The Local Economic Impact of “Eds & Meds”: How Policies to Expand Universities and Hospitals Affect Metropolitan Economies

Economic development policymakers are increasingly looking to hospitals and universities as potential drivers of economic development in metropolitan areas, especially in central cities. These “eds and meds” institutions are large, immobile and often growing employers that hold the potential to offer relatively high-wage jobs to workers without college degrees. A number of metropolitan areas have large concentrations of colleges and universities, while health care institutions are more evenly spread out among metropolitan areas. This report examines the impact on metropolitan economic development of policies to expand health care and higher education institutions.

  • Expanding eds and meds brings in new income to a metropolitan area. It does so by enabling those institutions to serve more students or patients who live elsewhere and who would not otherwise spend money in the metropolitan area. This effect is greater for an expansion of eds than for an expansion of meds, since more people cross metropolitan area boundaries to attend school than to receive medical treatment.
  • Expanding eds raises metropolitan residents’ earnings by improving their skills. The presence of eds in a metropolitan area makes area residents more likely to earn college degrees and remain in the area to work. In addition, students who come to the area from elsewhere are more likely to remain in the area to work after completing their degrees. In both these ways, expanding eds increases the percentage of a metropolitan area’s residents who have college degrees and, therefore, increases earnings.
  • Expanding university research spurs metropolitan economic development. University research can lead to the creation of new businesses in a metropolitan area and improve the performance of existing businesses. It can do so through technology transfer activities and through the broader involvement of universities with local businesses.
  • Expanding meds is likely to encourage other employers in a metropolitan area to pay higher wages. Health care pays higher than average wages regardless of workers’ skills and demographic characteristics. Expanding health care is likely to raise wages throughout a metropolitan area by putting upward pressure on wages throughout the metropolitan labor market.

As a result of these four impacts, policies to expand both eds and meds would raise the earnings of metropolitan residents. Such policies would raise metropolitan residents’ earnings by roughly the same amount as would conventional policies that promote economic development through business tax incentives.