Wednesday, 20 July 2011

Making University Education Free

© Copyright RichTea and licensed for reuse under this Creative Commons Licence.

Yesterday in class, we were discussing the recent boom in online courseware. Many universities have begun providing courses online. For example MIT has 2000 courses available on their website, they can be found here Furthermore, there is a growing movement to make university content freely available, much like in a library. The question becomes, would fully subsidizing post-secondary education be an efficient use of resources?

My response is no.

Exhibit A: The World Bank's data on the rate of return to education clearly shows that tertiary education (post-secondary) is the least profitable form of education. Furthermore, their data demonstrates that the social rate of return decrease as you move to higher levels of schooling. It is also interesting to note that the private rate of return on tertiary education is a very high 19%, nearly double the social return of 10%.

Here's the link:

Exhibit B: Data from the government of Canada compares the return on business capital to that of university education and concludes that investing in business capital is the more beneficial choice as it yields a 15% rate of return.

And the link:

Exhibit C: Fully subsidizing tertiary education would come at a prodigious (in my mind impossible) cost. Likewise, by factoring in decreasing returns to scale, the social rate of return to tertiary education estimated here (10%) would certainly decrease substantially. Furthermore, the increased availability of tertiary education would lead to over-education. What I mean here is that many people will be forced to take jobs that do not use the skills they acquired in their schooling. This is because the market for highly skilled/highly educated individuals cannot increase indefinitely. For the labour market to be efficient the number of college graduates must roughly match the number of employers seeking the skills of college graduates. The same holds true for higher levels: master's, PhD, etc.

While open courseware is great, going a step further by making post-secondary education free would be foolish because of the inefficiencies it would create in the labour market, and the tremendous cost it would mean for tax-payers.

Which economies would be able to fully support tertiary education?

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