Sunday, April 29, 2012

HIgher Ed blues

Here's the redoubtable Josh Barro on the costs of higher education:

Structurally, the higher education sector looks a lot like the health care sector. It hasn’t seen the productivity gains enjoyed by sectors like manufacturing and retail, which have benefited extensively from automation and technological advances. Colleges still need to employ a lot of highly skilled workers, and college costs are tied to their wages, which rise faster than inflation. It’s no surprise, then, that the higher education inflation trend looks a lot like the alarming one we see in health care. 

 But colleges and universities have failed to mitigate this phenomenon. For example, over the last few decades, the typical public four-year college has seen a sharp expansion of its support and managerial staff — from 5.5 per 100 students in 1987 to 7.5 per 100 in 2007. Colleges have also been reducing student-to-faculty ratios, and increasing spending on fringe offerings like gyms and student centers. As a result, expenditures per student by public institutions of higher education rose 48 percent from 1985 to 2009, after adjusting for inflation. Can we really say that higher education has gotten anywhere close to 48 percent better over that period?

While I agree with Josh that college administrators capture and waste a larger portion of the rents and that the withdrawal of state support dramatically increased the economic load of higher ed for non-wealthy families, I cannot come anywhere close to agreeing with the last couple sentences of the quoted portion.

Let's break it down:

First consider expenditure growth. People, 1985 - 2009 is 25 years. 48% growth over 25 years is, at a first approximation, something like a 2% annual growth rate. That just doesn't seem so bad a rate of spending increase. It's clearly below the rate of growth of real GDP. Is that really the same as the health care case?

Second, it's pretty much of a no-brainer that higher education is "anywhere close to 48% better" in 2009 than it was in 1985, though "better" is not easily made precise in this context:

Think of all the new majors. Think of all the innovative uses of technology. As Josh himself notes, dorms are way nicer, food is way way better, and athletic and leisure facilities are way way way better.

But maybe we shouldn't define "better" as "cooler" or "more enjoyable".

Well, how about if we define "better" as "more valuable"?

According to Goldin & Katz, the college graduate wage premium was around 40% in 1980 and rose to about 65% in 2005 (and was climbing at that point where their data stop). That's a lot more than 48% (62.5% to be exact).

Final point: A much higher percent of new high school grads attend college now than they did in 1985. The enrollment rate of new high school grads into college was 51% in 1975, and it rose to 70% in 2009.

I don't think that's because the product has gotten worse!

1 comment:

Brad Hutchings said...

Without reading through Goldin and Katz... Is it possible that the conclusion you site simply reflects that more people are getting degrees, which would mean that both the median and mean wages of college degree holders would be pulled down (relatively), but pulled down slower than the median or mean of non holders?

For example, just pulling numbers out of the air here based on the enrollment rate figure... the 75th percentile wage divided by the 25th percentile wage in 1980 might be 1.4. But the 65th percentile wage divided by the 15th percentile wage in 2009 might be 1.65, without much underlying change in income distribution. How much are the statistics lying to us? That's what I'm asking.

Bottom line is that the costs of college now are beyond insane. Courses for a mainstream ugrad degree could be offered online, with tutoring and grading, for a fraction of the cost of enrollment. A student wouldn't get the "experience", nor would they get the signaling value, but they could arguably get better coursework and feedback.