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'Higher Learning, Greater Good'

April 21, 2009

To many academics, the societal benefits of higher education are more than evident. But many others -- including some influential lawmakers -- view the benefits of higher education more narrowly. In Higher Learning, Greater Good: The Private and Social Benefits of Higher Education (Johns Hopkins University Press), Walter W. McMahon attempts to redefine how these benefits are measured and viewed. McMahan, a professor emeritus of economics and education at the University of Illinois at Urbana-Champaign, responded to questions about his new book.

Q: College leaders regularly talk about the importance of higher education being seen as a societal good, not just an individual good to the student. Why have they had a tough time getting the public to share that view?

A: It is primarily because measurement and documentation of these societal benefits has lagged behind, as has the awareness of the considerable evidence that does exist, in my opinion. A great deal is known, although there is plenty of room at the frontier for continuing exploration, of course. It is also because parents and students who are a key part of the public have no private incentive to support "societal goods" through their private investment in higher education. Societal benefits are benefits to “others” and to future generations, not benefits returning directly to them. It is therefore the broader public and higher education policy makers and not just parents and students that need to understand more specifically what the societal benefits of higher education are.

Most social benefits beyond earnings occur as human capital formed during college is used by the graduate in the community throughout his or her life cycle in ways that improve the community. These include larger contributions than high school graduates at each income level of their time and money to sustaining democratic and human rights institutions such as civic and charitable agencies. More college graduates also contributes to political stability, reduced crime, lower public welfare costs, greater social capital, an increased flow of new ideas, and an improved quality of the environment for all. These are benefits to "others" that go beyond the private satisfactions received by the graduate because firms can be more productive when there is a good environment and because ‘others’ include future generations.

There is research that measures each of these benefits. But it requires a thoughtful and balanced look. Some of the earnings that graduates enjoy, for example, are partly the result of the education of prior generations. So graduates receive spill over benefits from the education of ‘others’ in prior generations, but they also give some of each benefit listed above to ‘others’ in future generations.

Q: Historically, many colleges (or academic programs) have focused on straightforward measures of the "value" of higher education -- employment rates, salary averages, passage rates on state licensing exams. What's wrong with these measures?

A: The main thing wrong with them is that they leave out so much. They do not include the considerable value beyond earnings, for example, to better health, better child education and better child cognitive development, greater longevity, more efficient household purchasing, better management of assets, and many, many, more non-market private benefits. They also do not include the social benefits mentioned above. Looking at only the market benefits you mention is like having a three legged stool that has only one leg.

Q: What measures do you think are missing from the way people evaluate the benefits of higher education, and how would you measure them?

A: The private non-market benefits are estimated more comprehensively than before and also more systematically to avoid overlap. Their value is about $9,883 per year after graduation for each year of college degree. This turns out to be approximately equal to the benefits from each year of college to annual earnings ($9,967). This alone means that half of the private benefits of college to students and their families are being overlooked. The external social benefits to "others" listed earlier are beyond these private benefits. A first approximation of their value is that they are about 59 percent of the earnings benefits. But this does not include all of the spill-over benefits to future generations which can only be estimated by a dynamic simulation process.

In response to the second part of your question, these benefits are measured by multiple regression methods that control for other things in hundreds of different research studies appearing in economics and other journals. To consider these studies in an objective and balanced way requires serious consideration of the conceptual framework. For example, it is very important to consider how overlaps in measurements can be avoided. Going the next step to place an economic value on these measurements uses the Haveman-Wolfe method, one of four standard methods for valuation. So other methods as well as estimates of the same values by others can be used as cross checks.

Q: Do you think these measures could be generally accepted?

A: I think they would become generally accepted if they were more widely understood. This is not hard to do. But there have not been prior efforts to distill what exists without a lot of overlap, or efforts to put the studies on a comparable basis, or efforts to place an economic value on the estimates in a systematic and transparent way.

Some studies are outliers, often for reasons that can be seen. Since not all give identical results, their results can be averaged to reduce the influence of outlier studies. This said, there are still some unknowns, and some barely-knowns. But this is mostly close to the frontier of knowledge where research is active. A very large amount is known and in the mainstream, and this should not be overlooked.

Where it comes to external social benefits an additional element affects the answer to your question about "general acceptance." This is because the size of government involvement that is appropriate for broader economic efficiency is at stake when any effort is made to measure the social benefits. There are those who don’t like government not just in higher education but also in health care or other areas for political reasons so they commit errors of omission by ignoring the social benefits. Some go so far as distorting the research and denying the very existence of external social benefits. But on examination this often can be attributed to failure to consider the dynamics of the process. In any event, it is unrealistic to ever expect unanimity about the external social benefits of higher education. This makes it all the more important to actively seek a balanced and objective social-scientific view.

Q: Would general acceptance change the way public policy on higher education is set?

A: Emphatically yes. It's not just public policy, but also private decision making.

Students and their families would privately invest more, meaning that more middle class families would encourage their children to go on to college, if there were wider understanding of the specific non-market private benefits to their health, longevity, and happiness. There is significant market failure in higher education markets when at least half of the benefits are being overlooked. This underinvestment is reflected in many ways. One symptom is that 64 percent of the U.S. population has only a high school education or less, and these persons have had no increase in their real earnings since 1980. College graduates have enjoyed a 48 percent to 57 percent increase during this same period. This underinvestment in the U.S. is a major source of the "plight" of the middle class.

But public policy decisions would also be affected. If the scope and value of the social benefits were more widely understood, governments would be more supportive than they are of private desires to go on to college. There is significant market failure here as well. Instead of increasing, state support per student has been cut back in real terms in recent years, with the result that tuition and fees have risen sharply. As a result access by the middle class and by those from lower income families as well as affordability for those who do strain to go on have both been sharply reduced. The federal stimulus package and recent Pell Grant increases will help. But they are small related to the scope of the problem. Equally important, there are many financial disincentives to colleges and universities enrolling low income students. Those who do, such as the historically black colleges and public universities, are in desperate straits. Institutional aid needs to be provided to public institutions for accepting increased enrollments, and especially of low income students. This needs to be in the form of a per student “capitation” grant as was done earlier in the GI Bill and in Title I to reduce tuitions and to reverse the perverse incentives for serving these students that now exist.

Q: Do you worry that debating measures of colleges' benefits could take away from the idea of learning for the sake of learning?

A: No, not at all. If a person enjoys exercise or participatory sports, for example, it does not reduce his or her enjoyment to be told that it also benefits his or her health. Those who are curious and actively seek learning should only have these motivations reinforced when they discover that they are also investing in their future with significant benefits later to themselves and to their society. Furthermore, many students are not significantly motivated by the idea of learning for the sake of learning. It is important to reach them as well. The best way to do that would seem to be to help them to see how learning is an investment in their future that provides not just for their economic survival but also for their future health and happiness.

 

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