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The idea for this article dawned on us over a year ago, when we first read David Longanecker’s article, “A Tale of Two Pities: The Story of Higher Education Finance in America,” in the January/February 2006 issue of Change. Longanecker describes a standoff between state legislators and representatives of state-supported colleges and universities. The legislators argue that they are doing their share in funding higher education by pointing to data showing that appropriations per student to colleges and universities have grown more rapidly than the inflation rate. Meanwhile, representatives of state-supported colleges and universities argue that, on the contrary, state legislators are letting them down. They point to data showing that state appropriations are a declining percentage of college and university revenues.
Both are right. And it does not take a rocket scientist to understand how this can be so: Costs per student in public colleges and universities have risen much faster than the price of goods and services in the indices we use to measure inflation. But, then, why do costs in higher education rise more rapidly than the overall inflation rate?
The study of costs in any industry, higher education included, should focus on two questions: First, what are the characteristics that drive costs in that particular industry? Second, what are the factors that make those costs similar to costs in other industries? The majority of the studies of cost pressures in higher education address the first question. They produce lists of the special features of colleges and universities that have increased costs. The question that most of them (except studies of “cost disease,” described below) ignore is whether any of the processes they describe also are underway in other industries—or alternatively, whether there are any strong forces affecting costs in higher education common to other industries in the economy.
Robert Archibald is Chancellor Professor of Economics at the College of William and Mary, where he has been chair of the economics department, director of the Thomas Jefferson Program in Public Policy, and interim dean of the Faculty of Arts and Sciences. David Feldman is University Professor for Teaching Excellence in the department of economics at William and Mary; he also teaches in the Thomas Jefferson Program in Public Policy. The two authors are working on a book about the cost of higher education.
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