A Survey of the Literature on the Economics of Higher Education Part I

1
A Survey of the Literature on the Economics of
Higher EducationPart I

• The economics of higher education goes back at
  least to Adam Smith, who suggested over 200 years
  ago in the Wealth of Nations that professors
  should get paid based upon the number of students
  enrolled in their classes (Smith, 1776)

2
Reviewed Topics

• Return to Education
• Private Return
• Human Capital and Screening theory
• Higher Earnings
• Status
• Life Options
• Pleasure
• Demand for High Skilled Workers Technical change
  gt The Rise in High Skilled Workers wage
• Social Return
• Education and Growth
• Education and Democratic Civil Societies
• Individual Economic Mobility and Social Justice
• Education and Crime

3
Reviewed Topics (Cont.)

• Cost Sharing
• Public governments or taxpayers.
• Private Parents
• Private Students
• Student Loans
• fixed-schedule, or conventional mortgage-type
  loans
• income contingent loans.
• Scholarship
• Merit Aid
• Need-based Aid
• Private Philanthropists (Alumni)
• Next time

4
Reviewed Topics (Cont.)

• Academic Labor Market
• Academic Salaries relative to private sector
  salaries
• Salaries in private institutions relative to
  public universities
• Academic Tenure
• The end of mandatory retirement
• Ph.D
• The University and the Industry (STE)
• What Effects Education Quality
• Peer effects in higher education
• Class Size
• Brain-Drain, Globalization and In-state out of
  State Students.

5
Leading Researchers and Working Groups

• Prof. Charles T.Clotfelter (DUKE, NBER Higher
  Education Working Group)
• Demand for undergraduate Education
• Rising costs (Rising Expenditure)
• Alumni Donors
• Prof. Ronald G. Ehrenberg (Cornell Higher
  Education Research Institute CHERI)
• Academic labor market (tenure, salary )
• Rising cost, Tuition Rising
• Reducing Inequality in Higher Education
• Privatization of Public Higher Education

6
Leading Researchers and Working Groups (Cont.)

• Prof. Nicholas Barr (LSE, UK Reforms)
• Financing Higher Education
• UK higher education debate tuition and students
  loans or free higher education.
• Prof. Bruce Johnstone (The International
  Comparative Higher Education Finance and
  Accessibility Project ICHEFAP)
• Cost Sharing
• Student Loans
• Prof. Bruce Chapman (Higher Education
  Contribution Scheme - HECS)
• income contingent loans

7
Private Return to EducationEarnings, Status,
Life Optionsand of course Pleasure

• Human Capital and Alternative Theories
• Becker (1964)
• Becker, G. S. (1993) Human Capital A
  Theoretical and Empirical Analysis with Special
  Reference to Education.
• Mincer (1974)
• Heckman (1979) Selection Bias
•  Ashenfelter, O., C. Harmon and H. Oosterbeek
  (1999). A review of estimates of the
  schooling/earnings relationship with tests for
  publication bias
• Harmon C., H. Oosterbeek and I. Walker (2003).
  The returns to education microeconomics

8
Private Return to Higher Education

• Murphy, K. and Welch, F. (1989) "Wage Premiums
  for College Graduates", mostly empirical
• Becker, G. (1992) "Why Go to College The Value
  of an Investment in Higher Education" solid
  corroborating evidence
• Murphy, K.M. and Welch, F. (1992) "Wages of
  College Graduates" college earning premiums
  change over time, based on supply and demand for
  labor
• Cohn, E. and Geske, T.G. (1990) "Benefit-Cost
  Analysis in Education
• technical discussion of returns to elementary ,
  secondary, undergraduate, and graduate studies
  also discusses differences in returns by race,
  sex, national origin, and religion
•  
• Berger, M.C. (1992) "Private Returns to Specific
  College Majors
• examines differences in earnings btw. broad
  academic categories - Engineering, Liberal Arts,
  Business, Science
• Anderson, M.S. and Hearn, J.C. (1992) "Equity
  Issues in Higher Education Outcomes"
• a Critique the influence of individuals'
  socioeconomic background on the return to
  education

