Atlas may shrug, but does he drop out?

 

This week's column is about tuition and its effects on access and retention.  But before doing so, I would like to take a short detour through the field of tax studies.  Bear with me, it'll be worth it.

 

In 1998, University of Michigan professor Joel Slemrod edited an intriguing book entitled Does Atlas Shrug?  Playing on the title of the interminable Ayn Rand novel, Dr.  Slemrod and some associates tried to figure out whether or not taxing the rich really did make them "shrug" (that is, give up the risk-taking, go-getting behaviour that makes advanced market economies tick). 

 

To the extent that the studies could determine anything - getting a decent natural experiment for this type of study is quite difficult - they tended to show that risk-seeking go-getters would generally engage in risky, go-getting behaviour regardless of the tax rate.  They might have made less money and the economy might have been less efficient than if taxes were lower, but risk-takers tended not to change their behavior much in response to changes in the tax code. 

 

This was an intriguing result, because it undercut much of the rhetoric used by the anti-tax movement.  Taxes cannot be raised, they say, because investment will go elsewhere, or because talented individuals will begin to prefer leisure to work and thus deprive the economy of part of their services.  And yet, the Slemrod results show that this isn't necessarily true.

 

Of course, this doesn't mean that tax rises are pain-free.  After all, when taxes rise, everyone feels an immediate loss of welfare (though this may be partly off-set by the public goods purchased with these tax dollars), and dead-weight efficiency losses remain significant. But what the Slemrod results show is that a loss of welfare does not necessarily entail a change in behaviour

 

What does any of this have to do with higher education?  Well, interestingly, the kinds of arguments that Dr.  Slemrod countered in his book are exactly the same as the ones that underpin the argument against tuition fees. 

 

Tuition hikes, like tax hikes, clearly make students and families less wealthy, leaving them with less disposable income.  Indeed, as higher education edges closer and closer to universality, tuition for most people does start to look increasingly like a tax - a universal service-charge for education past the age of eighteen.

 

And just as advocates of lower taxes say that Atlas will shrug if welfare is diminished through tax rises, so advocates of lower tuition say that Atlas will drop out if welfare is diminished through tuition rises.

 

But is the proposition that changes in welfare cause behavioural effects any more true for tuition than it is for taxes?  Or is this argument just a smokescreen for what amounts to a middle-class hand-out?

 

The best available evidence from international experience shows that in fact rises in tuition have very limited behavioural effects.  At a jurisdictional level, there is simply no observed correlation between tuition fees and any of the normal indicators of access. 

 

Take, for example, the following evidence we've come up with at Higher Education Strategy Associates:

 

University Participation rates are uncorrelated with tuition levels:  Within Canada, Nova Scotia - the province which for thirty years had the country's highest tuition fees -has consistently has the country's highest participation rate while low-cost Quebec has a participation rate below the national average.  Internationally, both Canada and the US - both relatively high-tuition jurisdiction - have higher university participation rates than most no-tuition OECD jurisdictions.

 

Changes in participation rates are uncorrelated with changes in tuition levels: Ignoring Ontario, where the "double cohort" distorts the data, the two biggest jumps in enrolment in Canada in the early part of this decade were in Manitoba (29% increase) and British Columbia (33% increase).  The former saw tuition levels drop by 20% in real terms while the latter saw an increase of nearly 75%. 

 

The stratification of the student body is uncorrelated with tuition levels:  The Educational Equity Index (EEI) measures how "elite" a student body is by comparing students' parents' educational levels to those of the general population.  In Canada, the two least-privileged student bodies were in low-tuition Manitoba and high-tuition Ontario; the two most-privileged student bodies were in low-tuition Newfoundland and medium-tuition Prince Edward Island.  Internationally, Canada ranks among the top five countries for having the least-privileged student bodies, along with free-tuition Ireland and Finland, low-tuition Netherlands and high-tuition Canada and the United States. 

 

Changes in the stratification of the student body are uncorrelated with changes in tuition:  Even after adjusting for inflation, tuition has more than doubled since 1986.  Yet in a series of Statistics Canada studies, from 1986 onwards shows exactly the same pattern: youth from rich families are about twice as likely to go to university as youth from poor families.  Despite all the tuition policy changes, that relationship has remained very consistent over time.

