So according to this article a large factor in rising tuition costs in American universities is attributable to increases in administration and overhead costs. For example,
Over the past four decades, though, the number of full-time professors or “full-time equivalents”—that is, slots filled by two or more part-time faculty members whose combined hours equal those of a full-timer—increased slightly more than 50 percent. That percentage is comparable to the growth in student enrollments during the same time period. But the number of administrators and administrative staffers employed by those schools increased by an astonishing 85 percent and 240 percent, respectively.
Certainly some of these increases are attributable to the need for more staff supporting new technological infrastructure such as network/computer administration but those needs don’t explain the magnitude of the increases seen.
The author also highlights examples of excess and waste in administrative spending such as large pay hikes for top administrators in the face of budget cuts and the creation of pointless committees. How much these incidents contribute to the cost of tuition is somewhat questionable as the evidence is essentially a large list of anecdotes.
Anyway, this was surprising to me because I would naively predict that, if we were talking about almost any other product, we would begin to see less bureaucratically bloated competitors offering it for cheaper and driving the price down. What’s unique about university that stops this from happening?
Possible explanations (based on an extremely basic understanding of economics, please correct),
The author notes that the boards of trustees tend to be ill-prepared for making the kinds of decisions that might lead to a trimming of the fat. However, for this to be the reason (or at least a large part of the reason) boards would have to be almost universally incompetent else the few universities that take such action would have a market advantage over those that don’t.
Maybe, for whatever reason, its difficult for universities to grow past a certain point. If the market is already saturated with demand and universities are unable to expand in accommodation then they have no incentive to lower tuition. However, you would still expect lots of new universities to pop up as a result of this (which may or may not be the case as I couldn’t find good statistics for this).
The situation we find ourselves in appears to fit well with the signaling model of education. That is, college isn’t about learning, it’s about signaling your worth to potential employers via an expensive piece of paper. If this were the case it would be hard for a new or non-prestigious institution to break into the market or increase their market share even if the actual education was of high quality and inexpensive relative to competitors. In fact, under this model, more expensive schools may be preferred simply because they signal a higher level of prestige.
Maybe I have been fooled by a misleading article that overblows the level of waste and inefficiency in American universities and that it would actually be quite difficult to run a modern educational institution without a comparable level of bureaucratic expenditure. There are parts of the article that do strike me as hyperbolic, but I’ve yet to come across a coherent argument that contends the current tuition levels are necessary and several that posit the opposite.
Also, worth considering is the idea that increased administration is needed to deal with new regulations and/or norms. For example many schools have added positions dealing with diversity, sexual assault, and disability accommodations.
It seems very unlikely to me that this could account for more than a very small fraction of the budget. Surely these administrators are neither many in number, nor extravagantly paid?
I don’t have exact numbers, but the reason I made this suggestion is that I noticed my college has a a large number of these people relative to our size. Also, that was just going by people’s job titles, its possible that several administrative departs that have other reasons for existing but that intersect with heavily regulated areas have added more staff to cope. Furthermore, I got the impression that they were fairly well compensated. I doubt they’re a huge chunk of the total budget, but I think its possible that they account for a decent amount of the increase in the size of the administration.
Anyway, this was surprising to me because I would naively predict that, if we were talking about almost any other product, we would begin to see less bureaucratically bloated competitors offering it for cheaper and driving the price down. What’s unique about university that stops this from happening?
A lot of the spending/waste is on prestige projects like new buildings, rather than on administrators.
If you’re wondering why nobody is challenging the top schools, I have three responses:
1) It would require too high an initial investment.
2) It would require attracting top students, which is more difficult given scholarships and lack of reputation.
3) This college is trying to do so.
I think combining your 2 and 3 with the observation that demand is not particularly sensitive to price (citation needed) provides a strong argument for why administrators would not be incentivized to cut costs.
Part of the reason the market can tolerate an increase in price is the same as the reason health care does likewise. The consumer is paying with someone elses money in many or most cases, and no one is looking closely at an itemized recipt/menu.
