Bloat Does Not Explain the Rising Cost of Education

In Why Are The Prices So D*mn High? Helland and I examine lower education, higher education and health care in-depth and we do a broader statistical analysis of 139 industries. Today, I will make a few points about education. First, costs in both lower and higher education are rising faster than inflation and have been doing so for a very long time. In 1950 the U.S. spent $2,311 per elementary and secondary public school student compared with $12,673 in 2013, over five times more (both figures in $2015). The rate of increase was fastest in the 1950s and 1960s–a point to which I will return later in this series.

College costs have also increased dramatically over time. For this book, we are interested in costs more than tuition because we want to know what society is giving up to produce education rather than who, in the first instance, is paying for it. Costs are considerably higher than tuition even today, although in recent years tuition has been catching up. Essentially students and their parents have been paying an increasing share of the increasing cost of higher education. Moreover, as with lower education, costs have been rising for a very long period of time.

I will take it as given that the explanation for higher costs isn’t higher quality. The evidence on tests scores is discussed in the book:

It is sometimes argued that how we teach has not changed but that what we teach has improved in quality. It is questionable whether studies of Shakespeare have improved, but there have been advances in biology, computer science, and physics that are taught today but were not in the past. However, these kinds of improvements cannot explain increases in cost. It is no more expensive to teach new theories than old. In a few fields, one might argue that lab equipment has improved, which it certainly has, but we know from figure 1 that goods in general have decreased in price. It is much cheaper today, for example, to equip a classroom with a computer than it was in the past.

The most popular explanation why the cost of education has increased is bloat. Elizabeth Warren and Chris Christie, for example, have both blamed climbing walls and lazy rivers for higher tuition costs. Paul Campos argues that the real reason college costs are growing is “the constant expansion of university administration.” Redundant administrators are also commonly blamed for rising public school costs.

The bloat theory is superficially plausible. The lazy rivers do exist! But the bloat theory requires longer and lazier rivers every year, which is less plausible. It’s also peculiar that the cost of education is rising in both lower and higher education and in public and private colleges despite very different competitive structures. Indeed, it’s suspicious that in higher education bloat is often blamed on competition–the “amenities arms race“–while in lower education bloat is often blamed on lack of competition! An all-purpose theory doesn’t explain much.

More importantly, the data reject the bloat theory. Figure 8 shows spending shares in higher education. Contrary to the bloat theory, the administrative share of spending has not increased much in over thirty years. The research share, where you might expect to find higher lab costs, has fluctuated a little but also hasn’t risen much. The plant share which is where you might expect to find lazy rivers has even gone down a little, at least compared to the early 1980s.

Nor is it true that administrators are taking over the public schools, see Figure 10.

Compared with teachers and other staff, the number of principals and administrators is vanishingly small, only 0.4 per 100 students over the 1950–2015 period. It is true, if one looks closely, that the number of principals and administrators doubled between 1970 and 1980. It is unclear whether this is a real increase or a data artifact (we only have data for 1970 and 1980, not the years in between during this period). But because the base numbers are small, even a doubling cannot explain much. A bloated little toe cannot explain a 20-pound weight gain. Moreover, the increase in administrators was over by 1980, but expenditures kept growing.

If bloat doesn’t work, what is the explanation for higher costs in education? The explanation turns out to be simple: we are paying teachers (and faculty) more in real terms and we have hired more of them. It’s hard to get costs to fall when input prices and quantities are both rising and teachers are doing more or less the same job as in 1950.

We are not arguing, however, that teachers are overpaid!

Indeed, it is part of our theory that teachers are earning a normal wage for their level of skill and education. The evidence that teachers earn substantially above-market wages is slim. Teachers’ unions in public schools, for example, cannot explain decade-by-decade increases in teacher compensation. In fact, most estimates find that teachers’ unions raise the wage level by only approximately 5 percent. In other words, teachers’ unions can explain why teachers earn 5 percent more than similar workers in the private sector, but unions cannot explain why teachers’ wages increase over time.

If the case for unions as a cause of rising teacher compensation in public schools is weak, it is nonexistent for increased compensation for college faculty, for whom wage bargaining is done worker by worker with essentially no collective bargaining whatsoever.

A signal to where we are heading is this:

If increasing labor costs explain the increasing price of education but teachers are not overpaid relative to similar workers in other industries, then increasing labor costs must lead to higher prices in the education industry more than in other industries.

Read the whole thing. Next up, health care.

Addendum: Other posts in this series.

Comments

"and we have hired more of them"

I would say that is the main source of bloat. Decreased class sizes and larger numbers of specialty instructors don't seem to have improved achievement at all, but they've greatly increased costs.

Smaller class sizes = lower productivity = higher costs per capita

Learn us less stuff.

Kids these days don't even learn ancient Greek or Latin! How are we going to raise them right without the basics of our civilization. No wonder they are all snowflakes They've never read Ovid in the original.

I have a distant kinsman in the Lazy-River-at-state-flagship-universities business.

Higher costs might justify themselves if the kids are learning more. Are they?

a lotta bloat is due to the maoist critical theory & fake identity politics fields
here is some nyu poli sci fake quote bloat for example
https://dailycaller.com/2019/05/26/ian-bremmer-fake-trump-quote/

From the graph of teachers per 100 students, it looks like teacher productivity, measured in students educated per teacher, has *declined* by 50% over 65 years from 25 students per teacher in 1950 to 12.5 in 2015. If unions do not raise wage levels significantly, do they raise quantities of teachers hired, perhaps by resisting technological and other innovations that would improve teacher productivity? Unions do generally oppose school choice in favor of government monopoly and, in turn, government monopoly is not conducive to innovation.

