Wednesday, July 06, 2005

On Elite Colleges and Population Growth

I started college in 1972. From this Census Table, apparently the U.S. population was around 210 million at the time. My recollection is that my high school, a very large public school in Queens, NYC, limited college applications to 3. In addition, one could apply to one state university and one City College. (This might be a little off; it is all a long time ago.) I suspect that the limits on applications were due to the fact that the school had to do some processing and this was all pre computers. I applied to Harvard (did not get in but did have a personal interview at the Harvard Club in Manhattan), Amherst (did not get in but spent a summer at Hampshire College also in Amherst for an NSF sponsored Math program which is when I interviewed with them), and MIT (got in on early action, notified in December but didn’t have to let them know till April). I may have applied to Queens College, I can’t remember. That was it. I didn’t apply to a state university.

I’m guessing that nowadays no high school rations the number of applications a kid makes to college. A letter of recommendation in support by a teacher is probably easier to write now because of word processors, and the transcript/SAT or ACT info is much easier to supply. So even with the obligatory essay(s) and fees for applying, my guess is that a kid who has a decent shot of getting into an elite school will be making more applications, perhaps 10 or so.

U.S. population now is creeping toward 300 million and I’m guessing that if anything the elite schools have a greater fraction of international students than they had in 1972. Which are the elite colleges? Based on U.S. News rankings, which are indicators of public perceptions if nothing else, the top universities are pretty much the same as they were in 1972 as are the top liberal arts colleges. One obvious fact about these elite schools, focusing on the top 10 on each list, is that they are all private. The University of Michigan and the University of Virginia are at the top of the publics, each ranked 22 among the universities.

Another “fact” that I’m really guessing at, I have not done detailed research on this, is that the number of slots at these elite places for incoming freshmen is essentially unchanged since 1972. So we have schools which were already highly selective in 1972 experiencing increased demand with the typical good high school student making more applications and population growth increasing the number of students who legitimately deserve to be in this upper tier. I should be careful here because overall population growth does not mean there is an increase in the number of freshmen candidates in the 17 – 19 age bracket. Clearly some of our population growth is due to aging of the population. But I think it not unreasonable to assume there has been an increase in the size of this group as well, given an increase in over 30% of the population overall.

There is one more factor to consider here. This is the rising income inequality in the country. This table, again from the census, shows that the top fifth of the population had a 5% greater share of income in 1998 than it did in 1972 (and though the data are not there for the years of the Bush presidency, the likelihood is that the inequality increased even more). Again I haven’t done the research explicitly, but I’m guessing that if one looked at elite college enrollments that most of the students come from that top fifth of the income distribution.

In the above I’ve tried to lay out the conditions for the hyperinflation in the cost of college at the elite institutions. There is chronic excess demand and, if anything, that excess demand has increased over time. Furthermore, the willingness to pay for college among those who attend the elite institutions has risen over time.

This, however, is only half the story because it is a two way market. The colleges compete for the elite students, whom they can identify and track much better than they could in 1972. The recruiting game for the elite students is not unlike the recruiting game for highly prized athletes. The schools provide a bunch of goodies to the students in the form of swank facilities and highly paid and well accomplished faculty. They may very well develop unique programs that are particularly enticing to a certain set of elite students. And of course there will be merit aid and stipends (but because there are limits to that much of the competition comes in these other forms).

Why should we care about the elite institutions at all? The vast majority of the students don’t attend these places. The answer, and I hope this is obvious, is because the behavior of these institutions has a substantial effect on the overall market. Yesterday I talked about the market for junior faculty in economics. The senior faculty market is dominated by superstars and the economics of the superstar faculty salaries is driven by the hyperinflation I’ve just talked about. The junior faculty pool, which contains the next generation superstars in some proportion, has to move in lock step with the senior pool so the overall wage structure stays in line. Indeed, in this higher education is following the escalation we’re seeing in CEO pay in the private sector.

Publics, such as my campus, have become increasingly selective in admitting undergraduates, a tier or two lower down from the elite, for all the reasons I’ve outlined. But they’ve done this with state revenues declining and students from more modest families, income-wise. The disparity between the public universities and the privates, already substantial, will increase. In Engineering and some very lower enrollment programs, such as in the Performing Arts, they can keep up. In the Liberal Arts, the gap is insurmountable.

If one wanted to slow down the growth in the costs of the college, the way to do that would be to have substantial entry at the upper tier, with publics offering elite programs. If many of the states that already have substantial public universities carved out full programs aimed at students who might attend Amherst or Harvard, that competition would drive down upper tier tuition and the non-price competition that follows. But this is anti-utilitarian. The publics are under lots of pressure to make their offerings valued more broadly within their home states. And it is likely that any single state making for an elite public college (perhaps within the larger public university) likely wouldn’t have sufficient volume to substantially effect the market overall.

So the prognosis is for the hyperinflation at the elite universities to continue and for the pressure on the publics to bring us past the breaking point.

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