Posts tagged ‘Richard Vedder’

February 21, 2013

There is little evidence that increased education spending drives economic growth

by Grace

JONAH GOLDBERG: Education is important and necessary for a host of reasons. But there’s little evidence it drives growth.

Questioning whether increased education spending is really the key to “winning the future”

British scholar Alison Wolf writes in “Does Education Matter?”: “The simple one-way relationship … — education spending in, economic growth out — simply does not exist. Moreover, the larger and more complex the education sector, the less obvious any links to productivity.”

Nasim Taleb, author of “Antifragile: Things That Gain From Disorder,” argues that education pays real benefits at a micro level because it allows families to lock in their economic status. An entrepreneurial father can ensure his kids will do OK by paying for them to become doctors and lawyers. But what is true at the micro level is not always true at the macro level.

Think about it this way: Growing economies spend a lot on education, but that doesn’t necessarily mean that spending makes them grow. During the so-called Gilded Age, the U.S. economy roared faster and longer than ever before or since, while the illiteracy rate went down. But the rising literacy didn’t cause the growth. Similarly, in the 20th century, in places like China, South Korea and India, the economic boom — and the policies that create it — always come first while the investments in education come later.

Jarrett Skorup looks at higher education spending.

There is no link between higher education subsidies and economic growth, and none between college degrees and job creation.

Since 1980, Michigan has spent a much higher proportion of personal income on state government support for higher education than nearby states like Illinois and Ohio. According to Ohio University economist Richard Vedder, by the year 2000, the Mitten State was spending the sixth most in the country (2.34 percent of its personal income), double what Illinois was spending and much more than Ohio. This did not lead to higher growth as Michigan’s economy performed among the worst in the country during that time period.

And states with a higher proportion of college graduates do not necessarily grow by adding more college degrees. A comparison of the number of state residents with a college degree with per capital income growth from 2000-2008 yields no correlation.

James M. Hohman of the  Mackinac Center for Public Policy sees “no correlation between a state increasing its college graduate base and growing its economy”.


If the hypothesis promoted by Glazer and the lobbyists engaged by Michigan’s tax-supported public universities was correct, the various points on this chart would be clustered around an upward sloping line, as states with higher growth in the number of grads also enjoyed relative improvements in income. However, no such trend line exists.

Another chart that built in a lag time also showed no correlation.

… The chart below compares state grad growth between 2000 and 2005 and income growth in the three succeeding years; once again no pattern can be detected.


So many factors enter into economic growth, making it believable that education spending would not be a driving factor.

February 7, 2013

Too many college graduates are chasing too few college-level jobs

by Grace

Nearly half of working Americans with college degrees are in jobs for which they’re overqualified“, according to study released last month by the Center for College Affordability and Productivity.

At the core of this issue is the problem of too many college graduates chasing too few college-level jobs.



The proportion of the adult population with degrees has dramatically increased with the passage of time. Figure 3 shows that the proportion of adults with degrees in 2010, 30 percent, was five times what it was 60 years earlier. In 1950 or 1960, college graduates constituted a single digit proportion of the adult population—almost by definition, an elite group. As we will soon demonstrate, what has happened over time is that the proportion of the workforce with college degrees has grown far faster than the proportion needing those degrees in order to fulfill the needs of their jobs, forcing a growing number of college graduates to take jobs which historically have been filled by those with lower levels of educational attainment. The reality is that many jobs in the United States do not require a lot of education to perform, even though they may require on-the-job training, sometimes in considerable amount.

A recent problem

The phenomenon of the college-educated person holding a job requiring little formal education training appears on the basis of this type of evidence, at least for the occupations we examine, to have arisen mostly in the past four decades or so.


Underemployed but overinvested

The authors consider whether our country’s spending priorities have produced a waste of resources, leaving us with a society that is not only underemployed but overinvested in higher education.  They also consider whether this is the time for government to step back from its involvement in higher education and let the market take care of this situation.

All of this calls into question the wisdom of the “college for all” movement. Does it make sense to become the world’s leader again in the proportion of young adults with college degrees? Is the goal of individuals like President Obama or groups like the Lumina Foundation to increase college degree attainment desirable? Should we look for new and cheaper ways to assure employee competency? Should we invest less in four-year degree programs and more in cheaper training, including high-school vocational education that once was fashionable?62 Perhaps the federal government should reduce its involvement in the higher-education business, much like some states seem to be starting to do out of fiscal imperatives imposed by balanced-budget requirements that the federal government does not face. If fewer students could get Pell Grants or subsidized student loans, enrollments might very well fall, an outcome we perceive not to be a bad thing from a labor-market perspective.63

The full report:  Why are Recent College Graduates Underemployed? University Enrollments and Labor Market Realities By Richard Vedder, Christopher Denhart, and Jonathan Robe | January 2013

A lively discussion on this topic took place in the comments of The College Grad/Employment Mismatch (Inside Higher Ed), with one person making this important point about college now providing what used to be considered a high school level of education:

Many college students today are learning (or relearning) skills and knowledge that formerly were taught in high schools. Textbooks have been dumbed down for decades, while more students take remedial English and math courses. Standards are held down by grading on the curve (a mediocre majority sets the class norm) and by the importance of student evaluations of faculty for promotion and retention of instructors, more of whom are desperate adjunct faculty. Tough assignments do not elicit favorable evaluations. Many students work at least part-time, slowing the pace at which they can study. Therefore the function of college today for many students is to provide high school education appropriate to the jobs as in the past except that students formerly attained it by age 18, not 28.
Inside Higher Ed

November 19, 2012

We spend $40 billion yearly on Pell Grants, but we have no idea about results

by Grace

Lack of accountability:  The government hides results on a program that costs taxpayers billions of dollars each year.