We know that the only two causes of high prices are either restricted supply or subsidized demand. Alex seems to be advancing a restricted supply argument based on Baumol. However, if teacher supply was restricted due to Baumol effects, then why are we hiring *more* rather than fewer teachers? Subsidized demand would seem to be more relevant when quantity is increasing along with price.

"teachers ... we have hired more of them"

My mother kept my "report cards" from primary school. I went through in a class size of about 45. My daughter faced class sizes of about 25 (state primary school) and 30 (private primary school).

Moreover my primary school was run by a Principal who taught a full class load and did his principalling after we'd all gone home. His admin back-up in the school was one secretary and one janitor.

These things are not a mystery, you know.

But I might add that my family's experience implies that the problem is international.

Many years ago, say 50, NYC had both public and Catholic parochial schools. The Catholic schools taught a large (not that much less than half) number of elementary grades pupils. One noteworthy structural difference was the NY Archdioceses' central school administration was composed of fewer than ten employees. The similar NYC Ed. Dept. function was manned by 1,500.

I'm old.

also the many Catholic schools employed nuns who worked for very low wages, although they did get free housing. In the Jesuit high school I attended half of our teachers were Brothers or Priests and we had one nun. Back in 1984 the tuition was $3,600 per year. Today it costs $26,000 and they do not have any Brothers or priests teaching at the school.

It's easier to have big classrooms if you can kick people out.

It's impossible to have big classrooms if people are legally required to be there against their will, which practically guarantees they will act out.

Exactly true. It has become more difficult to discipline the students , suspensions are rare today. In addition they have eliminated tracking in most schools. This also disrupts teaching in a different way, as teachers must review the basic material again and agin so the slower kids don't fall too far behind.

Sports?

I graduated on 2004 and the only significant news I've got from my alma mater is a new stadium.

I still don't know why universities are in the sport business, what's their comparative advantage? College sports may only exist because they're subsidized and play in a bubble protected from the pros.

How else would GDP be increased?

Why do you want falling GDP?

Imagine a world when households spent less money over time. Food, clothing, etc, costs go down, but nothing increases because households keep at home, watching kids play in the streets, or maybe the park, read, gather around the piano and sing, or join in on jugs, home made bango, etc.

Schools need to train kids in spending money when not working to fill time.

I think you’re looking at production incorrectly. Yes, test results are the same or worse for graduating students. But the students graduating are entering a more productive world. It’s like a janitor working at Goldman Sachs. The narrow output is identical but the value of production is much greater. Schools are producing more valuable labor inputs than ever before.

we don't actually think the value of production/labor inputs are greater
in the non stem fields

I do not understand this assumption, and feel like it lacks even a cursory awareness of 1950s educational insanity while fixating on declines in some rigor and the outrageous diversity of subjects.

you gotta nice beard!
what particular 1950s educational insanity are you referring to
possibly racial segregation ?

The narrow output is identical but the value of production is much greater.

An arguable point, but even if we accept it, we've doubled the number of workers to produce the same 'narrow output'. We should stop doing that. If we did, we'd still be graduating students of the same quality into our high-productivity modern world, but at half the cost.

Did you look into the impact of greater special education spending on lower level education? For many school districts, special education spending has grown significantly because more students are requiring or needed special education services.

Agreed. When a former superintendent (resigned 2002) came back on an interim basis in 2013, one of the big differences he noted was the huge increase in special education teachers since he had left. With so many special ed. teachers working at student homes, the increase was not obvious unless you looked at the books.

I don't pretend to be an economist so when I ask if the proliferation of student loans might be responsible for inflated tuition and fees (with secondary schools mimicking how (and how much of) that money is spent), please be kind.

The switching from tax subsidized tuition or tax funded grants to student debt was that placing the burden of education on the parents who had to cosign, ie take responsibility for the debt, and the students, consumers would shop around and thus drive down prices.

The argument for such high student debt was to force down education costs because tax subsidies were what were driving up education costs.

I'm old enoough to see the old "solutions" to rising costs be blamed for the even higher rates of increases in costs.

I'm also old enough to remember when economists taught substitution, etc. If a consumer buys A, B, C, and the cost of A and B go down, C will go up. The way to make education costs go down is to make food, government costs go up by a lot over a decade or two.

Look at Africa. Spending on education is much lower than in the US because spending on food is much higher.

Students spending more time in school is a rise in demand.

"Note also from Figure 2 that the rate of increase was fastest in the 1950s and 1960s"

Alex's last post on this topic showed the rate of inflation at its highest after 1980.

Wouldn’t Steve Sailer argue that we should look at test scores by race in determining educational output? I thought that he had shown that test scores were rising for all racial groups, but a greater share of students are Hispanic and/or English language learners, so test scores have overall been stagnant. What is the college graduation rate for white millennials? That would seem the best comparison group to track overtime (because they have been here for a long time and didn’t have the impact of lifting of Jim Crow).

true...need to adjust by race to determine the effectiveness of our schools. And the changing demographics is one reason class sizes are smaller. Diverse classrooms are more difficult to manage and disciplining children is more difficult as teachers and principals fear being labeled racist. In addition tracking students by ability is almost gone from most public schools, because it was considered racist.

Good point - special ed budgets have grown and even transportation costs have gotten out of hand. Parents hire advocates and get almost a blank check. No skin in the game so the sky is the limit.

The Legal Fees budget line has also grown.

That seems like a pretty mundane explanation for all the teeth gnashing done over this issue. Can it really be so easy to explain?

Is there an unwillingness and/or inability by ideologues to look at the facts? Or does this analysis miss something?

Alex has forgotten economics. Or been taught bad economics.

If households, or nations, spend on A, B, C, and the spending aka cost, of A and B go down, what happens to C?

