By Eric Crampton 19/06/2017


I don’t think we can blame the consultants for this one. Normally, big big numbers in economic impact reports are a black mark on the consultancy producing them. They don’t come with enough health warnings, and the misleading big big figures draw headlines too easily.

Dave Guerin’s Ed Insider newsletter (essential reading for anybody following tertiary ed in New Zealand) covers the Universities NZ report, produced by NZIER. He writes:

Universities NZ released Regional activity of universities (30 pages) on 27 Apr 2017 (UNZ media release).
  • The report had straightforward analysis of the direct university spending and employment in their region, and the contribution to regional GDP.
  • NZIER also estimated the indirect and induced expenditure due to universities, but placed major caveats on those figures, stating that UNZ had specifically asked for them. They noted that the government did not see such numbers as a credible argument for increased government expenditure on universities. NZIER repeated their 2-paragraph warning 9 times in the report, and added an appendix with more detail on the issue.
  • Universities NZ cited the largest number possible ($19.95b) in their media release.

For an example of a nice health warning, here’s a bit from NZIER’s Exec Summary:

Estimating the size of these indirect and induced effects in a way that is economically meaningful is problematic. They can be estimated using multipliers that try to reflect the ripple effects of university expenditure on the economy, but this approach makes so many assumptions that the estimates should be seen as indicative only. The multiplier analysis approach (used in the mid-2000s but now discredited) massively overstates the indirect and induced economic activity attributable to any industry because it fails to consider alternative uses for the resources employed by the industry. At best, multiplier based estimates of indirect and induced effects are a measure of the current footprint of the university in the city/region. They cannot be added to calculate a national total across cities/regions and they are not accepted by central government as a credible argument for increased expenditure on university education or R&D.

Though indirect and induced effects are estimated in this report they should be seen as indicative only. See Appendix A for further caveats and comments on indirect and induced effects.

Pretty blunt. When clients use the big big numbers, even when the reports have health warnings as blunt as these are… yikes.

Featured image: Flickr / Jeremy Jenum


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