There are some new universities that aries and grow, especially technical colleges, things like U of Phoenix, etc., but it almost by definition they will be low status (signaling) and there are acrediting hurdles and other regulation that helps exiting universities function as a cartel.
So according to this article a large factor in rising tuition costs in American universities is attributable to increases in administration and overhead costs. For example,
Certainly some of these increases are attributable to the need for more staff supporting new technological infrastructure such as network/computer administration but those needs don’t explain the magnitude of the increases seen.
The author also highlights examples of excess and waste in administrative spending such as large pay hikes for top administrators in the face of budget cuts and the creation of pointless committees. How much these incidents contribute to the cost of tuition is somewhat questionable as the evidence is essentially a large list of anecdotes.
Anyway, this was surprising to me because I would naively predict that, if we were talking about almost any other product, we would begin to see less bureaucratically bloated competitors offering it for cheaper and driving the price down. What’s unique about university that stops this from happening?
Possible explanations (based on an extremely basic understanding of economics, please correct),
The author notes that the boards of trustees tend to be ill-prepared for making the kinds of decisions that might lead to a trimming of the fat. However, for this to be the reason (or at least a large part of the reason) boards would have to be almost universally incompetent else the few universities that take such action would have a market advantage over those that don’t.
Maybe, for whatever reason, its difficult for universities to grow past a certain point. If the market is already saturated with demand and universities are unable to expand in accommodation then they have no incentive to lower tuition. However, you would still expect lots of new universities to pop up as a result of this (which may or may not be the case as I couldn’t find good statistics for this).
The situation we find ourselves in appears to fit well with the signaling model of education. That is, college isn’t about learning, it’s about signaling your worth to potential employers via an expensive piece of paper. If this were the case it would be hard for a new or non-prestigious institution to break into the market or increase their market share even if the actual education was of high quality and inexpensive relative to competitors. In fact, under this model, more expensive schools may be preferred simply because they signal a higher level of prestige.
Maybe I have been fooled by a misleading article that overblows the level of waste and inefficiency in American universities and that it would actually be quite difficult to run a modern educational institution without a comparable level of bureaucratic expenditure. There are parts of the article that do strike me as hyperbolic, but I’ve yet to come across a coherent argument that contends the current tuition levels are necessary and several that posit the opposite.
Also, worth considering is the idea that increased administration is needed to deal with new regulations and/or norms. For example many schools have added positions dealing with diversity, sexual assault, and disability accommodations.
It seems very unlikely to me that this could account for more than a very small fraction of the budget. Surely these administrators are neither many in number, nor extravagantly paid?
I don’t have exact numbers, but the reason I made this suggestion is that I noticed my college has a a large number of these people relative to our size. Also, that was just going by people’s job titles, its possible that several administrative departs that have other reasons for existing but that intersect with heavily regulated areas have added more staff to cope. Furthermore, I got the impression that they were fairly well compensated. I doubt they’re a huge chunk of the total budget, but I think its possible that they account for a decent amount of the increase in the size of the administration.
We do see competition.
ETA: Two additional points:
A lot of the spending/waste is on prestige projects like new buildings, rather than on administrators.
If you’re wondering why nobody is challenging the top schools, I have three responses:
1) It would require too high an initial investment. 2) It would require attracting top students, which is more difficult given scholarships and lack of reputation. 3) This college is trying to do so.
I think combining your 2 and 3 with the observation that demand is not particularly sensitive to price (citation needed) provides a strong argument for why administrators would not be incentivized to cut costs.
Part of the reason the market can tolerate an increase in price is the same as the reason health care does likewise. The consumer is paying with someone elses money in many or most cases, and no one is looking closely at an itemized recipt/menu.
There are some new universities that aries and grow, especially technical colleges, things like U of Phoenix, etc., but it almost by definition they will be low status (signaling) and there are acrediting hurdles and other regulation that helps exiting universities function as a cartel.