If C goes down or even stays the same, household income must go dowm, and GDP must go down.

Economies are zero sum. Incomes can not rise while spending goes down. Incomes can't even stay the same while spending, costs, go down.

Perhaps Alex would explain why GDP and household income should go down.

Also, price is not cost. Price of cell phones has gone down, but that has exploded costs to both households and nations for cell phones.

Tell me, how big was your grandmother's cellphone bill when she was 18? Bigger or smaller than the typical 18 year old kid's cell phone bill today?

The cell phone is counted in the economy as part of postage, telegraph, telephone, long distange, telex. They substitute for travel.

Reagan sold a fiction. Cutting costs will increase incomes, GDP, wealth.

The spending, costs, of building capital, has been cut. Thus capital has become scarce. Ie, the factories in the rural areas are scarce, but housing in urban areas where factories are less scarce is now very scarce. But housing in rural areas is less scarce, but the old housing in excess is less affordable because rural incomes are lower, mostly due to cutting the cost of building capital, aka, maintaining roads, railroads, communication, which has isolated the rural communities from the national economy.

Scarcity of capital, whether roads, rail, telecomm, housing, means prices for them go up. But the quantity goes down, or fails to go up, as prices rise, sometimes rising rapidly.

I grew up when price did not equal cost in economics.

Then after 1980, cost and price became the same, according to economists.

So all of this would be credible if you actually include a breakdown of costs. Saying "this component of the cost rose therefore its the culprit" doesn't sound credible if you don't show what % of the cost that component is.

I'd particularly like to see this for universities, since my back-of-the-envelope estimates make sense for K-12 but not for universities.

A quick google search reveals instruction is apparently 26-32% for 4-year institutions:
https://nces.ed.gov/fastfacts/display.asp?id=75

So if instruction costs rose 50%, total cost would increase about 15%.

Interestingly, "Academic support, student services, and institutional support" is comparable in size to instruction.

Finally a thought provoking post. Kudos for taking into account some of the major critiques of increasing education cost. I suspect it is a combination of factors: public funding lessening as a percentage of funding a tuition bridging the gap, rising health care cost for faculty, rising administration costs and the rise of the administrator, and a few industry specific items. Like a lack of competition in higher education and a carteling of costs in lower Ed.

Can anyone read and ltdr more of the findings? Thanks in advance.

There's a clear case of lack of competition: a significant fraction of scholarships can only be used for on-campus housing. Albeit, college housing is unmentioned in the text.

What do you mean by lack of competition? From what I see, competition is very fierce in higher education as only a handful of schools get to be chosen as prestigious. There is no prestige without scarcity. If by competition you mean options, that wouldn't be true either as every one of the 50 states has both public and private schools.

But higher education is relying more on TAs and adjuncts to teach, neither of whom is paid much. So where's the increasing compensation in higher education? Here are three possibilities: reduced course load, increased celebrity, and generous pensions. Whatever GMU pays Cowen and Tabarrok, or NYU pays Krugman, it's not enough. Of course, higher salaries mean higher pensions, and retired college professors seem to live forever. I attended a public university, both as an undergraduate and in law school. I never paid more than $500 for a full load of classes in a semester. I'm old, but not that old.

Excellent post! I look forward to reading the whole thing; thanks for linking the PDF.
One thing that is not noted in your post, and that has always puzzled me, is that *no one seems to mind* the steady increase in college tuition. Sure, people gripe, but there are no mass protests, no throngs of students waving signs in front of the administration building, and a remarkably inelastic demand for a college degree. I commented on this a few years ago (https://eighteenthelephant.com/2017/03/04/how-i-learned-to-stop-worrying-and-love-tuition-increases-not-really/), and I hope to write more soon, since my University (U of Oregon) is planning a 5-10% tuition increase for next year. (We had a protest last week, but it was about statues of pioneers on campus. Seriously.)
I'm curious if you've thought about this topic of acquiesce to rising educational costs.

Rising tuition coincided with rising tax cuts, tax cuts at the state level as well as the federal level targeted to wealthier individuals. At the federal level, that meant increasing public debt, something not allowed by most states. Thus, at the state level, that meant increasing debt, private debt for such things as college tuition. At the federal level, the ta cuts targeted to wealthier individuals was partially offset by tax increases for the working class. What tax increases? Payroll tax increases. Indeed, payroll tax collections have exceeded entitlement spending by almost $3 trillion, the fictitious social security "trust fund". It's fictitious because there is no fund, the excess payroll tax collections having been spent on everything from farm subsidies to wars in the middle east. It was a scam, similar to the scam transferring debt to fund higher education to individuals. The beauty of the payroll tax scam is that few even today know about the scam, so few that the same scam has been proposed to "save" social security. The higher education scam is harder to hide since the total student debt is over $1.5 trillion. The latest scam, the Trump tax cut targeted to corporations, will add another $2 trillion to $3 trillion to national debt. We are a nation of borrowers, the scam nation, and not very smart borrowers.

+1 for Rayward for telling it the way it is.

Alex is making a point about cost of services. Not price.

Falling state funding and increasing tuition to cover the gap has no bearing on cost to provide the service.

Actually, McKay, you are wrong, but thanks for pointing it out that Alex uses both.

Here is the text of the article, which focuses on, you guessed it, PRICE.

"The data do support the standard narrative. Figure 4 shows the average tuition plus room and board at public and private institutions of higher learning (essentially, two- and four-year colleges) from 1980 to 2015. All prices are corrected for inflation and presented in 2015 dollars. Prices are much lower at public than at private institutions. The vertical scale is a ratio scale, so equal slopes mean equal rates of growth. Thus, although prices are lower at public institutions, the rate of growth in prices has been similar at private and public institutions. Between 1980 and 2015, real prices more than doubled."