9
Private Return to Higher Education (cont.)

• Return to attending a 2-year college
• is the return to attending a 2-year college is
  the same as the return to attending a 4-year
  institution in other words, is the return to
  higher education depends only on the number of
  credit hours earned
• (Grubb 1993, 1995, Jaeger and Page 1996, Kane and
  Rouse 1995)
• Whether the return to higher education depends
  upon the type of institution that an individual
  attends (expenditures per student and measures of
  average student test scores)
• (James et. al. 1989, Loury and Garman 1995
  ignore selection bias!)
• Ehrenberg and Brewer 1996, Brewer, Eide and
  Ehrenberg 1999, Eide, Ehrenberg and Brewer 1998,
  Monks 2000, Liang Zhang (2005), Scott Thomas and
  Liang Zhang (2005)
• control for selection
• the most selective private institutions higher
  early career earnings and higher probabilities of
  being admitted to the best graduate and
  professional schools

10
Private Return to Higher Education (cont.)

• Dale and Krueger (1999), control for selection
  more directly, conclude that attendance at
  selective private institutions yields significant
  economic returns only for under represented
  minority students and students from lower-income
  families.
• Constantine (1998), Ehrenberg and Rothstein
  (1994), Ehrenberg, Rothstein and Olsen (1999) -
  whether African American students who attend
  Historically Black Colleges and Universities have
  higher completion rates and higher early career
  earnings than students who attend other 4-year
  institutions.
• Rothstein (1993), Solnick (1995) - whether
  womens colleges confer economic advantages on
  women who attend them, and whether single-sex
  colleges alter the probabilities that female
  students will graduate from majors that are
  traditionally male dominated.

11
Private Return to Higher Education (cont.)

• Demand for High Skilled Workers
• Acemoglu (1998). Why do new technologies
  complement skills? Directed technical change and
  wage inequality.
• Acemoglu (2002). Technical change, inequality,
  and the labor market.
• Berman, Bound and Griliches, (1994). Changes in
  the demand for skilled labour within U.S.
  manufacturing industries evidence from the
  Annual Survey of Manufactures.
• Krussell, Ohanian, Rios-Rull and Violante (2000).
  Capital-skill complementarity a macro-economic
  analysis.
• Overeducation
• Papers from 1970-1980

12
Private Return to Higher Education (cont.)

• Signaling and Screening
• Arrow, K. J. (1973). Higher education as a filter
• Spence, M. (1973). Job market signaling
• Stiglitz, J.E. (1975). The theory of screening,
  education, and the distribution of income.
• Whitehead, A.K. (1981) "Screening and Education
  A Theoretical and Empirical Survey"
• Chiswick (1973) "Schooling, Screening, and
  Income"

13
Social Return to Education

• Mostly Education and Growth but also Education
  and Democratic Civil Societies, Individual
  Economic Mobility and Social Justice, Reduced
  Crime.
• Acemoglu and Angrist (1999). Social return of
  high school education (Evidence from compulsory
  schooling laws).
• Lochner (2004). The relationship between
  Education, work and crime.
• Morettti (2004) finds that all types of workers
  earnings are higher when the share of college
  graduates in the citys workforce is higher.
  Specifically, a percentage point increase in the
  supply of college graduates raises high school
  drop-outs' wages by 1.9, high school graduates'
  wages by 1.6, and college graduates wages by
  0.4.

14
Education and Growth

• Sianesi, B. and J. van Reenen (2002). The returns
  to education macroeconomics.
• Barro, R.J. (1991). Economic growth in a
  cross-section of countries.
• Barro, R.J. and X. Sala-i-Martin (1995). Economic
  Growth.
• Bassani, A. en S. Scarpetta (2001). Does human
  capital matter for growth in OECD countries?
• Beine, M., F. Docquier and H. Rapoport (2001).
  Brain drain and economic growth theory and
  evidence.
• Benhabib, J. and M.M. Spiegel (1994). The role of
  human capital in economic development. evidence
  from aggregate cross-country data.

15
Education and Growth

• Bénabou, R. (1994). Human capital, inequality,
  and growth A local perspective.
• Bénabou, R. (1996). Heterogeniety,
  stratification, and growth Macroeconomic
  implications of community structure and school
  finance.
• Griliches, Z. (1996). Education, human capital
  and growth a personal perspective.
• Krueger, A.B. and M. Lindahl (2001). Education
  for growth why and for whom?
• Temple, Jonathan, (2001). Growth effects of
  education and social capital in OECD economies.
• Wolff, E. N. (2000). Human capital investment and
  economic growth exploring crosscountry evidence.

