Cohort crowding: how resources affect collegiate attainment
Cohort crowding: how resources affect collegiate attainment Cohort crowding: how resources affect collegiate attainment
association between state specific cohort size and college completion rates represents evidence ofthe importance of capacity constraints for understanding college graduation rates.The first section of this analysis sets forth the defining characteristics of the market forhigher education in the context of a rudimentary but illustrative model. In short, the high degreeof public subsidy, the mixed market of public and non-profit providers, and the differentiatednature of the product in higher education lead to adjustments along both quality and quantitydimensions in response to demand shocks, with the predicted change in undergraduate degreeattainment ultimately less than proportionate to the change in cohort size. The second sectionturns to the measurement of variation within states over time in cohort size, and the effect of thisvariable on collegiate attainment. The third section focuses more directly on the nature ofadjustments in higher education by type of institution and the link between current revenuesavailable to higher education and cohort size. In the fourth section, we assess the empiricalstrength of the alternative explanation that larger cohorts may have lower demand for college ifcollege preparedness (e.g., pre-collegiate achievement) is also connected to cohort size; but wefind such demand-side factors account for little of the reduction in college completion amonglarge cohorts. The basic finding is that the incomplete adjustment of resources in response topopulation changes leads to a substantial reduction in collegiate attainment rates.The conclusion is clear: resources matter in the production of higher education.Declines in the public investment in our colleges and universities will have a large impact on boththe quantity and the quality of college graduates in the country.I. The Market for Higher Education and Responses to Demand ShocksAlthough the scale of the higher education industry has increased substantially since theWorld War II era, the salient features of the industry – including a mix of public and non-profitprovision, substantial public subsidies, and a market differentiated by quality – have remainedconstant (Goldin and Katz, 1999; Winston, 1999). The substantial levels of private and publicsubsidies in the market for higher education have fundamental effects on the “quantity” ofcollegiate attainment and the “quality” (or resource intensity) of this product.Public colleges and universities, in particular, expanded markedly in the immediate postwaryears. The share of undergraduate degrees awarded by public institutions has increased fromabout 50% in 1947 to nearly 66% in the most recent academic year, while the share of totalcollege enrollment (including enrollment at sub-baccalaureate institutions) is even higher atnearly 80%. Within the public sector, nearly all states have differentiated systems of public higher3
education, including a mix of community colleges open to all students, comprehensive four-yearinstitutions with modest admissions standards, and flagship public research universities.State colleges and universities provide the majority of higher education enrollmentopportunities to their residents at a steep discount in price, made possible through substantialpublic subsidies. Table 1 summarizes the role of state appropriations in the current revenuestream of colleges and universities. Notably, state and local support accounted for 57.5% ofcurrent revenues at the public community colleges and more than 36% of revenues atcomprehensive four-year institutions. Although the share of state support (30%) is somewhatlower at public research universities, the levels tend to be higher, and these institutions also relyon a range of other non-tuition revenues including resources from private donations and researchsupport from the federal government. Overall, the data in this table show that tuition paymentsfall far short of covering total educational costs. 1As shown in the final columns of Table 1, there are substantial differences in tuitionprices between in-state and out-of-state tuition charges 2 and between private and publicinstitutions. It is these large differences in expected tuition prices that lead to a concentration onpublic colleges and universities as the institutions determining the choic e set within a state forstudents likely to be at the margin of college enrollment and completion.Private institutions, particularly the selective colleges and research universities, also relyheavily on non-tuition sources of revenue, including private contributions and income fromendowment. Nevertheless, the selective private institutions with substantial subsidies enroll avery small share of the undergraduate population. While the state-level is the appropriate unit ofanalysis for the consideration of the collegiate attainment of students likely to be at the margin ofdegree attainment, the most competitive level of colleges and universities (e.g., StanfordUniversity, Harvard University) define a highly integrated and national market that is unlikely toinclude students at the margin of college enrollment (Hoxby, 2000).Understanding how colleges and universities respond to changes in demand for highereducation, particularly those brought about by variation in the size of cohorts entering college,requires consideration of how non-tuition revenue affects the tradeoffs faced by these institutions.1 Estimates by Winston mentioned earlier place the degree of subsidy even higher, becauseconventional statements of revenues and expenses for colleges and universities fail to account for capitalcosts (both depreciation and the opportunity cost of funds), which account for an average of 25% ofeducational costs.2 The average ratio of in-state tuition to out-of-state tuition was .35 in 1996-97, amounting to anaverage tuition price difference of $6,145; examples of large differences include Colorado and Vermontwhere the difference between in -state and out-of-state undergraduate charges at the state universityexceeded $11,500 in 1996-97.4
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association between state specific cohort size and college completion rates represents evidence ofthe importance of capacity constraints for understanding college graduation rates.The first section of this analysis sets forth the defining characteristics of the market forhigher education in the context of a rudimentary but illustrative model. In short, the high degreeof public subsidy, the mixed market of public and non-profit providers, and the differentiatednature of the product in higher education lead to adjustments along both quality and quantitydimensions in response to demand shocks, with the predicted change in undergraduate degree<strong>attainment</strong> ultimately less than proportionate to the change in cohort size. The second sectionturns to the measurement of variation within states over time in cohort size, and the effect of thisvariable on <strong>collegiate</strong> <strong>attainment</strong>. The third section focuses more directly on the nature ofadjustments in higher education by type of institution and the link between current revenuesavailable to higher education and cohort size. In the fourth section, we assess the empiricalstrength of the alternative explanation that larger cohorts may have lower demand for college ifcollege preparedness (e.g., pre-<strong>collegiate</strong> achievement) is also connected to cohort size; but wefind such demand-side factors account for little of the reduction in college completion amonglarge cohorts. The basic finding is that the incomplete adjustment of <strong>resources</strong> in response topopulation changes leads to a substantial reduction in <strong>collegiate</strong> <strong>attainment</strong> rates.The conclusion is clear: <strong>resources</strong> matter in the production of higher education.Declines in the public investment in our colleges and universities will have a large impact on boththe quantity and the quality of college graduates in the country.I. The Market for Higher Education and Responses to Demand ShocksAlthough the scale of the higher education industry has increased substantially since theWorld War II era, the salient features of the industry – including a mix of public and non-profitprovision, substantial public subsidies, and a market differentiated by quality – have remainedconstant (Goldin and Katz, 1999; Winston, 1999). The substantial levels of private and publicsubsidies in the market for higher education have fundamental effects on the “quantity” of<strong>collegiate</strong> <strong>attainment</strong> and the “quality” (or resource intensity) of this product.Public colleges and universities, in particular, expanded markedly in the immediate postwaryears. The share of undergraduate degrees awarded by public institutions has increased fromabout 50% in 1947 to nearly 66% in the most recent academic year, while the share of totalcollege enrollment (including enrollment at sub-baccalaureate institutions) is even higher atnearly 80%. Within the public sector, nearly all states have differentiated systems of public higher3
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