Maybe you should read the text that he links to.

Actually, if you follow the link to Alex's post and read his tables, what you will see is that college tuition at public institutions increased dramatically with the decline in public share. Table 6 shows that whereas 50% of public college costs were born by students in 2000, 75% were born by them in 2015. Tuition increase explained.

Wonderful. Subsidies for the rich are the worst kind of subsidies

Those are not subsidies for the rich if they make opportunities available for everyone.

I also suppose you fully endorse needs based scholarships based on your comments. Probably not.

So, what you need to recognize is that in order to get broad based support for some public expenditures you also have to make them available to everyone, rich and poor.

Do we limit medicare, or social security, to just one income class, or is it something that is available to all.

By the way, I would be in favor of raising public tuition and at the same time increasing needs based support, but bet you would not.

And, don't forget, there is an externality from even having you become better educated.

I'm not sure that needs-based scholarships paid for by government are necessary, considering the level of price discrimination in the education market and the value of a (non-terrible) college degree. My worry would be that publicly funded scholarships would simply crowd out scholarships offered by the schools, private parties, etc. I'm not opposed in principle but my inclination is to believe it would be a net negative and giveaway to colleges. If we are losing talented low-income students because of cost then that's worth looking into to but, as usual, I wouldn't jump to throwing government money at it.

It's pretty absurd to approve of college subsidies that go OVERWHELMINGLY to the rich and high income because some crumbs may fall to a poor person here or there. Would you go along with welfare that included a bribe, 10x as large as the benefits to the poor, paid out to the well-heeled?

To make it clear, I am talking about PUBLIC colleges. Private colleges can extract all they want from the Kushner's and spread it around however they wish.

"don't forget, there is an externality from even having you become better educated."

What is that externality exactly? The increased consumer surplus of my customers? I think it's doubtful that college degrees that are not economically viable (returns do not meet investment costs) are socially optimal due to externalities.

Here is a link re educational externalities; the format did not carry over but the content did. Here is the link from the EEC Economic Experts Report: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=11&ved=2ahUKEwjwiMjhtrziAhUGR6wKHRn4DIs4ChAWMAB6BAgDEAI&url=http%3A%2F%2Fwww.eenee.de%2Fdms%2FEENEE%2FAnalytical_Reports%2FEENEE_AR34.pdf&usg=AOvVaw3nJ3JRp2vCN5sb3HCAt6Q2
Benefit type
Private
Social
Market
 Improved employability
 Higher earnings
 Less unemployment
 Greater mobility
 Higher net tax revenue
 Less reliance on government
financial support

Non-market
 Greater consumer efficiency
 Better personal and family
health
 Better health and skills of
children
 Reduced crime
 Less spread of infectious
diseases
 Better social cohesion
 Increased voter participation

Most of those are benefits that accrue almost entirely to the person receiving the education, others fall into the dubious category of reducing the cost of a bloated welfare state, and finally some are arguably negative externalities like more voting. Indeed, Milton Friedman switched his position later in life and suggested that perhaps higher education should be taxed rather than subsidized.

Anon, I can understand why you need more ignorant voters.

And, Anonymous, you can add another externality from increasing education to your list: reduced immigration.

Don the Con wants to import more foreign nationals by opening up immigration to educated furiners. If we made more, we would have to open our borders. Where is Steve Sailer when you need him.

Also, Anonymous, you might want to read this Brookings study which discredits the claim that subsidies to public education skew and benefit the rich: https://www.brookings.edu/research/do-state-subsidies-for-public-universities-favor-the-affluent/ Just because you "believe" something doesn't make it true.

Thanks for excellent and concise analysis. I am wondering why Alex doesn't bring up the problem we see in health care: third party payers. I thought the explosion of grants and loans made the student/parent customers less price sensitive. And then there is also the fact that very few students seem to do the ROI calculation on their MFA degree from a second-rate institution. Keep up the good work.

And then there is also the fact that very few students seem to do the ROI calculation on their MFA degree from a second-rate institution.

So how is that calculated, exactly? The idea of a liberal arts education is that it will make one a better human being. Isn't there some likelihood that such an education would make a graduate better at almost any walk of life and thus more highly compensated, since that is the aim of all normal Americans, the most total lifetime compensation? Maybe that MFA degree won't train a student for a particular business niche but in a fluid commercial environment is a specific job description a wise goal?

What is a second-rate institution? Apparently the student is considered an empty beaker, to ideally be filled with the golden mead of Harvard Univ. or, sadly, the flat, stale lager of New Mexico State. Ergo, the prospective employers and you, yourself, consider all students from second-rate institutions to be of a similar stripe, losers. It wouldn't seem to matter if these schools were right down the street from their home, if they were legacy addmittances of a kind, friends or relatives of a professor, interested in a unique program, or any other idiosyncratic reason.

Also, I think what is interesting about the charts above, comparing administrative costs, and plant costs, as a percentage of total costs is that both should be looked at as fixed costs, which then should be DECLINING as a percentage of total costs.

Why are admin and plant costs viewed as variable costs? Certainly, there is some variable component to them, but they should be largely fixed and declining as a percent of total revenue as revenue increases.

If you wanted to be analytic about fixed and variable costs, you would regress output against certain categories of costs to see fixed and variable. I would regress it over time to identify periods where output increased and plant and admin stayed fixed, and then identify differences in periods where the change occurred.

What could be an explanation of admin is costs of administering grants relative to research output, and aging tenured faculty. As for the latter, a friend, a tenured academic turning 50, explained to me that the reason he became more of an administer is that "research is hard work", and you have to make a choice at around 50 of continuing to be a researcher or becoming an administrator or assume more administrative duties which give you a title and less teaching time.

