Tuesday, November 20, 2007

Return on higher education "investment" 

A new policy paper by Richard Vedder of the Center for College Affordability and Productivity argues that public higher education is overpriced and overinvested. He finds that
Looking at hundreds of regression results, the overwhelming majority show a statistically significant negative correlation between state government appropriations and economic growth�the more states spend on higher education, the lower the growth in personal income per capita in future time periods. In some estimates, the results are not statistically significantly negative, but never do I obtain results consistent with the conventional wisdom that university spending promotes economic growth.
He points to examples such as Illinois, New Hampshire, South Dakota and Tennessee (low state appropriations, high growth rate) versus Michigan, Kentucky and North Dakota (high appropriations, low growth.) The difference in income in 2002 dollars may be as much as $1400 per capita.

Some of Vedder's writing is a little overwrought, for example suggesting that university professors like myself have too large a conflict of interest to take the lead in this research. And this particular report doesn't show the research behind what he's done (though for the point above, you could read this paper from the Mackinac Center.) But he makes a couple of good points. One is that there's no real reason to believe an increase in state appropriations for higher education will increase the state's growth rate. You are measuring an input, not an output. Vedder's research shows that even holding state tax burden constant (which has a negative effect on growth, in his regressions), you get a negative impact of state appropriations on growth. I note he includes a measure of number of bachelors degrees awarded as share of the25+ population -- it does have a positive impact on growth. But he argues (in his 2004 J Labor Research paper, not openly available online) that there's only a weak link between current appropriations on higher ed and the proportion of the population holding a bachelors. Seems to me to make a big difference whether or not you believe that.

Best of what he has isn't the growth regression, but a list of reasons why college is overpriced. These include third-party payers (often by government, making the system too politicized); resource rigidities; and issues of ownership and governance. See the report for the full list. One suggestion for reducing these costs that I love is the idea to tie presidential salaries to tuition increases. Student governments should start clamoring for this now.

Anyone interested in doing something similar with Minnesota? SCSU's data is here.

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