The system-wide impacts of the social and private market benefits of higher education on the Scottish economy: an illustrative "micro-to-macro" approach

The private market benefits of education, i.e. the wage premia of graduates, are widely studied at
the micro level, although the magnitude of their macroeconomic impact is disputed. However, there
are additional benefits of education, which are less well understood but could potentially drive
significant macroeconomic impacts. Following the taxonomy of McMahon (2009) we identify four
different types of benefits of education. These are: private market benefits (wage premia); private
non market benefits (own health, happiness, etc.); external market benefits (productivity spillovers;
and external non-market benefits (crime rates, civic society, democratisation, etc.). Drawing on
available microeconometric evidence we use a micro-to-macro simulation approach (Hermannsson
et al, 2010) to estimate the macroeconomic impacts of external benefits of higher education. We
explore four cases: technology spillovers from HEIs; productivity spillovers from more skilled
workers in the labour market; reduction in property crime; and the potential overall impact of
external and private non-market benefits. Our results suggest that the external economic benefits of
higher education could potentially be very large. However, given the dearth of microeconomic
evidence this result should be seen as tentative. Our aim is to illustrate the links from education to
the wider economy in principle and encourage further research in the field.