I would also question the composition of how "research" costs are counted. Research grants often include administrative overhead. So, if research costs include administration, and if administration is also a separate category, you may be masking the total amount of administrative costs by including part of them in the research category. Decompose "research" into its elements.

Yes.

I don't see why paying teachers more causes a rise in administrative costs, which must have happened if the administrative share is steady.

What available metrics tell us with any confidence that American teachers can actually teach?

Shaw's quip "those who can do, those who can't, teach" might be another of those pieces of venerable wisdom meriting revision (or mere addition) in our 21st century.

A large impediment in public schools is the elimination of tracking. This is one reason why class sizes are smaller today, because they it is harder to segregate the children by ability. I attended a below average Middle school, but was fortunate to get tracked into the top Math , science and English classes in 7th grade (which was the year they began tracking at my school). The difference win teaching quality was dramatic, although we had the same teachers. The teachers were able to teach more, cover more material and and there were less disruptions in the higher tracked classes.

my uncle taught at the local High School from 1975 - 2015. Back in 1980 it was still rated one of the top school in our state. By 2010 it was rated a struggling school, among the bottom 10% of schools in the state. The teaching staff did not change dramatically from 1990 - 2015, yet the results dropped drastically due to changing demographics of the town. In 990 the town was still 99% white. By 2015 the student body was 50% white, 50% Black. In 1980 60% of the students went on to college. Today less than 50% go on to college. People want to blame the teachers, but results are highly dependent on student demographics.

geeez -- production 'costs' do NOT determine prices in a market.

the various costs & inputs to the Education Market are irrelevant in themselves.

Supply & Demand determine market prices.

DEMAND for "education" skyrocketed due to massive artificial government fiscal inputs into that market.

The education establishment (supply) eagerly exploited this government-fed bonanza with extortion level prices, explosive growth, and lower quality of services. Duh!

Rogerte, it is not an artificial increase in demand if the electorate wants to support their children, and all children, having the opportunity to have a college education.

Is it an artificial increase in demand if government supports grade school education for all children?

If you have problem with public preferences, that's fine. Just say so.

The real issue is efficiency, once those preferences have been defined.

"Is it an artificial increase in demand if government supports grade school education for all children?"

Obviously, yes. Are you arguing no?

"all children, having the opportunity to have a college education."

Paying for all adult children to have a college education, regardless of merit or economic justification?

You inserted the words "regardless of merit" to create a straw man. Colleges, unless maybe the one you attended, do not admit persons who fail to meet academic standards. But, if you insist, I would gladly have a minimum academic standard for the institution (you'll have to talk to Betsy de Voss about this for private and online colleges) as well as an academic admission standard for admission to PUBLIC colleges...but, wait, they do have those standards for admission to Public Colleges...Nevermind.

I wish that were true, but when you get below the elite schools, they most certainly do admit unqualified students. My daughter, who attended the University of Wisconsin, usually considered a top 30 school and one of the top 10 state schools, was an English tutor as a senior and said that some sophomores literally could not write an English sentence. And that was their first and only language.

Name the schools and look at their cutoff SAT scores.

Your daughter was dealing with a subset of the student population given that her job was to be a tutor for those who were having difficulty. The subset is not the set.

Or, she could have been tutoring engineers.

Interesting that the rate of increase was fastest in the 50s and 60s. At elementary and secondary level of education that spending would have been controlled by local school boards. What caused them to increase spending? Was there a change in the workforce?

Steve

This is when the baby boomers were in K12 education. One possibility is that schools staffed up to accommodate the larger population of students then and then never staffed down to provide a similar ration to the smaller gen-x cohort

The 50s, and even more so the 60s, were when the social programs such as LBJ's "Great Society" were launched. In order to staff these bureaucratic behemoths colleges enthusiastically created social work programs that couldn't lead to a place in the private sector. Majors in social work, psychology, criminology, etc., useful only in government service became de rigueur for high school grads that couldn't make it in STEM fields, weren't crazy about education, and liked the idea of an eventual government pension. Naturally, once in place, these empires persisted and shall continue to do so until the next continental glaciation.

If additional teachers don't increase production, but only cost, the answer is fewer teachers.

Same post from before:

The Baumol sectors aren't really optional. You need a place to live. You need an education to get a credential to have a career. You need necessary healthcare to live.

As other goods got cheaper there was more money slushing around that could have gone somewhere. Back in the day economist kept thinking it would go towards...a 6 hour day...a 4 hour day...a 3 day week...early retirement. Instead, it went into goods people don't really have an option to forego (and other purely positional goods). Despite all the extra resources, these sectors haven't really turned out a fundamentally better product. A lot of the extra money seems to go into various kinds of inefficiency, waste, or superfluous benefits.

In a world where these sectors didn't soak up the extra money people might work less, or have a spouse stay home with the kids, or retire earlier, or just generally have more financial security.

We can't really churn out too many more "high skill" people. Throwing 40% of the population into college was that attempt but most of the marginal additions simply flunked out.

They didn't. North of 40% of each cohort obtain a baccalaureate degree (v. 25% in 1970).

Important data is missing here: the average number of years at school and the number of years at school to attain the same educational level. In every countries, it has been decided to slow down school teaching to keep young people at school as long as possible.

Acceptable work for a majority of women in the 50s through the 70s and into the 80s included nursing, teaching, and admin. As women gained more options for work, it reduced supply in those professions. Not sure this explains rising costs in higher ed, but probably part of healthcare and lower ed.

Please explain why staff salaries at business schools collectively exceed faculty salaries.

Do small classes with differentiated topics contribute to cost inflation? It costs more to teach small sections of Critical Intersectional Deconstructionism or Financial Econometrics than plain old English and Statistics.

