 1,382 |
| TCPU | 421 | 513 | 635 | 1,570 |
| Trade | 6,527 | 533 | 7,426 | 14,487 |
| FIRE | 906 | 1,258 | 1,369 | 3,533 |
| Services | 33,205 | 2,774 | 8,144 | 44,124 |
| Government | 0 | 194 | 272 | 465 |
| Other | 0 | 0 | 294 | 294 |
| TOTAL | 41,060 | 8,263 | 19,555 | 68,877 |
| Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
UIC generates a total 29,155 jobs across the Chicago region as shown in Table 5. Here, direct
employment associated with University activity amounts to 17,906. Indirect production-related
output employs an additional 3,425 throughout Chicago and the Collar counties, mostly in the
Service (1,172) and Construction (953) sectors, though over 200 jobs are found in each of the
Manufacturing, TCPU, and Trade sectors. Employment generated by induced effects add an
additional 7,825 jobs to the region for a total of 29,155 jobs that are supported by UIC
throughout the Chicago region.
Table 5 Chicago Region Employment Impact of UIC (Number of Jobs)
| Sector Description | Direct | Indirect | Induced | Total |
| Agriculture | 0 | 61 | 21 | 82 |
| Mining | 0 | 1 | 2 | 3 |
| Construction | 0 | 953 | 165 | 1,118 |
| Manufacturing | 0 | 219 | 318 | 537 |
| TCPU | 147 | 211 | 250 | 609 |
| Trade | 2,367 | 210 | 3,021 | 5,598 |
| FIRE | 356 | 519 | 547 | 1,422 |
| Services | 15,035 | 1,172 | 3,279 | 19,487 |
| Government | 0 | 78 | 110 | 189 |
| Other | 0 | 0 | 111 | 111 |
| TOTAL | 17,906 | 3,425 | 7,825 | 29,155 |
| Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
The difference between the total statewide employment impacts and those associated with UIC in
the Chicago region are presented in Table 6 below. Like the employment impacts above, the
majority of the 23,154 jobs directly attributable to the University system are found in higher
education and related service. The number of jobs generated by indirect industrial production in
the Downstate region is an estimated 4,838, about one-third of which are found in Services and
about one-quarter of which are in Construction trades. Over 700 downstate jobs in FIRE are
indirectly generated, while over 300 positions in each of Manufacturing, TCPU and Trade are
attributable to the University. Larger employment impacts are generated through the subsequent
spending of wages and salaries by direct and indirect employees of the University generating an
additional 11,730 jobs in the Downstate region. More evenly distributed among the region's
economic sectors, Services and Trade are the major sources of downstate employment associated
with these effects. In total, over 39,000 downstate jobs are generated and supported by the
University system.
Table 6 Impact of the University of Illinois on Downstate Employment (Number of Jobs)
| Sector Description | Direct | Indirect | Induced | Total |
| Agriculture | 0 | 128 | 136 | 263 |
| Mining | 0 | 8 | 21 | 29 |
| Construction | 0 | 1,275 | 253 | 1,528 |
| Manufacturing | 0 | 347 | 499 | 846 |
| TCPU | 274 | 302 | 385 | 961 |
| Trade | 4,160 | 323 | 4,405 | 8,888 |
| FIRE | 550 | 739 | 822 | 2,111 |
| Services | 18,170 | 1,602 | 4,865 | 24,637 |
| Government | 0 | 115 | 161 | 276 |
| Other | 0 | 0 | 183 | 183 |
| TOTAL | 23,154 | 4,838 | 11,730 | 39,722 |
| Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to total due to rounding. | ||||
The direct creation of 41,060 jobs in the state generates an estimated $1.107 billion in employee
earnings across the state (Table 7). Approximately $600 million comes from direct University
payrolls of over 31,000 University employees. Employee earnings associated with indirect
production and employment totals $262 million statewide, while the $517 million in induced
effects brings the total statewide impact of the three campuses on earning to $1.886 billion.
Approximately two-thirds of this total are earned in the Service sector, 15% are earned in Trade,
with remaining earnings distributed among the other sectors of the state's economy.
