Higher (Priced) Education: Part 4 of 4
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More Expensive People Needed
The most important reason that higher education prices have raised so dramatically over the recent four decades is the same reason that the healthcare, law, performing arts and vehicle maintenance industries have risen—they rely on skilled labor that is difficult to automate. Specifically within higher education, the employees are the most educated in the world and thus come at a higher price. The substitutes for in-classroom instruction are perceived as inferior and have resulted in an inability for higher education to automate while other industries have been able to do so. Institutions perform more tasks today than they ever did before resulting in an increased need for more non-faculty administrators and in-turn, more people on payroll. Finally, as higher education has been unable to automate, the price for educated employees has risen and their benefits (specifically healthcare) have risen dramatically during the same time period. In a nutshell, higher education needs more people, to perform more tasks, at higher prices than ever before.
“Compared to most other industries, higher education utilizes a very highly educated workforce. The same is true of a number of important service industries, including health care and legal services. In the first three quarters of the twentieth century, rising demand for skilled workers caused by skill-biased technological progress was more than matched by increases in the educational attainment of the workforce, so wages for highly educated workers fell compared to less skilled workers. But in the last quarter of the century the growth of educational attainment began to slow while skill-based technological progress continued to apace. The wages paid to highly educated workers began to soar relative to the wages paid to less highly educated workers. This forces up higher education costs (and the prices of health care and legal services) relative to the prices of services produced by industries that do not rely so heavily on highly educated workers.”[2]
Productivity v. Pay Within US Employment
Figure X [3]
Universities require some of the most educated employees in the world. While product-focused markets like personal toys, cell phones, televisions, and computers became less expensive, industries with highly educated employees (higher education, legal services, medical care) became more costly.[4] Worker productivity across all industries rose by 73 percent from 1973-2015 but hourly compensation only rose by 11 percent (See figure X).[5] The ability to automate many industries and even eliminate some laborious occupations stagnated earnings for the average American. Yet, as most industries had to compete with robots, highly educated workforces saw their occupations remain untouched and even saw a significant increase into their pay in relation to those with only a high school education or a four-year degree (See Figure Y).[6] No different from law practices or healthcare, higher education institutions found their people to be the most vital asset to their success and were unable to find cost savings during the transition to the digital age.
Wage Gaps Compared to High School Graduates
Figure Y [7]
Higher education has not seen increases to productivity over the last four decades but has still managed to increase its employee pay. This idea relies heavily on Baumal’s Cost Disease which points out this startling contrast between the lack of productivity growth and increased pay within service industries.[8] Services industries have weathered this storm for two reasons. They have a difficult time being standardized (each individual student requires different teaching styles and support mechanisms) and the quality of their service is perceived to rely heavily on human interaction.[9] Needing to attract highly educated employees, institutions of higher learning have increased employee pay (mainly on the administrative end) while transitioning the cost to students.
One of the areas that has seen relatively low productivity growth in American higher education has been in the form of instruction. With few exceptions, American higher education is taught today the same way that it was taught in 1980, similar to how it was taught in 1860, and not too different than it was taught in 1636. While distance education programs have been developed and implemented to some degree, institutions have maintained their brick and mortar appeal because of the real and perceived benefits of in-person instruction. There is even some evidence to showcase that faculty have actually become less productive over the recent decades. In 1987 the student to faculty ratio at public universities was 13.6 to 1, by 2007 that number had shrunk to 11.6 to 1.[10] While there are various reasons for this perception of decreased productivity (more research faculty and more non-tenure eligible faculty) it’s important to acknowledge that while student to faculty ratios decrease, costs will continue to rise.[11] Additionally, the tenure system ties the hands of potential cost saving measures through the elimination of inefficient or unnecessary academic programs.[12] It’s also, “extremely expensive, if not impossible, to get rid of employees whose contributions to the institutional mission are declining.”[13] In a related matter, the end of mandatory retirement in 1994 has caused a dramatic decrease to turnover in higher education and, with the tenure system, and inability to release employees with diminishing institutional returns, a decrease to student learning outcomes as well.[14] Thus, faculty have become more expensive, less productive, and more difficult to remove or relocate.
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Just as slow productivity growth on the instructional end contributed to rising costs, so too have expanded nonacademic services and administrative areas of the institution forced prices to rise. Nearly every campus across the country has seen a decrease in the number of full-time faculty and a dramatic increase in the number of administrative positions. As Filipic puts it, “Fifty years ago people generally expected that a college would provide classes. Now I think people are looking for more from a university. I think that involves creating administrative positions.”[16] As institutions expand or receive new funding, they spend more money on counselors, admissions representatives, and various administrative employees in colleges and departments—all of which can be seen as necessary to some degree. Yet, we have also seen dramatic increases to central administrative positions and an expansion of university staff and non-teaching professionals. While the expansion in both number and cost of central administrators, such as assistant deans and university Presidents, is alarming, the more significant cost to universities has been the dramatic increase to student services and non-teaching professionals. From 1975-1985 “executive, administrative, and managerial employees’ increased by 17.9 percent and another 14.1 percent from 1985-1990; concurrently, “other non-teaching professionals grew by 61 percent from 1975-1985 and another 28 percent from 1985-1990.[17] In the years since that report, universities have added much more comprehensive disability services, student success platforms, recreational staff, and numerous other student service personnel. In an attempt to be everything for everyone, higher education has dramatically expanded the amount of services it provides internally for its students while compromising the instructional capabilities of full-time faculty and transferring increased costs to students.