How does the 'higher teacher salaries' interpretation jibe with the oft-reported fact that a high % of classes are now being taught by starvation-wage adjuncts?

"In 1950 the U.S. spent $2,311 per elementary and secondary public school student compared with $12,673 in 2013, over five times more (both figures in $2015)" is wrong. $12,673 is over five times as much as $2,311 or just over four times more. Saying $2,311 is over five times less than $12,673 would be even dumber.

At the college level we are graduating a bigger proportion of each cohort. There has been a proliferation of remedial and support services not to mention much much more micromanagement of teaching from above and from outside the institution.

Per the chart, 4.5 staff per hundred to 13 staff per hundred. That looks like bloat.

>> How does the 'higher teacher salaries' interpretation jibe with the oft-reported fact that a high % of classes are now being taught by starvation-wage adjuncts?<> Did you look into the impact of greater special education spending on lower level education?<<

Yes, this is likely a massive source. A family friend teaches in CALI and says that many students have "shadow interpreters." Some are for deaf children, or other special needs. But increasingly she is seeing it for children that can't speak english. Many are surprised to learn that CA has classrooms where only 4% speak English. This is an enormous drain on the system. Our schools can't teach a upper middle class white kid math....do we really think they can teach someone with even more obstacles to overcome math?

I suspect more and more of the money is going to help the bottom 50%.

"Many are surprised to learn that CA has classrooms where only 4% speak English. This is an enormous drain on the system."

But is concentrating non-english speaking students in one class for a few years, one class out of five, ten, to ramp up their english learning so they join the rest of the english speakers, a bad policy?

This has been debated for at least a century in the US. At no time has non-english speakers not been a big issue. The only thing that has changed is the languages. Then, German, Yiddish, French, Chinese, .... Today, the issue seems to be mostly Spanish. The diversity in languages in communities of refugees is little different than in the past.

Spanish was less of an issue when I was a kid because we understood a third of the US was formerly Mexican, and people had always flowed back and forth across todays borders forever. They were customs checkpoints to collect duties on goods, not to stop people crossing. In the Northeast, French was common, eg Quebec.

But when I was a kid, the debate was over the lack of diversity of languages! Outrageous that kids were no longer fluent in Latin. Why aren't they speaking German, French, Russian? The easy language was Spanish because so many grew up speaking at least some Spanish. That was the 50s and 60s.

Alex and Tyler have expressed skepticism about Baumol's cost disease model, but this whole post sounds like a case study that supports Baumol.

"It is no more expensive to teach new theories than old."

How do the teachers learn the new theories? To be an expert who is up to date in any field requires more education and training now than it did 20 years ago, or 50 or 100 years. And that education and training is costly.

Alex's statement is implicitly assuming that teachers magically appear fully informed. No; those teachers have to become educated, a more costly process now than it was before.

What in the world are you jabbering about? Shouldn't teachers be expected to be at least a kind of expert on their particular subject matter? Shouldn't it be their personal responsibility to maintain their knowledge of advances or changes in that subject? Would this necessarily require more costly education and training?

It takes years of study to be competent to teach at the college level. That is extremely costly education and training, there are only a few professions that are as high or higher.

How do the teachers learn the new theories?

If one is already a teacher, that competency should already exist. Any new theories will come from people already familiar with the subject, often academics. If new theories come from those who are not members of the academic community, what does that say about those who are?

And again, like Alex, you're assuming that this new knowledge somehow magically costlessly enters the brains of the teachers. It takes time and work.

For an 18-year old graduating from high school, it'll take years of intensive study before they can teach say how machine learning might be applied to causal models.

If someone's already got a PhD in a related field, they can learn that stuff much more quickly and easily -- but only because they, like that 18-year old, have gone through the years of intense study already.

TANSTAAFL. Knowledge isn't acquired freely and costlessly.

Your original statement, remember? If not, it's posted directly above: How do the teachers learn the new theories? Ergo, you're talking about someone that is already a teacher.

Actually, I have to apologize for not realizing that you were basing the increasing expense of instruction on the labor theory of value. Evidently Marxist thinking hasn't quite disappeared in the West.

Maybe there are other issues as well like the cost of textbooks. When I went to college I could afford textbooks. Not any more.

From wikipedia:

Since then, more than one million copies have been sold, and Mankiw has received an estimated $42 million in royalties from the book, which is priced at $280 per copy.[30]

I priced one of Tyler Cowen's textbooks because I wanted to read it. Over $100. Forget it.

Talk about taking advantage of the students who have no choice but to buy the book.

I continue to find it odd that economists look at trends in health, education, and other population services yet take no account of the change in population.

For instance, children of single parents, divorced parents, or cohabiting unmarried parents are, ceteris parabis, more likely to have to repeat grades in school (almost double according to some studies). Single mothers have children who score significantly lower on scholastic tests. Some of these effects persist in step-families.

These impacts may be due to income, they may be due to parental investment. Nonetheless many students today from the bottom half of the SES spectrum are decidedly handicapped compared similar cohorts decades ago.

Worse, we have destroyed much of the natural "neighborhood" effects so kids have ever fewer adults invested their lives. And of course, I would argue that makers of entertaining distraction are more efficient at their craft than those of previous years. Likewise, religious praxis is positively correlated with academic achievement, so a more secular country should expect to see drops in academic performance at the high school level.

Teachers in the bottom half of schools have far fewer non-monetary inputs (parental time, pupil quality, community authority backing, etc.)

Maybe the internet is just teaching kids today ... which would suggest that there has been significant increases in productivity and such are frankly possible within education.

This just seems like highly faulty analysis that we would rarely accept in other contexts. Yet we see it all the time here.

"religious praxis is positively correlated with academic achievement"
False. Blacks and Hispanics are more religious than Whites and Asians but perform worse academically.

