Valuing and Evaluating the Liberal Arts in the Research University

The Liberal Arts & Sciences in the Research University Today:

Histories, Challenges, and Futures

Paul CourantJeffrey Smith

May 22-24, 2013

In a nutshell1. It’s ok, even useful, to talk quantify benefits from

higher education and liberal arts education.2. Contrary to some beliefs, the return on

investment, pecuniary and nonpecuniary, is still high.

3. There are many significant benefits and costs of higher education that don’t show up as additions to or subtractions from income.

4. There is an enormous amount of heterogeneity, in students, in curricula, in the effects of higher education on average and on individuals.

“I think (hope) we can agree that accountability is key in connection with essentially everything we have been discussing: admissions policies, financial aid structures, pedagogy, graduation rates, and so on.

Fortunately, there seems to be much more willingness today than in times gone by to look with a cold eye at the actual evidence concerning outcomes, and to be willing to make adjustments, or even to shift directions entirely, if something is not working.

It will not do simply to assume that what appears to be a good idea is in fact a good idea.”

William G. Bowen

Money payoff to college

Caveat: literature not just about research universities.

Clear unconditional mean difference

But what do the means mean?

Owen and Sawhill 2013

Limitations of mean differences

Not causal

Synthetic cohort assumption dodgy – see Heckman, Lochner and Todd (2006)

Selection bias

Students do not attend and/or complete at random

Conditioning on “ability” and other background variables lowers the money payoff to college

Best evidence still suggests a substantial causal effect; see e.g. Card (2001) Econometrica

What about the current cohort?

They are paying a larger share of the cost

Earnings payoff lower when entering the job market in a cyclical downturn

Opportunity costs lower too

No reason to think recent increase in premia will decrease

Costs and benefits for individuals

Compare current costs (direct, opportunity) to current and expected future benefits of all kinds

Lots of heterogeneity in costs and benefits

Marginal student likely differs from the average student => estimated average effects of policy a poor guide to effects for marginal students moved in or out by policy

Other payoffs to college

College reduces employment risk

College improves health outcomes

College reduces criminal behavior

College increases voting

College increases subjective well-being

Heterogeneous money payoffs: college quality

Earnings effects increase in college quality

Evidence: Dale and Krueger (2002, 2013), Hoekstra (20009), Black and Smith (2006), and many othersDillon and Smith (2013): college quality effects much more important than mismatch effects

Completion

Literature suggests non-trivial “sheepskin” effects of college completion

Completion rates a key mechanism by which college quality affects earnings

How much of low completion is experimentation?

Policy aside: ways to better predict who will not complete would have a huge payoff

The liberal arts and sciences

What does the literature on college major have to say about the determinants and effects of major choice?

Big differences in money payoffs to major choice

Conditioning reduces but does not eliminate these

Black, Sanders, and Taylor 2003

Interpreting major choice effects

Majors have many aspects: 1. Current consumption and effort: who is in the library or

the lab on Friday night?

2. Labor market payoff in dollars

3. Labor market payoff in other job characteristics

4. Earnings variance – Dillon (2013)

The marginal student in each major is indifferent

Major issues

How much information do students have? A lot!

Evidence: Stinebrickner and Stinebrickner (2013), Wiswall and Zafar (2012) and others

Stability of the earnings differences suggests ignorance is not the main story

Tastes matter a lot

Bottom lines

1. Measure and evaluate, but respect the subtlety of meaning

2. College still has a large economic payoff for most students

3. College affects many outcomes other than earnings

4. Heterogeneity matters a lot!