2. How Do Pell Students Do?

Let us move on to the Pell Grant program, on which our nation spends more than $40 billion a year. Surely with such a large expenditure, we would have and publish detailed statistics on how recipients fare in college, right? NO. What is the percent of Pell Grant recipients at four-year colleges receiving their degree within four, five, or six years?  The Department of Education has such data for graduates of every accredited school in the country -why don’t they have it for those receiving the federal government’s largest grant program?

My guess is that the figure is so embarrassingly low that the government doesn’t want it published. I wrote a year or so ago that the Pell Grant graduate rate, after six years, was 40 percent, based on a bit of statistical estimation I did. No one seriously questioned my result. For every two students who -after six years -succeed to get a degree, three fail. Yet spending on this program has expanded enormously in recent years.

Richard Vedder writes about two other “Things Colleges Don’t Want Us to Know”

 What Are the Teaching Loads?

 How Much Do Students Actually Learn?

Related:  Pell spending is down while number of participating students is up (Cost of College)

October 18, 2012

Basic math problem: Too many college graduates and not enough high-paying jobs

by Grace

It may not matter how many more college graduates the United States churns out, many of them will be unable to get well-paying jobs.  The math simply does not work out, according to Richard Vedder.

… one-third is a larger number than one-fifth.  Roughly a third of adults have four-year degrees, but only one-fifth of jobs are in the relatively high-paying fields. That is why we have a small army (115,000) of janitors with bachelor degrees. Rather than adding two million more enrollees at community colleges (as President Obama advocated in the first presidential debate), maybe we should have two million fewer Pell Grants or student loans in order to help, in the long run, to restore balance between supply and demand for college graduates in high- paying fields.

It may sound distasteful to hear someone promote a public policy position that supports less education for low-income students.  On the other hand, encouraging young people who are at high risk for dropping out to take on burdensome debt may actually be the less charitable action in this case.  Even awarding grants to students unlikely to graduate from college may turn out to be more cruel than kind if the next generation will have to deal with the painful deficit generated by this generosity.  It’s a dilemma.

August 20, 2012

Reasons for surging college costs, including ‘massive price discrimination’

by Grace

Richard Vedder offers a list of reasons for rapidly rising college costs.  But first he opines on two “rival explanations” for this problem.

University presidents and some economists (e.g., David Feldman and Robert Archibald) often cite the Baumol Effect (named after a Princeton economist), arguing that higher education is a service industry where it is inherently difficult to raise productivity by substituting machines for humans. Teaching is like theater: it takes as many actors today to produce King Lear as it did when Shakespeare wrote it 400 years ago. While there is some truth to the argument, in reality technology does allow a single teacher to reach ever bigger audiences (using everything from microphones to streaming video). Moreover, in reality a majority of college costs today are not for instruction–the number of administrators, broadly defined, often exceeds the number of faculty.

The second explanation comes from former Education Secretary Bill Bennett: rapidly expanding federal student financial assistance programs have pushed up college prices, so the gains from student aid accrue less to students than to the colleges themselves, financing an academic arms race. Recent studies (by Stephanie Rieg Cellini and Claudia Goldin, Andrew Gillen, and Nicholas Turner) support the Bennett Hypothesis. Student aid has fueled the demand for higher education. In the market economy, increased demand for a product made by one company (say the iPhone) quickly spurs competition (other smart phones), so prices do not rise. That fails to happen in higher education, as many providers restrict supply to enhance prestige. Harvard has an Admissions Committee, McDonald’s does not.

12 key “expressions that help explain the college cost explosion”.

  1. Third party payments
  2. Lack of information
  3. Lack of profit motive
  4. Lack of well-defined goals
  5. Resource rigidities
  6. Barriers to entry
  7. Politicized control
  8. Price discrimination
  9. Rent seeking policies
  10. Cross-subsidization
  11. Murky ownership
  12. Governance problems

Vedder comes at this problem from a preference for market driven solutions.  This is  usually my perspective as well, although I haven’t fully reviewed all of Vedder’s assertions.

One of his arguments is that applying price discrimination as a way of achieving diversity inflates costs.

Eighth, universities try to charge what the traffic will bear, engaging in massive price discrimination, favoring some students (poorer ones, extremely bright ones, those with preferred skin colors) more than others (more affluent, less bright kids, those whose skin color is less desirable).

This makes sense.  Charging what the market can bear doesn’t always lead to competitive pricing, especially when the reasons for price discrimination lead to a lower quality product.  While the goals may be worthy, offering massive financial aid in the form of loans to students ill-prepared to succeed in college is a bad idea.  It adds to cost inflation while leaving many college dropouts burdened with debt that limits their future economic opportunities.  Price discrimination combined with some other factors from this list like lack of information and barriers to entry adds to the problem of runaway college costs.

A different perspective on college price discrimination from Kevin Drum at Mother Jones
I’ve highlighted the salient point of my disagreement, which is that the current system is ushering too many unqualified students into college.

Nonetheless, there are some classic cases where price discrimination works. College tuition is one: if you’re rich, you pay full price. If you’re middle class, you get grants and loans. If you’re poor, maybe you get a full ride. In theory, everyone who’s qualified goes to college, and the college itself extracts the maximum possible revenue from its students….

In the case of college, price discrimination is possible because, in fact, colleges can ask for a copy of your 1040 before they ring up the sale. And the end result is widely viewed as fair, since most of us think that poor but qualified students should go to college….

Related:  ‘there has been a severe contraction in the quality of higher education’ (Cost of College)

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