Across the country, state governments are cutting funding for higher education, and Pennsylvania is leading the charge, with Governor Corbett pushing for massive cuts. Such proposals are often labeled as reckless by those who argue that education is an investment, and that cutting higher education spending today would therefore lower economic growth tomorrow. This argument is largely premised on the fact that countries with more educated populations tend to have better economic performance than those that don’t, which has lead to the conventional wisdom that “funding → schooling → economic growth.”
But there are a couple of problems with this view. First up is the “funding → schooling” connection. The Coleman Report, published in 1966, and subsequent experience and analysis has demolished the idea that inputs alone are very useful in explaining the output of K-12. As the college level, the college attainment rate is also quite stubborn in spite of dramatic increases in funding over the years. In other words, spending more does not automatically yield better outcomes in terms of schooling.
The second, even more important problem is with the “schooling → economic growth” connection, which does not hold consistently enough. Fortunately, research by Eric A. Hanushek and Ludger Woessmann has discovered the reason for the lack of reliability – it turns out that it is not “schooling” that matters, but rather education/cognitive skill development. In other words, schooling is only important to the extent that it leads to cognitive skill improvement. For instance, based on their schooling figures, Latin America should be growing much more than it is, but their disappointing growth is explained once cognitive skills are taken into account.
Thus, we are left with a modified model of “funding ?? schooling ?? cognitive skills → economic growth.” For the sake of argument (and given the size of cuts being discussed) it is probably safe to assume the less funding will lead to less schooling (lower enrollment) unless there are dramatic improvements in productivity. Yet that does not mean that economic growth will be hurt. Some of the more plausible reasons include:
#1 Students Aren’t Learning
One of the simpler explanations for why less higher education spending doesn’t automatically generate less economic growth is that college attendance doesn’t improve the cognitive skills of students. If students aren’t learning (or aren’t learning the right things), then cutting college spending won’t reduce growth because it won’t reduce cognitive skills. Are students learning? Richard Arum and Josipa Roksa’s new book Academically Adrift documents that around a third of students experience no gains in the measured cognitive skills while in college.
#2 There is a Natural Limit
Perhaps another explanation is that a “natural” limit exists on the percentage of individuals capable of handling college-level work (achieving college level cognitive skills). As overconfident Americans, we aren’t used to contemplating such insurmountable limits, but the atrocious graduation rate at our universities (only 58% of students that start at a four-year school graduate within six years) makes this at least a plausible candidate.
#3 College is a Credentialing / Signaling Mechanism
Another explanation is that to a large extent, higher education serves as a signaling device. College graduates are more productive and earn more than non-college graduates, facts that are often relied upon to show that spending on higher education drives growth. But many of the characteristics of college graduates (high intelligence, persistence, adaptability, work ethic, ability to work with others, etc.) were not acquired in college at all. In fact, a good case can be made that students graduate from college only if they already have those characteristics in the first place. Employers desire many of the traits on that list, so they often use a college degree as a screen for potential employees. This is why many jobs require a college degree but not a specific degree. But if college is merely separating those with sufficient cognitive skills from those without, than budget cuts won’t affect cognitive skills.
#4 Diminishing Returns Have Set In
A final explanation for why lower university spending may not lead to lower growth is diminishing returns, the idea that as we expand the scale of an activity the additional benefits of further expansion declines. For example, adding a good teacher to a class of 25 students will increase students’ learning compared to having no teacher. Adding another teacher will increase learning as well, but probably not by as much as the first teacher. A third, fourth and fifth teacher will all likely increase learning as well, but the gains will not be as high as for the first teacher. At some point, whether it be the second or the fiftieth teacher, diminishing returns set in, and the value of the gains in learning are overwhelmed by the cost of adding more teachers. It is possible that after decades of expansion we have reached such a point with higher education. If that is the case, then lower spending will not lead to lower economic growth as the cost of more education outweighs the increases in cognitive skills.
To sum up, the idea that lower spending in higher education condemns us to suffer lower economic growth is an assumption rather than an established fact. It is certainly plausible that we could cut higher education spending significantly without hurting the economy.
# # #
Andrew Gillen is the Research Director of the Center for College Affordability and Productivity, www.centerforcollegeaffordability.org.