Archibald and Feldman respond on education

The discussion, which includes a reply to my previous post, is here, excerpt (but do read their entire response):

Next, we don’t see strong barriers to entry on the institutional side, either. In 1970, eight million students were enrolled in 2,000 American colleges and universities. Today, over 18 million are enrolled in roughly 4,300 institutions, according to the Digest of Educational Statistics. There has been a veritable explosion of places at for-profit and not-for-profit institutions alike. To take one example from the traditional nonprofit sector, the University of Central Florida has mushroomed from a start-up to one of the largest institutions in the nation in a relatively short period of time.

Competition among pre-existing universities has also grown more intense. As Caroline Hoxby has noted, the fraction of students attending schools within their own state has declined steadily since the 1940s.

"The quantity supplied is going up" does not equal "the quantity supplied is not restricted."  There is a lot more non-pasteurized cheese consumed in this country than twenty years ago, but it is still very much restricted. 

Accreditation constraints and social signaling constraints (a market failure, I might add) are two reasons why we don't see more effective competition in the higher education sector.  In what other economic sectors are the major quality players more or less the same decades later?  Apart from adding on a west coast, the list of top players hasn't changed all that much in a century.  There's something funny about this sector which we are not being told about, although I will agree the exact nature of the reputational stickiness remains a bit mysterious.  It is related to why the U.S. edge in higher education remains relatively robust, even when we have lost our edge in many other sectors.  Catch-up is hard.

On UCF, it is ranked #97 among public universities.  It seems to offer reasonable value, as such schools go, but it has hardly turned the market upside down.  George Mason also has grown from small to huge (about 30,000 students).  The question is why this kind of entry hasn't lowered prices.  What I see is lots of "more of the same" competition, little scope to experiment with true cost-cutting and different products, and so growing supply matches demand but has not been a force for major price declines relative to median wages.

The growing polarization of U.S. labor market outcomes has helped, indirectly, subsidize a lot of inefficiency in the upper tiers of U.S. higher education.  People are willing to pay for the ticket, just as the airlines can get away with more inefficiency when travel and migration demands are high. 

If I'm analyzing the high and growing prices for U.S. colleges and universities, I would start with some of these basic observations.  


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