16
Higher Education and Growth

• Newman (1985) "The New Economy American
  Education in a Competitive World"  
• Foster (1987) the Contribution of Education to
  Development
• Birdsall (1996) "Public Spending on Higher
  Education in Developing Countries Too Much or
  Too Little?"
• Smith and Drabenstott (1992) "The Role of
  Universities in Regional Economic Growth"

17
Academic Labor Market

• Foundation Papers
• Ehrenberg (2003) Studying Ourselves The Academic
  Labor Market
• The declining salaries of faculty employed at
  public colleges and universities relative to
  their private institution counterparts
• The growing dispersion of average faculty
  salaries across academic institutions within both
  the public and private sectors
• The impacts of the growing importance and costs
  of science on the academic labor market and
  universities.
• Ehrenberg (2005) The Changing Nature of the
  Faculty and Faculty Employment Practices
• The Growth in Contingent Faculty
• Who Will be the Faculty of the Future (probably
  not female)
• Increasing Importance and Cost of Scientific
  Research
• Faculty Compensation Differentials (Growing
  faculty salary differential across institutions,
  across fields within each institution and across
  faculty members in the same department)
• Mandatory Retirement and Health Insurance Issues

18
Academic Labor Market (cont.)

• Salary
• Numerous studies have analyzed the salaries of
  faculty members to learn if salaries are related
  to measures of productivity (Hamermesh, Johnson
  and Weisbrod 1982, Hamermesh 1988)
• Do colleges and universities have monopsony power
  over their senior faculty (Ransom 1993, Hallack
  1995, Monks and Robinson 2001)
• Whether, holding other factors constant, faculty
  employed under collective bargaining agreements
  are paid more and have lower quit rates than
  faculty who are not covered by collective
  bargaining agreements (Barbezat 1989, Rees 1993,
  1994, Ashraf 1997, Monks 2000, Ehrenberg and
  Klaff 2003)
• The effect of unions on the compensation of
  staff, other than faculty, at higher education
  institutions (Klaff and Ehrenberg 2002)
• Assistant professors demand and receive a
  compensating starting salary differential for
  positions that offer low probabilities of tenure
  (Ehrenberg, Pieper and Willis 1998).
• "Paying Our Presidents What Do Trustees Value?"
  (Ehrenberg, Cheslock, and Epifantseva 2001)

19
Academic Labor Market (cont.)

• Salary
• "Determinants of Faculty Gender Ratios Across
  Institutions and Departments," (Rajeswaren 2000)
• Whether there are gender differentials in
  earnings and promotion probabilities (Booth,
  Frank and Blackby 2001, Levin and Stephan 1998,
  Monks and Robinson 2000, Ginther and Hayes 1999,
  Hoffman 1976)
• Why females are underrepresented, relative to
  their share in the PhD population, at major
  research universities (Barbezat 1992)
• Why Do Field Differentials In Average Faculty
  Salary Vary Across Universities?" (Ehrenberg,
  McGraw, and Mrdjenovic 2005)
• "Increasing Earnings Inequality in Faculty Labor
  Markets" (Monks 2003)
• The impact of the growing cost of doing science
  on faculty employment and salary levels
  (Ehrenberg 2005).

20
Academic Labor Market (cont.)

• The end of mandatory retirement (1994)
• How faculty productivity varies over the life
  cycle (Levin and Stephan 1991, Goodwin and Sauer
  1995, Oster and Hamermesh 1998).
• How the end of mandatory retirement influenced
  retirement rates at universities (Ashenfelter and
  Card 2002, Ehrenberg, Matier and Fontanella 2001,
  Clark, Ghent and Krebs 2001)
• Whether early retirement incentive programs for
  faculty covered by a defined benefit pension plan
  led to increased faculty retirements (Pencavel
  2002).
• Faculty Retirement Policies and benefits to
  encourage people to retire (Ehrenberg 2001)

21
Academic Labor Market (cont.)

• Tenure, why it is necessary?
• The important benefits institutions reap from
  tenure
• Carmichael (1988) Hire the best possible
  candidates.
• McPherson and Winston (1993) Incentives.
• Brown (1997) provides an efficiency-based
  explanation for academic tenure. Tenure is
  necessary for faculty to be willing to assume the
  roles normally associated with ownership without
  fear or reprisal from trustees and
  administrators.
• Tenure as a means by which professors seek
  partial contractual protection from internal
  political forces and the vagaries of academic
  democracies (McKenzie 1996)