 

In sum, there is very little international experience that should make us believe that the reduction of tuition fees would have much effect at all on the participation rates of youth from poorer family backgrounds.  The reason for this is bindingly obvious: kids from poorer families aren't just disadvantaged in financial assets, they also have smaller pools of social and cultural capital on which to draw.  This means they are less likely to be able to get the grades to go to university and they are less likely to want to go on to university in the first place. Finances are thus at best a third-order cause of inequality of access.

 

None of this means that financial burdens have no effect on students.  Roughly one-in-five Canadian youth who do not go on to post-secondary education cite finances as the prime factor behind their decision and a majority of these are from lower-income backgrounds.  Various American studies have shown that reducing the net cost of higher education (that is, the cost of tuition minus grants) also increases access to higher education for students from lower-income families.  And some data that will be coming out soon from the MESA project (an effort I have been involved with for the last five years) will also show that changes in net tuition - that is, tuition minus grants - may play a role in altering the composition of student demand.

 

In other words, finances do matter for some students, some of the time.  But that suggests that the right policy response is a program of targeted grant assistance to low-income students.  It does not imply that reduced tuition for all students makes any sense at all.  Indeed, the evidence that such a policy would increase participation from low-income families is slim to nonexistent.  In the jurisdictions where tuition roll-backs have been enacted (Manitoba, Newfoundland, Ireland) there is no evidence whatsoever that the social composition of enrolments have changed.

 

So, do tuition hikes cause Atlas to Drop Out?  On the whole, and assuming there is a decent system of student aid available, no.  But they do mean that Atlas (and her parents) will have a little less money to spend on life's luxuries, just as they would if their taxes were increased.

 

And therein lies the key to understanding the real reluctance of Canadian politicians to raise tuition fees.  The middle class - for whom university education is increasingly as normal as primary school - sees fees as a tax which reduces their spending power and reacts to them accordingly.  Concern about the ability of the poor to access PSE has nothing to do with it and is actually something of a smokescreen.  Reducing tuition is simply the big-government equivalent of middle-class tax cuts - no more, no less.

 

Tagged with tuition, drop, access, atlas, retention, out |

Comments

That is an interesting article. Can you provide links to the articles that you were referencing?

Part of me feels that the analogy between taxation and tuition fees doesn't jive though. Taxes take from one person and is re-invested for the whole. Tuitions fees just take from one person to enrich an institution.

Comment by Robert Lepage - August 12, 2010 at 5:27 PM

Of course raising tuition fees does not discourage people from attending. I don't need an independant study to conclude that. Tuition is rising, so is enrollment. That much is publicly avaialble.

What the thought experiment fails to consider is lower taxes for the top and heftier tax for the bottom. This is what is happening. We aren't talking about how tuition affect the students but rather wealth reditribution towards the top even if indirectly.

I think that it is erronious to compare the two scenarios as you are comparing apples to oranges. Sure they're both fruits but they are very different otherwise.

The funny thing is that Atlus Shrugged is an awful and discredited way to view things. Afterall, "Atlus" or the so-called rich and talented do not carry the world on their shoulders, they pay the poor to do it for them.

Even worst, their is a lack of succession and planning. Baby boomers are too populous and their children too few so with our "democratic system" the boomers have legally reared their kobe beef cattle ready for the slaughter.

How's that for an analogy?

Comment by J - August 12, 2010 at 5:37 PM

Mr. Usher, your thesis is quite counter-intuitive, so it would be nice of you to actually cite the research you mention. I am particularly skeptical of the claim that tuition has no correlation with student-body stratification and would like to examine the research that these claims are based upon.

Just one nuance among many: There is clearly significant stratification *between institutions* in the US. A state college doesn't cost the same as Harvard, and the nature of the student body demonstrates this. With institutions relying heavily on tuition revenues there for funding (yes, I realize it is more complicated than this), it means that the best funded institutions are those that cater to the wealthiest classes. The result is still the increase and strengthening of social stratification.

Point is, show us the data. I'm not knowledgable enough to out-and-out disagree with you, but the situation is clearly not as simple as you imply.

