The Relationship Between Tuition Costs and Faculty

Felix Salmon has a great post responding to Jim Surowiecki’s column on student loans, particularly the argument that prices are rising beacause of Baumol’s cost disease, that I wanted to highlight.  Surowiecki: “In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices.”

Felix digs in to see if this is the case, and finds:

In reality, however, the numbers show that wage inflation is — literally — the least of the problems when it comes to university cost inflation. Check out this excellent report, for instance, entitled “Trends in College Spending, 1999-2009″. The first thing to note is on page 26: spending on faculty compensation is never more than 40% of total spending, and “has remained steady or decreased slightly over time”. Then have a look at the numbers.

…we have seen tuition fees rise by 32% between 1999 and 2009. Over the same period, instruction costs rose just 5.6% — the lowest rate of inflation of any of the components of education services…

The real reason why tuition has been rising so much has nothing to do with Baumol, and everything to do with the government. Page 31 of the report is quite clear: “except for private research institutions,” it says, “tuitions were increasing almost exclusively to replace losses from state revenues or other private revenue sources.”…

In other words, tuition costs are going up just because state subsidies are going down. Every time there’s a state fiscal crisis, subsidies get cut; once cut, they never get reinstated. And so the proportion of the cost of college which is borne by the student has been rising steadily for decades.

There are other culprits…“the arms-race problem”…Another is simply the ever-increasing amounts of money being spent on administration rather than instruction. And a third is the fact that administrators at many high-profile universities have no incentive to decrease costs, and in fact have an incentive to increase costs, since total spending outlay tends to show up as an input in university-ranking algorithms.

But of all the reasons why tuition’s going up, teacher productivity is — literally — at the bottom of the list.

I’d add the following from the report: “A growing reliance on part-time rather than full-time faculty has likely kept full-time faculty costs down and has also trimmed overall salary costs per employee in most sectors.”

Let’s also kick it over to Malcolm Harris’ Bad Education in n+1 magazine:

First, where the money hasn’t gone: instruction….If overfed teachers aren’t the causes or beneficiaries of increased tuition (as they’ve been depicted of late), then perhaps it’s worth looking up the food chain. As faculty jobs have become increasingly contingent and precarious, administration has become anything but. Formerly, administrators were more or less teachers with added responsibilities; nowadays, they function more like standard corporate managers—and they’re paid like them too. Once a few entrepreneurial schools made this switch, market pressures compelled the rest to follow the high-revenue model, which leads directly to high salaries for in-demand administrators. Even at nonprofit schools, top-level administrators and financial managers pull down six- and seven-figure salaries, more on par with their industry counterparts than with their fellow faculty members. And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years.

When you hire corporate managers, you get managed like a corporation, and the race for tuition dollars and grants from government and private partnerships has become the driving objective of the contemporary university administration.

It’s worth revisiting the essay even if you have read it before.