Does university pay?

Will higher tuition fees deter men from going to university? This is the question posed by a new paper by Ian Walker and Yu Zhu on the returns to having a degree.
They estimate that, if tuition fees rise to £7000, degrees in the arts, humanities and non-economics social sciences will be bad investments for men. The cost of getting them will exceed the uplift in future earnings.
What’s more, at a higher discount rate on future earnings, or in the bottom 25% of graduate earnings, even degrees in science, technology and engineering will have negative pay-offs for men.
For most women - except those with lower seconds or worse in the bottom quartile of the wage distribution - degrees will continue to pay.
However, the problem here is not the fees themselves; these make only a small difference to the calculations. Instead, it is the underlying wage pay-off to getting a degree. This is larger for women than for men. Women graduates earn an average of 31% an hour more than those with A levels, whilst for men the return is only 19.6%. For men with degrees in the arts, other social sciences and humanities, the wage premium is only 5%.
For men, then, humanities degrees should be regarded as a consumption good, not an investment. And with the price of that good about to double, poorer students might be priced out. In this sense, those who fear that universities will become rich boys’ playgrounds - except for the geeks studying economics, law and sciences - might have a point*.
Here, though, is a quirk. The reason why degrees are better investments for women is that women without them earn much less than men. This suggests that if universities wish to attract female business - and let’s not kid ourselves they have any higher purpose - they should oppose any attempts to close the gender pay gap.
* How far this would change the character of universities is, however, a moot point.

Comments

[redpesto]

Interesting... Chris, you might want to have a look at this post by Richard Morris over at Liberal Conspiracy (I blow my own trumpet here and later on in the thread, but the LibDem proposal in the comments is a hoot)

[redpesto]

Er, try again: here

[redpesto]

Oh, I see - no tags

http://liberalconspiracy.org/2010/10/18/why-higher-tuition-fees-will-hurt-women-more/

[Recusant]

Should you be shifting Economics over to the Arts, Humanities and Social Sciences side of the divide? It's many things, but one thing it isn't is a science.

[TJ]

@Recusant:

"It's many things, but one thing it isn't is a science."

But what does this even mean? Are you seriously claiming that the economy is not a possible subject for rational, empirical, inquiry?

I doubt it.

Karl Popper has a lot to answer for...

[Niklas Smith]

@Recusant: "Should you be shifting Economics over to the Arts, Humanities and Social Sciences side of the divide?"

I think he was dividing them on the basis of future earnings power, not academic criteria. Supposedly economics graduates are snapped up by the banks and so get to roll in dosh, unlike (say) Media Studies graduates. (I say supposedly because the banks are now sacking thousands of people....)

@TJ: "But what does this even mean? Are you seriously claiming that the economy is not a possible subject for rational, empirical, inquiry?"

It depends on your definition of "science". In most other languages the equivalent word for science (like the German "Wissenschaft" or the Swedish "vetenskap") is very broad and would naturally include economics, even history.

In English science is often used in the narrow sense of a subject where it is possible to carry out replicable experiments. This is not true for economics, except for game theory (an interesting and important exception).

I personally hesitate to refer to economics as a science because expectations are so important in economic decision-making. Animals would not behave differently if they consciously knew that evolution was true than if they consciously "knew" that they were created four thousand years ago (or whatever). That's why everyone calls biology a science.

But expectations are often informed by some kind of economic theory. A policymaker who has read about Keynes would probably react differently to a crisis than a policymaker who only knew of the Gold Standard and nineteenth-century macroeconomics (what Keynes called "the Treasury view"). A businessperson who knows about the importance of the margin might behave differently from one who is only concerned with average costs and revenues.

[Niklas Smith]

@Chris Dillow: "For men, then, humanities degrees should be regarded as a consumption good, not an investment. And with the price of that good about to double, poorer students might be priced out."

Aren't you confusing students who are poor now (i.e. come from poor families) with students who will be poor (relative to other graduates) AFTER they've graduated?

The whole point about education and social mobility is that these two groups may well be far from identical. What you seem to be saying is that students who EXPECT to have poor returns on their degree will choose not to study. Why should these necessarily be the same people who are poor to start with?

Indeed you could argue the opposite: a son of two graduates with professional jobs will be expected to go to university, but will already have all the advantages of a privileged upbringing to take with them to the jobs market. For a potential student from a poor household a degree may be the only way to stand out from the crowd.

[James Bloodworth]

'The Government ignore the fact that many others will also earn more over the course of their lives - those who take over family businesses, inherit property, or just happen to live in more pleasant areas of the country - than those lacking these particular advantages yet who may have prospered in the albeit flawed yet at least partially democratic area of educational achievement.'

http://bloodworthweb.blogspot.com/2010/10/end-of-mass-higher-education.html

[chris]

@ Niklas. I don't think I am making that confusion. Yes, it could be that arts graduates from poor backgrounds subsequently earn much more than they would otherwise. But I know of little evidence for this. For this to be consistent with the overall return to an arts degree being low, the returns for posh boys would have to be very negative. I don't think this is plausible.
The problem is that, in an era of mass HE, having a degree is insufficient to stand out from the crowd.
@ Recusant. Economics is spearated from other social sciences merely because its degrees raise earnings by much more. Employers don't share your grim view of economics.

[RH]

Many of the institutions of higher learning will be affected because foreign students will find it cheaper to go to Australia or even Singapore. Foreign - that is non EEA - students brought in the money that sustained many of the universities and effectively subsidised the local and EEA students but visa restrictions and higher fees would mean that they aren't coming.