22
Academic Labor Market (cont.)

• Tenure
• higher education, as a whole, has taken steps to
  reduce the percentage of tenured faculty,
  particularly through the increased use of
  part-time and non-tenure track faculty
• (McPherson and Schapiro 1999 Eugene Anderson
  2002, Roger Baldwin and Jay Chronister 2001,
  Valerie Conley, David Lesley, and Linda Zimbler
  2002).
• "The Changing Nature of Faculty Employment"
  (Ehrengberg and Zhang 2004)
• "Changes in Faculty Composition Within the State
  University of New York System 1985 - 2001"
  (Ehrenberg and Klaff 2003)
• Under what circumstances would a faculty member
  voluntarily relinquish tenure? (Charles
  Clotfelter 2000)
• The increased usage of non-tenure faculty
  adversely affect graduation rates at 4-year
  colleges, with the largest impact on students at
  the public masters level institutions.
  (Ehrenberg and Zhang 2004)

23
Academic Labor Market (cont.)

• Efficiency in the provision of university
  teaching and research an empirical analysis of
  UK universities (Glass, McKillop and Hyndman
  1995)

24
Ph.D Academic Labor Supply

• Ehrenberg (1991) academic labor supply
• Projections of Shortages
• A stock flow model of Academic labor supply
• Decisions to undertake and complete Doctoral
  study
• Demographic distribution of American Doctorats
• Policy (should we increase the flow of new
  doctorates)
• Ehrenberg Groen, and Nagowski (2005) "Declining
  PhD Attainment of Graduates of Selective Private
  Academic Instutions
• Zhang (2005) "Crowd Out or Opt Out The Changing
  Landscape of Doctorate Production in American
  Universities"

25
Ph.D Academic Labor Supply (Cont.)

• Groen and Rizzo (2004) "The Changing Composition
  of American-Citizen PhDs
• (patterns in the composition of American-citizen
  doctorate recipients from the early 1960s to
  2000, more women, more doctors from selective
  research universities)
• Ehrenberg (2005) Involving Undergraduates in
  Research to Encourage Them to Undertake PhD Study
  in Economics
• Ehrenberg (2004) Changes in the Academic Labor
  Market for Economists too many doctors

26
What Effects Education Quality?

• Peer Effect
• Winston and Zimmerman (2003). Peer effects in
  higher education.
• Arcidiacono, Foster, Goodpaster and Kinsler
  (2004) Estimating Spillovers in the Classroom
  with Panel Data
• Cook and Frank (1993) The growing concentration
  of top students at elite schools.
• Stinebrickner (2005) The Causal Effect of
  Studying on Academic Performance
• Bettinger and Long (2005) Mass Instruction or
  Higher Learning? The Impact of Class Size in
  Higher Education
• Ehrenberg (2001) "Does Class Size Matter?
• Kokkelenberg, Dillon, and Christy (2005) "The
  Effects of Class Size on Student Achievement in
  Higher Education"

27

• Brain Drain
• Bhagwati and Hamada (1974). The brain-drain,
  international integration of markets for
  professionals and unemployment.
• Poutvaara (2005). Public education in an
  integrated Europe Studying to migrate and
  teaching to stay.
• Few more papers in Academic Labor Market
• In-State versus Out-of State Students
• Groen and White (2003) In-State versus Out-of
  State Students The Divergence of Interest
  between Public Universities and State Governments
• Groen (2004) "The Effect of College Location on
  Migration of College-Educated Labor
• Rizzo and Ehrenberg (2004) "Resident and
  Nonresident Tuition and Enrollment at Flagship
  State Universities"

28
Introduction to the Following Lecture

• Accessibility
• Liquidity (Borrowing) Constrains
• Tuition Rising

29
Accessibility Admission and Tuition

• Ehrenberg (2001) "The Supply of American Higher
  Education Institutions"
• Admission and Affirmative Action
• Volanski (2005) the Israeli psychometric test
• Gilboa and Justman (2005) Academic admissions
  standards implications for output, distribution,
  and mobility
• Cullen and Long and Reback (2003) Jockeying for
  Position High School Student Mobility and Texas'
  Top-Ten Percent Rule
• Ehrenberg (2004) The Future of Affirmative Action

30
Tuition and Liquidity (Borrowing) Constrains

• Borrowing against human capital is difficult - A
  lot of uncertainty! therefore the government
  should interfere
• Cameron. and Taber (2004). Estimation of
  educational borrowing constraints using returns
  to schooling.
• Fernandez (1998). Education and borrowing
  constraints tests vs. prices,
• Fernandez and Galí (1999). To each according to
  ? Markets, tournaments, and the matching problem
  with borrowing constraints.
• Carneiro and Heckman (2002), The evidence on
  credit constraints in post-secondary schooling.

