Why College Supply Matters

Career College Central summary:

  • Most of the debate over America’s stagnant college graduation rates focuses on things that affect demand, like college affordability and the availability of financial aid. Another frequent question is whether high school graduates are prepared for a college education. There is a missing link in the analysis, however: supply.
  • Most discussion about our dismal educational attainment implicitly assumes that if the demand for higher education materializes, public and nonprofit colleges and universities will step up to meet it. Recent research has shown, however, that this is not generally the case. There is pretty good evidence that shortfalls in the supply of higher education slots have constrained college completion.
  • John Bound of the University of Michigan and Sarah Turner at the University of Virginia tracked college education through the second half of the 20th century. They found that when states had a large college-age population, public spending per student declined and graduation rates suffered. “Reduced resources per student following from rising cohort size and lower state expenditures are likely to have significant negative effects on the supply of college-educated workers entering the labor market,” they concluded.
  • Their analysis is consistent with the earlier work of David Card at the University of California, Berkeley, and Thomas Lemieux of the University of British Columbia that found a negative link between the size of the college-age population and the college enrollment rate, suggesting rationing in the supply of higher education.
  • Most economists agree that slipping college graduation rates are handicapping the American economy, affecting everything from technological progress and growth to income inequality. Professors Card and Lemieux have suggested that declining college graduation rates explain to a large extent the fast growth of the gap between the wages of workers with a college degree and those without one in the final decades of the 20th century – which crimped the supply of highly educated workers.
  • Nicole Fortin of the University of British Columbia found, for instance, that state funding for higher education directly affects the college wage premium: in states like California, where appropriations per college-age person declined in the 1980s, tuition rose, enrollment rates fell and the wage premium widened in the 1990s. In states like Florida, where the appropriations kept up with the college-age population, the wage gap rose little.

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