False.

Irreligious Blacks do worse than religious Blacks.
Irreligious Hispanics do worse than religious Hispanics.

In a nutshell, if whatever your kid's melanin concentration; they will be more likely to do better educationally by being religious.

The fact that genetics/racism/SES/family/whatever might be leading to racial differences that also correlate with religion is unlikely to be of merit when within populations show the same effect. You are basically just rehashing a Simpson's paradox.

That's because religion imposes discipline, structure, and adult authority. It's not divine intervention, and there are other ways to achieve this (let's try some).

Sounds like experimenting on kids. We know religion "works", we have far less reliable data about anything else. Certainly as we have grown more secular we have not found a generally applicable "other way" over several decades.

State and national bureaucracy has increased costs. My state requires an ESL teacher if a school has over 25 children who don’t speak English.

There are now departments for Diversity, Climate Change, etc. those aren’t cheap. There are procedures to follow.

It was required either by my state or the Feds a few years ago that football fields must now be AstroTurf. No more grass. That wasn’t cheap to switch over.

As I said above, also add a column for Legal Expenses.

Computers for all students.

Technology isn’t cheap. Print out your homework or your schoolbook at home IF a school actually gives homework? What if you can’t afford a printer and paper?

More social workers.

The US Government is too involved in the money flow. Put the risk back where it belongs, on the student and the banks.

I want to work. Do I really need some of those required classes?

I am surprised that "plants" isn't a rising share.

Some easily-observed things lawyers have gifted the elementary school across the street from me, just since circa 2005: klieg lights everywhere (neighbors complained: liability - sometimes teachers might visit campus at night - we were told); a nice rubbery sort of carpeted artificial surface for the playground; a new, separate, age-appropriate playground for the under-five crowd (lawyers having mandated that in addition to everything else they must do, school districts must offer services to special-needs children starting at age three, so the district decided to go whole hog and enter the daycare business, and that was housed at the school across the street for some years); disabled ramps/decks for the surplus portable classrooms of any given year, that by easy arrangement of classroom assignment the one or two wheelchair-bound kids needed never enter, and which in the years I was on scene I never saw them do, and which were usually torn down within a short time as portables were moved/changed [they have finally gotten some spiffy new doublewides, er, "learning labs," with bathrooms, nice ramps and porches, hopefully permanent, which are so more attractive than the shabby 70s-era building, that the "portables" are no longer considered "second class," although some kids liked being in the old ones as a trip to the bathroom in the building could be turned into a rambling morning constitutional]; fencing all around the perimeter and mysteriously within school grounds as well (possibly because for awhile, the aged-out 18-21 year-old kids that other lawyers at some point decided the school district needed to continue to care for, were awkwardly housed on the elementary campus, and moms, otherwise so compassionate-seeming, were spooked by these lumbering Lennies, liability, &etc.); electronic access at gates and also the school doors (the code not being shared with the kids, a teacher or paraprofessional had to accompany when a child at recess needed the facilities); a "raptor" system for all non-staff adults, that background-checks, and prints a photo ID badge at every entry; a lightning siren system that was most appreciated by a cat we had, who believed in safety first and would head inside whenever she heard it, and which now goes off every day at exactly 4:30 PM.

Because of our state's complicated M&O tax "funding equalization" scheme, the district has also gotten creative with what falls under "facilities." Thus, high school band instruments and uniforms, which once would have been purchased outright (and although parents still pay a substantial band participation fee, which presumably *actually* pays for them), are now debt-funded capital improvements, so as to avoid "recapture."

Plus, for some reason they replace the air-conditioning system every 2-year bond cycle ...

I will say, the board/administration seems to be immune to building schemes of the more visionary or aesthetic variety. They certainly can't be accused of wishing facilities and grounds to be of an inspiriting nature, I guess because lawyers are silent on that subject.

I have a theory.
Dealing with mobs of kids in classes has gotten much more complex and teachers need premium skills, mostly due to lack of parents. This extends to college when snow flakes need protected environments for longer. Parents have been depreciated in society for some time, driven out of the decision processes.

So True. It is much more difficult to teach a diverse classroom , and principals are afraid to discipline kids because they will be accused of racism. So they need to keep the classrooms smaller in order to effectively teach today. Students no longer fear their parents will reprimand them for misbehaving in school , and suspensions are rare. Also schools can no longer track students by ability because racism.

When My uncle was teaching in the 70s he told me that when he caught a student smoking pot he told the student he had a choice of punishments. Did he want to get hit with his belt or should he tell his parents. The student was usually more afraid his parents, thus took the whipping. But by the 80s students knew that teachers could not hit them. Although my cousin was whipped by a teacher in 1982 when he was 12 in Juiner high. My aunt complained, but nothing happened, probably because the teacher was a Black guy and my cousin deserved it anyway.

I cannot understand why you would make this assumption of equivalent outputs, rather than the much firmer assumption of significant improvement that is somehow less than in other sectors.

I’ll also accept that there is some decent motivation explained in further reading, but it seems absurd on its face. Specifically, I think this is clearly false: if someone had to go to school in the 50s, it would basically be even odds on whether they’d be better off today.’ Yet I cannot see how it isn’t implied by the assumption of static productivity.

I did a deep dive on college/university expenditure statistics from NCES a couple years ago. I see the same basic fact - the large majority of growth in college expenditures is driven by increasing faculty/student ratio.
I also go one step further, and argue that it's probably due to shrinking average class sizes. It's hard to get large-scale data on class sizes, but two useful data points: first, a study by the bar association found class sizes for law schools shrinking at roughly the rate needed to explain expense growth. Second, looking at the number of courses listed in Berkeley's course catalogue each year shows the number of classes growing at roughly the pace needed to explain expense growth, assuming students take roughly the same number of classes.
Whole thing (including the references) is here: http://seekingquestions.blogspot.com/2017/03/accounting-for-college-costs.html

Alex, you don't just rock. You Tabarrok!