Comment by Max W. - August 13, 2010 at 6:17 PM

I also need to point out that, despite what your recent research might have shown, the statement "there is simply no observed correlation between tuition fees and any of the normal indicators of access" is absolutely false. Many studies suggest a link between attendance rates and tuition cost. It is disingenous to simply ignore them. Your research may show novel results, and that is worth discussing and explaining, but it doesn't simply sweep everything prior away. If you have a problem with past research and you think the research you consulted is the only valid stuff, fine, but let's hear why.

Comment by Max W. - August 13, 2010 at 6:27 PM

If the premise is that high adrenalin dropouts might well succeed financially in spite of their lack of education, because they keep on, and keep on, and keep on: duh!

Education is for people who are not like that.

Comment by Albin - August 13, 2010 at 6:45 PM

This is utterly foolish. OF COURSE tuition fees affect access and students' willingness to go to school. It's quite easy for politicians like Usher (who masquerade as researchers) to manipulate or invent stats to make their arguments. The truth I've seen is far different. I myself had to wait for 4 years to go to grad school, until I had a decent (unionized) employer who was willing to help pay for it. I would have loved to go earlier, but the costs were insane. Since I've started, out of the ~ 200 grad students in our faculty, not one has dropped out for academic reasons. No less than 10 have dropped out because they couldn't keep up with the costs (even though their grades were first-rate). I trust my real-life experiences far more than I trust the stats tossed out by Liberal politicos and propagandists.

And the stuff about measuring the "elitism" of the students (through whether or not their parents had an education?!) is also ridiculous. Tuition fees have fluctuated far too drastically over the years to be able to make a claim like "in tuition-low Newfoundland..." and then have your claim cover two generations. Newfoundland had the highest fee increases in the country a mere 10 - 15 years ago (still has high fees, but the government is doing better than any other province at trying to get it under control).

Anyhow PLEASE write about something useful to the education community and stop trying to carry on your decade-old personal grudges from your millennium scholarship corporation days...

Comment by R. Rolls - August 14, 2010 at 5:49 PM

@R. Rolls,
What sort of grad school are you talking about? It seems like you're talking about an MBA, which would fall under more of a professional school heading. I mean, I've never heard of a company sponsoring a student doing research on particle physics.

And to the trolls, asking for specific links and citations is disingenuous when they're right in the article. Of course, if one were not willing or were too lazy to find them, it is easy to dismiss Mr. Usher's conclusions by bleating for data.

Comment by Alex. L - August 14, 2010 at 11:40 PM

I don't think you can consider tuition rates in isolation. The costs of obtaining a university education are two-fold: tuition and living costs. Look at the NS example - highest tuition fees and highest participation rate. NS also has the highest number of universities which means few potential students are >1 hour away from a university. If you can live at home, even though your tuition costs are relatively higher, your total university costs are going to be lower.

Comment by Kathy - August 16, 2010 at 3:44 PM

I'm trying to think of a more appropriate word but I can't - this is bullshit.

The logic that students are still going to go to university so we can continue "taxing" them at exorbitant rates is flawed for a variety of very simple reasons.

Nowadays, stepping towards a university degree is pretty standard when you get out of high school. Unfortunately, that means 17 year olds are basically signing themselves up for thousands of dollars of debt no matter how you look at it.

"In sum, there is very little international experience that should make us believe that the reduction of tuition fees would have much effect at all on the participation rates of youth from poorer family backgrounds. The reason for this is bindingly obvious: kids from poorer families aren't just disadvantaged in financial assets, they also have smaller pools of social and cultural capital on which to draw. This means they are less likely to be able to get the grades to go to university and they are less likely to want to go on to university in the first place."

I don't know what bubble you live in but some of the smartest people I know, the ones that win scholarships for their 4.0s are people who are working three jobs, barely sleeping to make sure that they make the best of the degree that they're paying for. Unfortunately, most of these folks come up against a system that just doesn't accommodate having to pay your own way and getting good grades. They're either forced to drop out, continue barely making ends meet and barely passing, or take 5-6 years to finish a degree that adds to their loan and cuts into their income.

If I was going to use your logic, I would say the people who have the "social and cultural capital on which to draw" are the ones who are living on campus on their parent's dime, not going to class because they're so hungover from all the partying they're doing because they've don't know what hard work means. Obviously this isn't true, just like it isn't true that people who come from low-income backgrounds can't get good grades.

