Wednesday, November 16, 2011

Public University Budgets

Another topic that arose in conversations during my visit to Wisconsin was the issue of budgets, and in particular the large-scale cuts that many of the best US public school are having to deal with.  It's not hard to find information on this.  My first search on Google yielded this article about what's going on in Wisconsin (taking choice quotes, not the full article;  it's from June).

Wis. Gov. signs budget cutting education $1.85B

Democrats assailed the budget as an attack on middle class values since it cuts funding for public schools by $800 million, reduces funding to the UW system by $250 million and cuts tax credits for poor people.

It also reduces the amount schools can collect from property taxes and other revenue combined, which translates into another education cut of about $800 million. While schools are seeing deep cuts, Walker's budget extends tax breaks to manufacturers, multistate corporations and investors.

"As a state, we can choose to take the easy road and push off the tough decisions and pass the buck to future generations, or we can step up to the plate and make the tough decisions today," Walker said in prepared remarks. "Our budget chooses to fix our problems now, so that our children and our grandchildren don't face the same challenges we face today."
I'm sure the children and grandchildren he talks about, who will have to face the new challenge of increased global competition with an increasingly better educated non-Wisconsin population instead of the challenges being faced today, will be very appreciative.

Public universities generally have been faring quite badly in the current financial crisis.  I have a deep pro-education bias, unsurprisingly, so I find this depressing.  But also, in my mind, it's just not sound financial sense.  I believe these cuts today will yield a corresponding decline in Wisconsin's economy tomorrow, for some appropriate notion of tomorrow.  A dollar spent on education should be worth... well, I don't know how much it should be worth, but my guess is the multiplier on the dollar is pretty high.  I'd like more information to back that up.  If you know of any studies that demonstrate the payoff for education -- the sort of thing all of us in the education field should have on hand when discussions like this come up -- please leave them in the comments.  It would be nice to have a collection handy.  


aram harrow said...

This article summarizes some research that estimates that a good kindergarten teacher raises the eventual wages of students by an amount that is worth $320,000 in today's dollars.

Daniel Bilar said...

Hi Michael

Always enjoy your posts (and your Brief History of Generative Models for Power Law and Lognormal Distributions) .

This Cisco report "Education and Economic Growth: From the 19th to the 21st Century"

cites Krueger and Lindahl (2001) study with a earning multiplier of 1.1 (10%) for each additional year of schooling in the 20th century. There is a lot of work on this:

"The relationship between economic growth and education has been one of the central threads of economic analysis. Both Adam Smith in
the 18th century and Alfred Marshall in the 19th century, two important figures for the economics profession, addressed the question of how
individual investments in “education” influence the wealth of nations. Throughout the 20th century, as Krueger and Lindahl (2001) point out in their survey of these issues, modern professional economists
have been attempting to develop empirical estimates of the relationship between education and economic growth. Some of the most famous names in late 20th century economics made their reputations
studying the question of individual returns to investment in education. Jacob Mincer (1974), Gary Becker (1964) and a long list of researchers
inspired by their work have produced hundreds of books and papers."

If you want to look at some data yourself, you are in luck: The National Bureau of Economic Research is located in Cambridge and they study all sorts of economic data correlation, like spillover effect. This paper "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data " finds that

"A percentage point increase in the supply of college graduates raises high school drop-outs' wages by 1.9%, high school graduates' wages by 1.6%, and college graduates wages by 0.4%. The effect is larger for less educated groups, as predicted by a conventional demand and supply model. But even for college graduates, an increase in the supply of college graduates increases wages, as predicted by a model that includes conventional demand and supply factors as well as spillovers."

World-wide, IMHO female education in developing countries make the most compelling case for education spending: "Of 8·2 million fewer deaths in children younger than 5 years between 1970 and 2009, we estimated that 4·2 million (51·2%) could be attributed to increased educational attainment in women of reproductive age"

Lastly, IMHO for US higher education, spending does not need to increase, it's unsustainable as is because it has become much too top heavy (see The Fall of the Faculty: The Rise of the All-Administrative University by Ginsberg (JHU))

Best regards

Paul Beame said...

The education multipliers in the previous e-mails relate to individuals. The proper accounting for a public state university should also include benefits to the state as a whole. Strong universities draw educated people who often stay after graduation. Innovations developed at universities lead to new companies in the surrounding area and add to the tax base.

At University of Washington (also UW), the university commissioned an economic impact study for the university. Obviously, this is not independent and there are plenty of things that don't translate everywhere but it does give and example of the kind of impact.

Laura said...

I think turning the question to one about the "value of education to our children and grandchildren" is (at best) sloppy.

Surely the question that is relevant to WI taxpayers is: How can the UW system be made more substantially more cost efficient?

Are there really no significant cuts that can be made without noticeably reducing the number of students who go on to graduate and enter the workforce with skills that are useful to their future employers?

It would be nice if UW (and other universities) made use of their (statistically) large sample sizes and their scientific expertise to behave um...scientifically.

Doing experiments and intelligently measuring key outputs like employability would help universities improve their structure and processes and best utilize what are necessarily limited taxpayer funds.

At least it seems a little more useful than suggesting that those who try to enforce some rationalization just don't appreciate the value of education.

Paul Beame said...


It might make sense to bring up issues of "cost-efficiency" if they were among the reasons for cuts in state support. Factor of 2 cuts in state support only partially offset by massive increases in tuition have nothing at all to do with concerns about "efficiency". It is all about expediency.

There is plenty of data out there such as that described in the report I mentioned, including a net positive impact on the state budget of spending on higher education.

Michael Mitzenmacher said...

Thanks for the pointers all.

Laura, I'm afraid I agree with Paul. I'm all in favor of looking for efficiencies, and I definitely think there's an excess of administration these days in many university structures. That's not what these cuts are about.

Anonymous said...

Universities have changed a lot in the last 50 years. Universities nowadays seem to be profit makers. They charge high tuition (obscenely high for private schools; high by historical standards for public schools), have high overheads on grants, and pay huge administrative salaries.

Why exactly do they still need public support to the extent they had it 50 years ago?

Nikita Borisov said...

My university put out this estimate:

If you read it at its face value, you might think that the multiplier is in the double digits. Of course, the state contributes less than 20% of UofI's operating budget, so the economic return on each dollar spent may be closer to 2.5.