Monday, October 8, 2012

Tuitions & Baumol's Cost Disease

Why cheaper computers lead to higher tuition

Steven Pearlstein of the Washington Post, writing about a new book by William Baumol

. . . .In the goods sector, new machinery and production techniques have made it possible to produce each bushel of wheat, car, computer and suit with many fewer hours of labor. Because of these huge gains in productivity, the inflation-adjusted price of goods falls, leading to increases in consumption and production. The number of farmers and blue-collar workers declines, even as their wages go up to reflect some of the productivity gains.
Meanwhile, it still takes as many teachers and nurses and police officers and accountants to provide the economy with services as it always did — that’s Baumol’s disease. Despite no gains in productivity, however, the pay of these service workers rises — after all, if it didn’t, over time all those service workers would be lured to the higher-paying goods sector. Moreover, demand for services rises because all those farmers and factory workers want to use their increased income to buy more services. In response to the increased demand and the higher pay, service companies raise their prices. . . .
Not only should we not be surprised, argues Baumol, but we shouldn’t be that concerned. Given the large productivity gains in the goods producing sector, he says, we cannot only afford the higher prices for things such as health care and education, but still have plenty of money left over to pay for more food, more cars, bigger houses, more clothes and more home appliances. The idea that we can’t afford medical care or higher education, he argues, is just an “illusion” reflecting some fixed notion of what percent of our income should be devoted to such activities.
This doesn’t mean that there aren’t things we can and should do to bring down the price of medical care or of a college education. . . .
And as the melodrama at the University of Virginia revealed, the higher-education establishment is finally beginning to address the challenge of using technology and new teaching strategies to lower costs, increase the number of students and improve learning outcomes.
Hmm. . .it always comes back to that, doesn't it? There's got to be a way to make teaching cheaper, more efficient.  But given all the incentives we have to make it so, wouldn't you think we would have discovered and implemented it by now?  Also, as a commenter  notes, professors' salaries haven't been climbing nearly as fast as tuition; in fact, as we all know, on a per-section basis, the cost of teaching labor has probably fallen, thanks to increasing of adjuncts. It's the administrative/support systems, and the salaries in those sectors, that are growing.  
Also, a final caveat: Baumol did some of this work with William Bowen of Princeton.  As someone who went to grad school on a fellowship based in part on Bowen's prediction that there would a shortage of humanities proffies in the late '80s/early '90s, I'm skeptical of the man's prognosticatory abilities (but grateful for the fellowship; at least I don't have debts). 


  1. Tuition went up5.5% across the board here this fall. My last salary increase was 1% in 2007. I will not see any of that money, partly because salaries are a "fixed" cost that they "can't afford to address right now."

    Yes, I have been looking for work outside academia...because the public sector salaries in this state suck ass. So Baumol has obviously not kept up with states like mine, and Indiana, and Ohio, and others, where the public sector is taking it in the ass.

  2. Tuition's increased 38% here since 2007. We have not had significant cost-of-living increases since 2004 or so, though we do have merit raises (meaning: publish if you want to eat; teaching well or serving amply does not count).

    Cassandra, I too went to grad school on a fellowship premised on Bowen's study. I'm glad I don't have debts, but oh, the irony.

    1. Indeed. I can't claim I thought about the whole employability issue all that carefully at the ripe old age of 22, but I also can't blame my 22-year-old self, since I was being told, loud and clear, that it was a non-issue. I actually spent energy musing on whether I'd be a better fit for a SLAC or an R1 (and that seemed like a logical, not a ridiculously self-indulgent, question).

  3. My pay is the exact same number amount it was in 2000. Yes, I'm serious. That is not a misprint. 12 years with the same amount, no adjustment for inflation or anything. Enrollments and stock value have skyrocketed since then and tuition has gone up gradually.


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