Education Measures Up

In 2009, Walter W. McMahon, emeritus professor of economics and education at the University of Illinois Urbana-Champaign wrote Higher Learning, Greater Good: The Private and Social Benefits of Higher Education. Using a human capital approach the question of what higher education does and does not provide to society, McMahon’s account is thorough, persuasive, and technical accomplished. It is a substantive work, favorably reviewed and noted in scholarly academic and policy circles.

This year, a paperback version of Higher Learning, Greater Good came out. McMahon drafted a new preface, noting that while some of his numbers had to be updated, most of the original arguments remain relevant and on target. In fact, the book’s claims are even more trenchant today. More and more people question the value of higher education. Public funding of higher education has declined. The rhetoric around education circles on private goods – jobs and income – and rarely about what society gains from an educated populace. McMahon’s book reframes the debate on higher education. He starts with a basic important question: how much should a government invest in higher education?

McMahon sees the problem as an economist: what is the degree of privatization that will give optimal outcomes? Public funding has declined. Therefore, the burden of paying for higher education has shifted. Much more is being borne by students. So what is the right level and kind of investment to maximize learning, innovation, and growth? How much should an individual pay to realize the best possible gains?

McMahon’s goals are ambitious: developing a systematic and comprehensive framework and analysis that gets at the different benefits and costs of higher education. He wants to find out the true cost of higher education – including opportunity costs – and the true benefits, not just the personal benefits of a job or a research institution’s intellectual property. This is difficult macroeconomic modeling and analysis. McMahon goes into detail throughout the text, explaining what he measures, what he does not, and why. It is complicated stuff. Methodology may not be to everyone’s taste, but it is essential to ground the book’s data and arguments.

Higher Learning, Greater Good is also anchored in extensive scholarship. McMahon looks deep, acknowledges the work of peers and predecessors. He draws on international comparisons. He locates his study within larger and smaller efforts to make sense of higher education. Appreciating Higher Learning, Greater Good means following McMahon on a deliberate and thoughtful journey.

The book opens with questions and then McMahon establishes his terms, methods and process. He reviews traditional measures of higher education’s return on investment: jobs, earnings and growth. McMahon looks at the value added of different kinds of education, how education plays out over the short-term and the long-term. The data and analysis are incontrovertible: higher skills and higher educated people make more money. The average in increase, in 2007 dollars, is $31,174 per year for a college graduate.

The added value of a college education on salary is increasingly true in a knowledge-based economy. McMahon evaluates studies across countries, across states, within sectors and across sectors. In addition, he makes it clear that the “over-education” argument is neither supported by data nor by analysis. People are not over-investing in higher education – anecdotes of taxi drivers with PhDs notwithstanding.

The private non-market benefits are the subject of a separate chapter. McMahon controls for income and other factors, zeroing on benefits that higher education consistently delivers. These include better health, longer life spans, healthier and better-educated children, smaller families, less poverty, and greater happiness. A wealth of scholarship demonstrates that the college educated receive these gains. Good health, long lives, more successful and healthier children, more money, and yes, college educated people report higher levels of happiness. The college educated are less likely to be obese. They are more likely to be engaged citizens, more tolerant and more likely to give charitably. The examples of impact are fascinating and wide-ranging. Affordable and accessible college education can reduce inequality and reshape families and their communities. All of these consequences rest on decades of solid research.

Benefits are not only for baccalaureate degree holders. They extend to community college graduates. Associate degree holders on average will live 2.25 years longer than those who only graduate from high school.

Importantly, the total private non-market benefits of a college education are estimated to be “worth” more than the direct benefits. This is powerful social science data. It also means that conventional measures of determining what a college education delivers are only half-right. Big picture, a college education is twice as valuable as many estimate. McMahon estimates in 2007 prices that the total value of the private non-market benefits of a college education baccalaureate are $38,080 per year.

Institutions of higher education and their students are unaware of these benefits. It is an uninformed and inefficient market, McMahon argues. If students were more aware, they would make better choices. If policy makers were more aware, they would increase investment.

When McMahon examines the social benefits of higher education, he looks at externalities – the goods that spill over to others. He looks at the social rate of return, the contribution of education to national income growth, and the economic impact of colleges and universities. He finds ways to measure the impact of college educated people in service (boards, government, charities, civic engagement, etc.). In addition, he estimates the impact on innovation. Education’s contribution to democracy are also studied. Successful democracies require a middle class and social cohesion. Higher education plays an essential role, as it does in the promotion of human rights. Higher education’s effect on political stability and income growth is assessed, as is its role in reducing crime. Education leads to fewer individuals on welfare and even plays a positive role in the environment. McMahon’s best estimate is $27,726 per year for direct average non-market public goods social benefits for each college graduate, male or female.

University research also gets counted. These include patents (an easier impact to measure) and less direct measures. Return to investments at the macro-level are 30% in engineering and 20-30% in everything else. The ROI (return on investment) is impressive.

McMahon closes the book with a section on new policy recommendations and on financing strategies. He emphasizes that there is significantly greater underinvestment in higher education than many believe. Poor information about higher education’s benefits contributes to this and leads to a poorer performing higher education market. Therefore, higher education should embark on policies and practices to inform the public and students about the return on investment.

His best estimate is that 52% of higher education’s benefits are externalities. Efficient markets, therefore, are neither fully private or fully supported by the government. Where we are today means that to make the market more efficient, financial aid and investment should be significantly increased. Pell should be increased substantially – $20.8 billion – McMahon argues to increase enrollment and see a reasonable return on investment. Several other possible changes are explored.

McMahon’s book is not an easy read. It is slow-going, methodical, and aimed at an informed, curious, and patient audience. I have difficulty imagining many sitting down and working their way through it, even though Higher Learning, Greater Good is of tremendous relevance to higher education, public policy, families and political leaders.

For those of us who want to change the dialogue around higher education, first steps have to include sharing this information within the academy. Data and analysis will not change minds. Without more investment in higher education, the nation is at risk. We have to engage each other – faculty, staff and the millions of students in higher education – about the many ways that higher education can improve lives and communities.

David Potash

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