Table 7 Statewide Impact of University of Illinois on Employee Earnings ($Mill)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 3 | 1 | 4 |
| Mining | 0 | 0 | 0 | 1 |
| Construction | 0 | 84 | 15 | 99 |
| Manufacturing | 0 | 26 | 37 | 63 |
| TCPU | 7 | 23 | 28 | 58 |
| Trade | 101 | 20 | 155 | 276 |
| FIRE | 13 | 31 | 52 | 96 |
| Services | 986 | 67 | 211 | 1,264 |
| Government | 0 | 10 | 13 | 23 |
| Other | 0 | 0 | 3 | 3 |
| TOTAL | 1,107 | 262 | 517 | 1,886 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to totals due to rounding. | ||||
The UIC campus generates $512 million in earnings throughout the Chicago region as shown in
Table 8. Indirect employment is associated with $118 million, while earnings induced through
secondary job creation are estimated to be $226 million. In total, UIC is responsible for
generating a total of $855 in employee earnings in the Chicago region. Most of this payroll
emanates from the Service and Trade sectors, though all sectors (with the exception of mining)
show some connection to University activity around Chicago.
Table 8 Chicago Region Impact of UIC on Employee Earnings ($Mill)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 1 | 0 | 1 |
| Mining | 0 | 0 | 0 | 0 |
| Construction | 0 | 40 | 7 | 46 |
| Manufacturing | 0 | 11 | 16 | 26 |
| TCPU | 3 | 10 | 12 | 25 |
| Trade | 41 | 9 | 69 | 119 |
| FIRE | 6 | 14 | 23 | 42 |
| Services | 463 | 30 | 92 | 585 |
| Government | 0 | 4 | 5 | 10 |
| Other | 0 | 0 | 1 | 1 |
| TOTAL | 512 | 118 | 226 | 855 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to totals due to rounding. | ||||
Table 9 shows the difference in earnings between those that generated statewide by all campuses
and those that are generated in Chicago by UIC. The Table implies that $595 million in earnings
are directly associated with University and related operations in the downstate region. Indirectly,
there are $144 million in employee earnings and induced earnings of $291 million bring the
downstate total to just over $1 billion.
Table 9 Downstate Impact of University of Illinois on Employee Earnings ($Mill)
| Sector Description | Direct * | Indirect * | Induced * | Total* |
| Agriculture | 0 | 2 | 1 | 3 |
| Mining | 0 | 0 | 0 | 1 |
| Construction | 0 | 44 | 9 | 53 |
| Manufacturing | 0 | 15 | 22 | 37 |
| TCPU | 4 | 13 | 16 | 33 |
| Trade | 60 | 11 | 86 | 157 |
| FIRE | 7 | 17 | 29 | 54 |
| Services | 523 | 36 | 119 | 678 |
| Government | 0 | 6 | 8 | 13 |
| Other | 0 | 0 | 1 | 1 |
| TOTAL | 595 | 144 | 291 | 1,031 |
| * Millions of 1996 Dollars
Note: Includes all university activity, visitors and student spending. TCPU stands for Transportation, Communications and Public Utilities; Trade includes wholesale and retail trade; FIRE stands for Finance, Insurance and Real Estate. Figures might not add to totals due to rounding. | ||||
Summary
The three campuses of the University of Illinois are major contributors to the health and vitality
of the state's economy. In total, the University system directly and indirectly supports
approximately 68,877 jobs, producing nearly $4.7 billion in industrial production, and generating
almost $1.9 billion in employee wages and salaries. While many of these impacts are somewhat
localized, revolving around the location of campus facilities, employees and students, there is no
doubt that the impact of the University is felt in every county of the state.
Table 10 Summary University of Illinois Impact on State of Illinois (1996)
| Impact Variable | Direct Effect | Total Impact | Multiplier |
| Industrial Production | $2.244 Bill. | $4.659 Bill. | 2.08 |
| Employment | 41,060 | 68,877 | 1.68 |
| Employee Earnings | $1.107 Bill. | $1.886 Bill. | 1.70 |
| Source: Summarized and calculated from Tables 1, 4, and 7. | |||
It should also be noted that this economic impact study does not cover all impacts of the
University that are important to the state and its residents. Although all studies such as this one
rest on sets of assumptions, there are a variety of issues not addressed in this standard economic
impact assessment that are nevertheless of vital importance to the State of Illinois. These
difficult-to-measure impacts include effects of education and human capital acquisition on the
productivity of Illinois labor and the efficiency of the state's economy and the long-run impact of
new technologies, patents and inventions developed at the University of Illinois. The
international prominence and reputation of the University of Illinois in areas of agriculture,
engineering, computer and information science, life and social sciences, fine and applied arts,
and the humanities suggest that the impact of the University extends far beyond an accounting of
the number of jobs and income generated because of the University of Illinois.
1. The information in Table 3 is included for completeness. The results presented in this table are basically the differences between Table 1 and Table 2 . This represents the impact on the University of Illinois (all campuses) on the downstate economy plus the impact of UIUC and UIS on the Chicago region. This is not a particularly useful breakdown for most policy considerations. The same caveat applies to Tables 6 and 9.