Field of Science

Supply and demand doesn't work for universities?

Seems to me Madhusudan is onto something here:
Let me get this straight: we have MORE students enrolling in college, competing to get into overfull classes taught by FEWER faculty every year, and TOO MANY PhDs who would love to have those faculty jobs that are clearly needed to teach all the new students! Does that sound about right? How does this make any kind of economic sense even with a supply-and-demand analysis? Seems to me that the demand is there, as is the supply, yet they aren't exactly meeting up! WTF is that about?!
I can't explain why capitalism is not working in this case. But then, my PhD isn't in economics...


  1. That *is* weird...where are all those tuition funds going, exactly?

  2. Well, just looking at it from a cursory perspective, the availability qualified professors is only one component of what goes into the "college education" supply curve. There's building maintenance costs and taxes, huge administrative costs associated with on-campus housing (how do you keep thousands of 20-year-olds from destroying themselves and everything around them?), supporting food plans, blah blah blah.

    I don't know anything about actually running a college, but I know that universities claim to be running out of money. So why is that? As yokohamamama asks, "where all those tuition funds going, exactly?" Or perhaps more specifically, what changed the equation? We know there have always been lots and lots of expenses beyond just paying the profs, but what has shifted the balance? A decline in alumni funds? Some component of the budget that has become massively inflated?

    I'm tempted to say, "Cut out the middle man," but you can't have professors just arbitrarily teaching classes, because now you have an accreditedation issue. One might argue that this points to more online colleges (you still have a middle man, but you eliminate a lot of the other costs) but of course those have many of their own problems...

    I googled a bit and I couldn't find anything about the reason for the rising costs. So I dunno.

  3. So I did a bit more Googling, and here's what I found, that made sense to me (in no particular order).

    Less state aid -- No surprise here. State aid softens the supply curve. Less state aid means a sharper supply curve, regardless of how many qualified professors are available and regardless of how cheaply they are willing to work.

    Arms race in capital spending -- A lot of colleges have been pouring money into shiny new buildings and such in an attempt to attract the best students away from their counterparts who also are pouring money into shiny new buildings. It occurs to me that my alma mater has been engaging in this... well, pretty much ever since I left. It's actually pretty sweet over there now. But that's gotta cost money...

    Bigger class sizes might actually raise costs -- This appears to be a minor factor, but I mention it because it's interesting. University X is faced with rising costs for whatever reason, so they increase class sizes. This makes the professors' jobs harder, the best professors leave, the best students leave, and the college actually loses money in the long run, if they increase the class size too much. Interesting.

    More qualified potential students -- I sorta suspected this... but a lot more high school grads want to and are qualified to go on to college. This reduces the amount of state aid to go around.. I could see it even creating a baby boomer social security-like effect, where suddenly the contributing-alumni-to-new-student ratio has gotten dangerously low. I dunno.

    Anyway, all of those things could explain why you'd have trouble hooking up all those desperate students with all those desperate professors.

  4. So status-seeking throws a spanner into the workings of simple supply and demand.

    Has the number of students going on to university steadily risen? That *would* make a difference, since, as you note, alumni contributions make up for what state aid doesn't cover. And even though the boomer generation was bigger, their kids are attending university in (I think) much greater numbers than the boomers themselves did (because they have to). That *would* create an upside down pyramid--good comparison to SS!

    It occurs to me that possibly what's happened (in addition) was mis-investment by universities in physical plant rather than professors as student numbers rose, perhaps thinking "hey--look at all this money pouring in from all these students! Now's the time to build shiny new buildings and upgrade!", and they did so by not hiring staff and allowing class sizes to increase. Whereupon all the best students said "I'm not going to those assembly line classes!", and left, and ditto the best professors who refused to teach assembly line classes... and everything spiraled down from there...

    Thanks for a great analysis, Mr. Sweet!


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