Dear Globe,
There are better campus writers with far more insight into what students are like. This is rather insulting to anyone who is a post-secondary student right now.

Comment by Athmika - August 17, 2010 at 9:53 AM

This is an interesting article--not sure I agree, but as a recent grad who's used to hearing people argue against higher tuition fees I appreciate hearing another perspective.

As to whether society should support universities more through increased taxes, I'm not so sure. I mean, I managed to graduate with a BA and an MA debt free, without parental assistance, so it is possible if you work hard. Should society be expected to pay for Jane Smith's C+ average psychology degree, which she will use in her career as a barista? Not sure. In my opinion, the main problem with university today is that too many people are going, which dilutes the value of a degree. Perhaps tougher entrance requirements is the answer.

Comment by aidan - August 17, 2010 at 10:29 AM

@Max W: Comparing the student bodies at Yale or Harvard with any other school is silly. These schools don't rely on SAT scores or high school grades to select students, they tend to hand-pick based on essays, experience, and who they believe will be rich or highly influential. The best part of these schools is the networking opportunities, not the schooling. If you want to compare US schools pick some of the more normal top-tier schools like UCLA or MIT and see how they compare.

Comment by Tim - August 17, 2010 at 11:02 AM

It may not be a popular position to state that higher tuitions don't impact behaviour, but there's good evidence to support it. That said, I do suspect there is a threshold point at which high tuition would start to affect attendance. But the availability of loans and the long term consequences of loan programs (public or private) must also be factored in.

I am concerned about tuition rates generally, and I know some students struggle for years to pay off their loans.

But part of me always wonders... people don't think twice about borrowing 20K plus to buy a car, but are horrified about a 20K school loan debt. I'm not sure if this is a fair comparison, but it has crossed my mind.

Comment by Laura Servage - August 19, 2010 at 6:52 PM

Thanks for your comments, everyone. A few points here.

1) I'm not making an analogy between taxes and tuition fees. I'm pointing out that the arguments against them are similar (and similarly wrong).

2) A number of you are quite legitimately challenging me for evidence. I dislike cluttering blog posts with footnotes, but some basic pieces of mine to read would be: Global Higher Education Rankings: Affordability and Accessibility in Higher Education by myself and Amy Cervenan, and A New Measuring Stick. Both are from around 2005 and can be found on the Higher Education Strategy Associates website. For the Statistics Canada data within Canada, you can see work by Miles Corak, Marie Drolet and Ross Finnie among others.

I am not sure if it is published yet, but there was also an excellent piece of work from Lance Lochner and Philippe Belley presented at the Canadian Economics Association meeting last summer which showed how despite the fact that Canadian higher education was in most respects more expensive than American higher education (see also "beyond the 49th parallel" which Iw wrote with Kim Steel in 2006), the Canadian system ended up with better outcomes for low income students. The reason, I suspect, has to do with something Max W. pointed out above with respect to stratification between instituions in the US: our high school system does a better job of reducing disparities in academic preparation than does the Americans'. It's this kind of policy environment that we need to be looking at to reducing disparities.

3) I think a few people have some basic misconceptions about what I'm saying here. I'm not saying people from poor backgrounds don't have trouble going to PSE; I'm saying that places with low or free tuition are no more successful at attracting such students to PSE than places with higher tuitions.

Similarly, I'm not saying students are comfortably well-off; I'm saying that their financial condition doesn't seem to affect their willingess to sacrifice to go to PSE. If you want to argue that students should have a higher standard of living, go ahead (I think for some students, there's probably quite a good case for that) - but don't do so on the basis that these students are dropping out because of their finances. You'll only hurt your case because it's demonstrably not true.

True university drop-out rates are actually astonishingly low - a recent study by Ross Finnie and Theresa Qiu showed that 5 years after starting, 90% of university students either had a degree or were still enrolled, and of the other 10%, only a minority cited financial reasons for dropping out.