Alex,

I fear I seriously doubt the basic premise and supposed facts of this post. I have been following this for some time and seen lots of sources, all of which argue that for higher ed in the US it is bloat. Numbers of administrators and staff have grown more rapidly than either faculty or students, with admin pay rising faster than the others. Typical study has admin and staff ratio to faculty doubling between 87 and 12. See https://www.necir.org/2014/03/new-analysis-shows-problematic-boom-higher-ed-administrators , with plenty more sources supporting this. For your crucial Figure 8 you provide "NCES" as your source, no dates, no nothing, who is this? Frankly, I think this whole post is wrong.

Hi Alex,

The admin share should be falling, right? It should be falling because as university enrollment grows the admin should have achieved economies of scale. This should have been true even without the the digital revolution, but it should have been amplified by the digital revolution, especially in the 1990s/00s.

IMO the fact that admin share is the same *is* the bloat. It's hiding in plain sight.

Plotting all the data available at EDGAR, SG&A % of revenue for Exxon-Mobile change at -0.13% of revenue per year from 1991-2018 (6.85% to 4.11%), or an average annual change of -1.87% (compared to itself).

So at that rate you're initial 16% share for admin should be about 4.5% today! :) OK, well, maybe universities aren't growing as fast as XOM. But their administrations should still be achieving some economy of scale and thus be a declining share of costs

So you're

Your graph on teachers per 100 students is....unbelievable?? What's the catch? How many "teachers" have a single special ed student?

Here in WA the class size question has been a constant issue because voters approved a big chunk of cash to reduce class sizes - after years and years of trying - but the legislature used the money for other things.

The period in question has a massive movement of people from small towns to cities which should imply more students per class.

"It is much cheaper today, for example, to equip a classroom with a computer than it was in the past"
I don't agree. Look at that:
https://www.washingtonpost.com/local/virginia-politics/northam-mum-about-his-plans-after-a-flood-of-calls-for-his-resignation-for-racist-and-offensive-photo/2019/02/02/5883402a-26e9-11e9-90cd-dedb0c92dc17_story.html

The proper statistic is not teachers' salaries; it is cost per student. You ignore funding by government. Any government monopoly works for its own self-interest. How did you measure competition? Keep throwing taxpayer money at a group of greedy people and they will consume more and more. That includes building that are hardly used and higher tuition despite declining enrollments. And golden parachute pensions. Are you blind? Public education is a cesspool run by a labor cartel.

Some data:
In 2015–16, total expenses per full-time-equivalent (FTE) student were higher at private nonprofit 4-year postsecondary institutions ($56,401) than at public 4-year institutions ($44,009) and private for-profit 4-year institutions ($16,208).

Also if the data that I've seen is correct, Florida is in the bottom 10 states for both per student state spending and in tuition that they charge. So the other states could spend less than they do.

BTW your research is really bad news as it implies that there is not and easy solution.

"..we are paying teachers (and faculty) more in real terms and we have hired more of them." Who is 'we' and why did 'we' do this? That's the unanswered question here.

One obvious problem is the inflation measurement.
Standard measures of inflation look at the market prices of a basket of products. Unfortunately, education (like healthcare) is not amenable to the benefits of automation that have so reduced the quantity of labor required to produce these comparator products. Of course the cost of labor looks like it's been skyrocketing in education when compared to food staples and manufactured goods.

The "Figure 10" graph shows the number of teachers, staff, and administrators per 100 students has steadily increased since 1950. Would that not account for the increased cost of K-12 education. Bloat is likely more responsible for increased cost of university education. Another factor is third party payment system which is what student loan essentially are. College tuition and fees are adjusted to whatever student loans will cover, which was around $300-350 per credit in 2007 (I don't what it is today). Student loans play the same role as insurance does in health care. As long as all of the parties are able to enrich themselves, there is no incentive to offer cost-effective service.

Both education and medicine are examples of what I call the inverse version of Moore's Law (of semiconductors).

I wonder why you aren't addressing the obvious objection that the increases in teachers and doctors per capita may well not be justified.

How much of this is the 1950 - 1970 teacher salaries was sex discrimination in most private companies? (And there would be some lagging lower salaries until 1990.)

https://www.theatlantic.com/education/archive/2016/09/americas-college-diversity-officers/499022/

https://www.intellectualtakeout.org/article/diversity-staff-university-michigan-nearly-100-full-time-employees

"According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions.

Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase."

This isn't bloat, because the pie just got a whole lot bigger?

Teaching in the United States was once considered a career for men. In 1975 there were still more Male high school teachers than women teachers. By 2015 the percentage of male high school teachers had dropped from 58% in 1970 to 42% today.

Teachers salaries have not kept up with inflation since 1970, which is surprising as women today have more career options, yet women dominate the teaching profession more today than in 1970, when they supposedly has less career choices. But women were actually discriminated against in the teaching profession also. Often female teachers were expected to resign when they got married and they were certainly pushed-out when they got pregnant. My Grandparents were both High school teachers. My grandmother was encouraged to resign when she got married in 1940. my grandfather did not want her working anyway, and prohibited her from working. Would have been hard to work with 6 children anyway. I still have the yearbooks from when my grandfather taught High school. in 1940 80% of the teachers were men at his school. He quit teaching and became an officer in the army in 1941 when he was 29 years old.

Curious to see what Alex would think of this essay:
https://www.conradbastable.com/essays/the-uncharity-of-college-the-big-business-nobody-understands

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