cost, subsidy and access in public higher education
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Cost, Subsidy and Access in Public Higher Education. David H Feldman College of William and Mary. COSUAA Annual Meeting San Francisco April 29, 2012. The Technological Forces Behind Rising College Cost. 1. Baumol’s Cost Disease. 3. Standard Of Care. 2. The College Wage Premium. - PowerPoint PPT PresentationTRANSCRIPT
Cost, Subsidy and Access in Public Higher Education
David H FeldmanCollege of William and Mary
COSUAA Annual MeetingSan FranciscoApril 29, 2012
1945 1955 1965 1975 1985 1995 20050
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Index of Real Higher Education Costs (1970=1), 1948-2008
0 10 20 30 40 50 60 70 800
10
20
30
40
50
60
70
Number of Years with a Percentage Price Increase Exceeding the Inflation Rate, 1947 to 2010
Rank
Higher Education
The Technological Forces Behind Rising College Cost
The Tripod
1. Baumol’s Cost Disease
3. Standard Of
Care
2. The College Wage
Premium
1. Cost Disease
Some things change a lot.
Some things don’t …
1940 1950 1960 1970 1980 1990 2000 2010 20200
2
4
6
8
10
12
14
Prices of Goods, the Prices of Services, and the Prices of Goods and Services, 1947=1
Goods Services Goods and Services
Year
Price
, 194
7=1
Productivity and Wages
1945 1955 1965 1975 1985 1995 20050
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Index of Real Higher Education Costs (1970=1), 1948-2008
2. The Costs of Employing Highly Educated Labor
Why do college costs rise more rapidly than the price
of barbers’ services?
Wages of High Skilled Workers
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100%
20%
40%
60%
80%
100%
120%College-to-High School Weekly Wage Premium, 1963-2008
1945 1955 1965 1975 1985 1995 20050
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Index of Real Higher Education Costs (1970=1), 1948-2008
3. Standard of Care
The Dysfunction Narrative
• Waste at Colleges and universities Useless researchAdministrative bloatTenure and lazy professorsCountry Club U
1965 1970 1975 1980 1985 1990 1995 2000 20050
0.5
1
1.5
2
2.5
3
3.5
4
Indexes of Current Fund Expenditure 4-year and 2-year, 1971-2001
4-yr 2-yr
Year
Curr
ent F
und
Expe
nditu
res,
1981
=1
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
2
4
6
8
10
12
Secretaries and Typists as a Percentage of the Workforce
Secretaries Higher Ed Secretaries All Industries Typists Higher Ed Typists All Industries
Year
Perc
ent o
f Wor
kfor
ce
1975 1980 1985 1990 1995 2000 2005 2010 20150
10
20
30
40
50
60
70
Percentage of Full-Time Instructional Faculty with Tenure
Year
Perc
ent
Figure 7.5 - Board Charges Deflated by the Price Index for Purchased Meals and Beverages, Private Univesities
1965 Dollars, 1965-2006
0
100
200
300
400
500
600
700
1965 1970 1975 1980 1985 1990 1995 2000 2005
Has a College Education Become Less Affordable? • Changes in Cost• Changes in Income• Changes in
Subsidy
1940 1950 1960 1970 1980 1990 2000 2010 20200
2
4
6
8
10
12
14
Prices of Goods, the Prices of Services, and the Prices of Goods and Services, 1947=1
Goods Services Goods and Services
Year
Price
, 194
7=1
The percentage of the average person’s income spent on services has …. ?
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Affordability Using GDP per Capita, Public Institutions, 1970-2008
Affor
dabi
lity
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Affordability, Median Income, Average Published Tuition, Average Net Tuition, Public 4-year Institutions, 1996-2010
Published Tuition Net Tution
Affor
dabi
lity
The Forces Driving Changes in Affordability
1. State Subsidy
• The roller coaster ride.• Heading downhill.
2. The National Distribution of Income
• Rising inequality overall.• Increasing concentration at the very top.
3. Increasing tuition discounting.
1960 1970 1980 1990 2000 20100
2
4
6
8
10
12
State Support for Higher Education per 1,000 of State Personal Income, 1961-2010
Dolla
rs p
er $
1,00
0
1958 1968 1978 1988 1998 20080
10
20
30
40
50
60
70
Who Pays the College Bill? 1958 - 2010
Federal State and Local Families
Perc
enta
ge
1982 1987 1992 1997 2002 2007
-10
-5
0
5
10
15
Public Tuition Growth, and Growth in State and Local Appropriations per FTE, 1983-2009
Tuition GrowthState & Local Appropriations Growth
Perc
enta
ge C
hang
e
1960 1970 1980 1990 2000 2010 20200
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Real Household Income 1967-2010 by Income Groups
20th Percentile 40th Percentile 60th Percentile 80th Percentile 95th Percentile
Productivity and Wages
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Published Tuition and Fees and Net Tuition and Fees, Public 4-year Institutions, 1996-2011
Published Tution and Fees Net Tution and Fees
Do Subsidies Drive up Tuition?
1940 1950 1960 1970 1980 1990 2000 20100
0.5
1
1.5
2
2.5
The Real Price of Higher Education, 1947-2006, (1970=1)
Simple Supply and Demand Analysis
D
S
D’
Q
P
Subsidy from an Institutional Perspective
• Pass it along to needy students as lower net price.• Reduce the school’s own need-based grants and use the
extra resources to grow the endowment.• Reduce the school’s own need-based grants and use the
resource to improve the quality of programming.• Cut back on tuition discounting, and lower the list price for
everyone.
None of these choices causes list price tuition to rise.
Better Supply and Demand Analysis!
Q
P
D D’
S
S’
Current Issues in Access and Affordability
• Funding crisis for public higher education forces a choice between higher tuition and reduced quality.
• Stagnant real incomes at most income levels drives the politics of higher education.
• Tuition discounting is the institutional response at private universities, and is the future at many public universities.
• But tuition discounting adds complexity and uncertainty, both of which impact access.