Which brings me to Amthika's point about differences between low- and high-income students. It's a complete nonsense for anyone to suggest that low-income students can't get high grades. Of course they can. But it's also complete nonsense to ignore the reams of evidence (see Doug Wilms' work, for instance, or any of the OECD reports on the Programme for International Student Assessment) that family income and school results aren't correlated. As a result, the better-off have a whole set of advantages in getting into university that which are not in the least bit affected by lower tuition.

If you want to help lower-income students financially, it's far better to do it through targetted grants. That lowers net tuition for the worse-off without giving windfall gains to the better-off. Preferring lower tuition to improved grants is effectively saying it's only OK to help students from poorer families if students from richer ones get theirs, too. I remain puzzled as to why this is considered a "progressive" stance. If anyone can enlighten me on this, I'd sure appreciate it.

Comment by Alex Usher - August 20, 2010 at 5:17 AM

If I'm 5'7" and have dreams of playing in the NBA, should they expand the number of teams so I can play?

Similarly, if I'm a marginal student, should tax dollars be used to increase capacity so I can either go to school and drop out when it gets too hard, or do so poorly that my transcript shows that I'm not qualified to act in my chosen field?

The whole concept of "access" trumping "merit" is a disturbing one to me, primarily because it results in a "dumbing down" of the system for all. Not everyone should get a university degree. If everyone has the ability to do so, clearly the program isn't very challenging ... hmmm ... sounds like high school.

Does it mean that they can't be successful and contributing members of society? Of course not. Quite frankly, they'll probably be better off financially in a trade than with a marginal degree.

So, how does one ensure access for the best and brightest while not busting the budget? Increase government scholarships, with a catch. If the goal really is to improve Canada, the catch is that the grad must remain in the country for five [?] years after graduation. In my undergrad engineering class a decade ago _every single one_ of the top ten Canadian grads left Canada.

Comment by Q - August 29, 2010 at 2:10 AM

Alex,

Generally agree strongly with the article, but do take a bit of exception to referring readers exclusively to your own material as citation. Those with a genuine interest in the topic of scholarships and university funding in general could do much worse than to consult the work of Daniel W. Lang - this is who the Ontario Ministry of Training, Colleges and Universities (among others) turns to for research and insight.

One concept that is left off here, and is important in the context of who pays for education, is that of return on investment. If you look at the tuition paid as an investment, rather than simply as cost, and the impact on future earnings correlated with the willingness to make that investment it is clear that society reaps a large reward. This alone justifies the funding for PSE out of our tax dollars. However, by far the greatest return accrues to the graduate. Perhaps not the year they graduate, but over the long run, it pays to pay (invest), even in light of post-graduation debt.

Comment by David - August 30, 2010 at 12:48 PM

Interesting article. However, I think the better way to look at this would be to consider tuition as a 'fee' that one must pay in order to have a higher salary in the future (doesn't guarantee it, mind you, but every study backs that up). So, assume that if you pay this 'fee', you reap a reward of $800,000 through higher salary in the future (assume $20,000 annually on average compared to someone who does not pay this fee, and for whatever reason does not attend university.

In this sense, it doesn't matter whether someone is paying $20,000 or $100,000 total in tuition it's just economically rational for someone to pay this fee to get a huge Return on Investment, in the case of my example of the $100,000 tuition, a return of 800%, minus the Opportunity Cost of lost wages for the four years.

I believe that's the reason higher fees are not dissuading people; people are inherently economically rational and therefore respond to economic incentives. In this case, pay the fee whatever it is,and earn a huge return over the next 40 years.

Comment by Matt - August 31, 2010 at 11:13 PM

You mention that student stratification does not correlate with tuition fee increases. But are there any data on the effect of tuition fee decreases? Your underlying assumption, that there is a functional relationship between stratification and tuition fees, may not be valid. That would have to be tested.

Comment by Alphonse - September 5, 2010 at 2:29 PM

The high cost of tuition was absolutely the primary consideration for me when deciding whether or not to return to school to earn an advanced degree. Although I finally decided to return to school after spending a few years debating this decision, I am constantly thinking about the large student loan debt I am going to have to repay oncce I graduate.

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The plot,game characters, and humor keep the story moving along at a consistent pace games, and the script never suffers a dull moment, parodying pop culture and alluding to popular online games movies, books, sports, and songs.

Comment by game - May 7, 2011 at 12:03 AM

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