EMSI Impact Study: Frequently Asked Questions
... For Executives
1. How does our institution compare with others?
Comparing results between colleges is difficult and misleading. This is because results are a reflection of a college’s geography, the students it serves, and other factors outside the college’s control. The best benchmarks for results are the threshold values, i.e., a rate of return greater than the 3.0% discount rate used in the taxpayer perspective, or a benefit/cost ratio greater than 1.0.
2. What is the difference between the “Rate of Return” and the “Benefit/Cost Ratio?”
The methods for calculating these are quite different. They do use some of the same data in their respective calculations — however, Rate of Return looks at the average annual dividend paid on the students’ or taxpayers’ initial investment* and The Benefit/Cost Ratio discounts the future benefits stream to present value and divides by the present value of costs.
* We use the internal rate of return (IRR) because the principal investment is not returned to the investor.
3. What caused the variances in results between the current study and previous years?
Because the economy is always shifting and changing, the results generated by our model will vary from year to year. For instance, changes in the local labor market, tax rates, and age and demographic will impact our models. In addition, changes at the college or university have large impacts on the results. For instance, expansions or contractions in enrollments, revenues, expenditures, student credit production, etc. will all affect the final results.
Finally, EMSI is constantly improving and revising our methodology to reflect best practices in economics. These enhancements are designed to improve our studies and to ensure that EMSI stands up to peer reviews. This will help your institution stand up under scrutiny by ensuring that when a final report is delivered it will reflect the most accurate and cutting-edge reports available.
... For Institutional Researchers
1. Is it possible to calculate a return on investment using the results of the economic impact analysis?
No. The investment analysis and the economic impact analysis are distinct measures. One examines the benefits and costs related to college activities that occur in the single analysis year, the other examines the impacts generated by the accumulated skills of students over time. As such, investment measures such as the rate of return and benefit/cost ratio will be inaccurate if these distinct approaches are merged.
2. Why are the earnings by education level different from those reported by other sources?
EMSI data combine state and federal sources to provide earnings that reflect proprietors, self-employed workers, and others not typically included in state data, as well as benefits and all forms of employer contributions. As such, EMSI industry earnings-per-worker numbers are generally higher than those reported by other sources.
... For the Media
1. What makes the EMSI impact study different from other impact studies?
When doing impact studies for colleges and universities, most economists will only look at direct impacts and associated multiplier effects generated by the spending of the institution and its students. EMSI’s study goes beyond the standard multiplier analysis to measure not only the impact of college and student spending but also the impacts created by the accumulated skills and higher productivity of students in the workforce. This measure is unique to EMSI’s impact reports and gives a far more accurate picture of the true impacts of an educational institution. In addition, EMSI’s impact study provides an analysis of the return on investment to students and taxpayers, which is not a measure commonly found in other education impact studies.
2. Why is there no rate of return calculated for the social perspective?
If the costs and benefits of an investment accrue to different agents, calculating a rate of return will be misleading since the investor does not receive the reported dividends. We can still calculate a benefit/cost ratio, however, since this measure is simply a ratio of two dollar figures and is not concerned with the agents to whom those costs and benefits are associated.