I’ve often wondered why college tuitions are rising so rapidly ever year. While in the ultimate sense, they rise because they can–there are enough wealthy people who can pay full freight, it’s not clear what internal cost require such massive, regular price increases.
Well, Robert B. Archibald and David H. Feldman propose that these increases are part of larger economic trends. First, college has to be understood as a service industry (italics mine):
First, higher education is a service industry. From 1947 to 2009 the average annual price increase for services was 4.0 percent, while for goods the average annual price increase was only 2.4 percent. Economists have understood why this happens for a long time. Technological progress has not reduced the number of labor hours required to provide most services. By contrast, technical innovation has significantly reduced the number of labor hours and kilowatts of power needed to produce most manufactured goods and agricultural products. As a result, the cost of a service such as a year of college must rise compared to the price of a basic car or a basket of groceries.
This is the well-known “cost disease” phenomenon.
Second, educated workers have seen consistent wage increases:
In the late 1970s, the wages of highly educated workers began a sustained rise. All personal services that rely heavily on this sort of labor have experienced a surge in costs. This is actually hopeful, since there is no reason to believe that this trend must necessarily continue. In fact, if the United States could do a better job of funneling college-capable students through the system, the increased supply of college-educated workers could ameliorate this part of the problem by reducing the rate of increase in salaries.
Not sure I like the sound of that recommendation. Anyway, onto the third factor:
But instead of reducing the number of labor hours it takes to produce a class, new technologies alter what we teach and how we teach it. To take but one example, the contemporary physics student must be familiar with current tools that define a modern physics laboratory. These tools are more expensive than the chalk and blackboard world of the past. Just like modern medicine, colleges and universities must meet a standard of care, and that standard is set in the labor market that will employ our graduates.
I’m trying to find a copy of their book. It sounds interesting.