Although universities are to blame for the dramatic increase in most areas of their university structure, there is one area that has had significant increases without much help in alternative aid: compliance. In a recent study at Vanderbilt University, federal regulatory compliance costs ranged from 3 percent to 11 percent of annual operating expenditures.[18] As the federal government provides more aid to students and more grants to research universities, they also ask require more stringent regulations that universities must follow. Institutions find these regulations “unreasonable, onerous, and unnecessarily expensive” and are forced to spend significant institutional funds to ensure their compliance with these new regulations. Additionally, there has been a cultural shift toward increased privacy over the most recent four decades. Filipic remembers, “Privacy was a major concern, and a relatively recent concern, that took a lot of administrative effort to ensure compliance.”[19] Lastly, with increased scrutiny from policymakers and the public at large, institutions are asked to justify every decision that they make and to “quantify their excellence” more than ever before.[20] This is a messy and expensive process for institutions and more of an economic burden for public institutions than private. While attempting to decrease costs to students in the form of federal grants and low-interest loan programs, the federal government has unintentionally increased operational expenses for universities and, in turn, for students.
Yet, the most significant cost-driver for institutions that has arisen due to increased employees is the dramatic increase to their benefits, most significantly in the form of medical care. This issue is problematic on two ends. From the state level, as Medicaid prices increase, there is less money left for discretionary areas of the budget—the most obvious being the State Share of Instruction for higher education. When asked why higher education costs have risen so dramatically, Filipic stated, “The state simply has not had the money, and there are three reasons for that: Medicaid, Medicaid, and Medicaid.”[21] According to the Ohio Legislative Service Commission, the State of Ohio budget for Medicaid increased from 12.1% of the total budget in 1975 to 48.5% in 2016.[22] Without dramatically increasing taxes, it would have been impossible for states to continue funding higher education at the rate that they did previously. On the institutional end, as discussed earlier, higher education institutions have more employees than ever before and they are more expensive; their employee benefits contribute considerably to that rise. Filipic discussed the issue at Wright State during the early 2000s. He states, “When I was Vice President [2000-2011] I remember receiving a bill for healthcare that was a 20% increase in one year—to fund that we would have had to increase tuition by 4%.”[23] With a decrease in state support, raising tuition was the only option for institutions with such dramatic increases to their operational budgets.
With increasing costs, tuition freezes, and decreasing state-support, public institutions will have to operate differently if they want to continue existing. Student are adapting quickly to the idea of decades of mountainous debt, but there will be a breaking point where a traditional collegiate education is no longer a smart strategic investment (this may be closer than we think). In the coming years it is vital that our citizens and legislators understand the clear value that accessible and affordable public higher education brings to the greater community. As Bastedo puts it, “During the difficult period that lies ahead, higher education will need greater leadership at all levels: administrative, faculty, trustee, student, and public.”[24]
Next Post: TBD
Sources:
[1] http://news.wsiu.org/post/illinois-senate-approves-more-money-higher-education#stream/0
[2] Archibald, Robert B., and David Henry Feldman. Why does college cost so much? (New York, Oxford University Press, 2011), 62.
[3] Valletta, Rob. “Higher Education, Wages, and Polarization.” (Federal Reserve Bank of San Francisco, January 12, 2015).
[4] Archibald and Feldman. Why does college cost so much? 66.
[5] “The Productivity-Pay Gap.” Economic Policy Institute.
[6] “The Productivity-Pay Gap.” (Economic Policy Institute, August 2016).
[7] Valletta. Higher Education, Wages, and Polarization.
[8] Russel. Rising College Tuition, 4.
[9] Ibid.
[10] Martin and Gillen. College Pricing undermines financial aid, 11.
[11] Vedder, Thirty-Six Steps, 21.
[12] Vedder. Going Broke by Degree: 75.
[13] Ibid.
[14] Earle, Beverley, and Mariannae Delpo Kulon. “The ‘Deeply Toxic’ Damage Caused by the Abolition of Mandatory Retirement and its Collision with Tenure in Higher Education: A Proposal for Statutory Repair.” (Southern California Interdisciplinary Law Journal 24, no. 2, 2015): 369-418.
[15] http://www.startschoolnow.org/what-are-college-professors-like/
[16] Filipic. Personal Interview.
[17] Hedrick, David W., Charles S. Wassell Jr., and Steven E. Henson. "Administrative costs in higher education: how fast are they really growing?" (Education Economics 17, no. 1, 2009): 124.
[18] Boston Consulting Group, “Federal Regulatory Cost Burden: A multi-institutional study.” (Nashville, Vanderbilt University, October 2015), 8.
[19] Filipic. Personal Interview.
[20] Vedder. Going Broke by Degree: 28.
[21] Filipic. Personal Interview.
[22] “State - Source GRF, LPEF, and LGF Expenditure History.”
[23] Filipic. Personal Interview.
[24] Bastedo, Altbach, Gumport. Higher Education in the Twenty-first Century, 141.
About the Author:
Lukas Wenrick spends his days working to develop innovative solutions to the most complex issues universities face. He does so to ensure that the most marginalized students may pursue an alternative trajectory than the one laid out by their zip code. He believes that universities and other educational enterprises have the duty to expand educational opportunity to as many individuals as possible and that excellence should be judged by the students that an institution includes, rather than those that it excludes.
Lukas holds a Master's of Education in Higher Education from the Harvard Graduate School of Education and a Bachelor of Arts in Social Science Education from Wright State University. His experiences at both an open access public university and an elite private institution inform the work he does every day. Currently, Lukas serves as a University Innovation Fellow at Arizona State University where he works to leverage the ASU enterprise to resolve educational and social inequities in the world.
If you'd like to know more about Lukas you can find him on the following sites:
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