31
Tuition and Liquidity (Borrowing) Constrains

• Stinebrickner and Stinebrickner (2004) Credit
  Constraints and College Attrition
• Hanushek Leung and Yilmaz (2004) Borrowing
  constrains, collage Aid, and intergenerational
  mobility
• Ehrenberg (2005) Graduate Education, Innovation
  and Federal Responsibility
• Stinebrickner and Stinebrickner (2003),
  Understanding Educational Outcomes of Students
  from Low-Income Families Evidence from a Liberal
  Arts College with a Full Tuition Subsidy Program

32
Tuition Rising

• Selective Private Colleges and Universities
• increased costs of technology,
• student services and institutional financial aid
• at the research universities the increasing
  institutional costs of scientific research
• The arms race (the competition to be the best)
• Public Higher Education
• all the above
• withdrawal of state support.
• Clotfelter (1996), Buying the best Cost
  escalation in elite higher education - what
  happened to expenditure (4 universities, 1
  college, 15 years financial aid, increases in
  the number of faculty gt decline in average
  classroom teaching loads, increases in real
  faculty salaries, and increased administrative
  expenditures.
• Ehrenberg, R.(2000), Tuition rising Why college
  costs so much? why it happened

33
Tuition Rising (cont.)

• Rizzo (2004) A (Less Than) Zero Sum Game? State
  Funding For Public Education How Public Higher
  Education Institutions Have Lost
• Ehrenberg (2001), "Why Can't Colleges Control
  Their Costs?"
• Hoxby(1998) How the Changing Market Structure of
  U.S. Higher Education Explains College Tuition.
• Akabayashi and Naoi (2005) Why is there No
  'Harvard' among Japanese Private Universities?
• Ehrenberg (2001) "Will Trustees Tame Tuition?"

34
Tuition Rising (cont.)

• Ehrenberg and Epifantseva (2001) "Has the Growth
  of Science Crowded Out Other Things at
  Universities?
• Ehrenberg, Rizzo and Jakubson (2003) "Who Bears
  the Growing Cost of Science at Universities?
• Bailey, Rom and Taylor(2004) State Competition
  in Higher Education A Race to the Top or a Race
  to the Bottom?
• Ehrenberg (2005) The Perfect Storm and the
  Privatization of Public Higher Education.

35
Tuition Rising (cont.)

• Ranking - U.S. News and World Report.
• Ehrenberg (2003) "Method or Madness? Inside the
  USNWR College Rankings"
• Ehrenberg (2003) "Reaching for the Brass Ring
  How the U.S. News and World Report Rankings Shape
  the Competitive Environment in U.S. Higher
  Education"
• Bednowitz (2000) "The Impact of the Business Week
  and U.S. News World Report Rankings on the
  Business Schools They Rank.
• Monks and Ehrenberg (1999) "The Impact of U.S.
  News World Report College Rankings on
  Admissions Outcomes and Pricing Policies at
  Selective Private Institutions"

36
Philanthropy

• Clotfelter (2001) "Who are the Alumni Donors?
  Giving by Two Generations of Alumni from
  Selective Colleges"
• Clotfelter (2003)"Alumni Giving to Elite Private
  Colleges and Universities
• Higher levels of contributions are associated
  with
• higher income
• whether or not the person graduated from the
  institution where he or she first attended
  college
• the degree of satisfaction with his or her
  undergraduate experience cohort of graduates
• those who had received need-based aid tended to
  give less
• those who were related to former alumni tended to
  give more.
• Auten, Cilke, and Randolph (1992), The Effects of
  Tax Reform on Charitable Contributions.
• Auten, Sieg, and Clotfelter (1999), Charitable
  Giving and Income Taxation in a Life-Cycle Model
  An Analysis of Panel Data
• Ehrenberg and Smith (2001) "The Sources and Uses
  of Annual Giving at Private Research
  Universities"