Does the university education benefit the individual student more than society as a whole?

Amanda Goodall’s Socratess in the Boardroom had been in my to-read stack for nearly a year until I finally started it last night.  The key argument of the book is: there is a positive relationship between university performance and its leadership by an accomplished researcher, hence research universities should be led by top scholars.  She sets out to support this argument by drawing from four data sets, quantitative and qualitative. Firstly she scopes current leaders of world’s top 100 universities, followed by scoping of the deans of the top business schools. Then she examines whether the characteristics of current leader can predict future success of their university.  Finally she draws upon interviews with 26 university leaders in the UK and the US to outline possible explanations for, as she says, “why better scholars may make better leaders” (p. 5).

In the first chapter in which she lays out her argument Goodall makes an interesting statement (undeservedly buried in a footnote):

“Teaching students is also an important output [of research universities]; however the evidence suggests that a university education tends to benefit the individual student more than society as a whole (see Kruger and Lindhal [2001] and Oreopoulos [2007]. For this reason I believe that undergraduate students (graduate students are different) should not be heavily subsidized by the state, given the enormous financial benefit of a degree to individual later in life. But generous scholarships for those who cannot afford fees should be readily available” (p. 2). [emphasis mine]

This sounded intriguing so I looked up the two references.

Oreopoulos’s 2007 paper “Do dropouts drop out too soon? Wealth, health andhappiness from compulsory schooling” is focused on compulsory education rather than higher education, and I don’t see how it can be used to support Goodall’s statement that “…the evidence suggests that a university education tends to benefit the individual student more than society as a whole”.

Krueger and Lindhal’s paper “Education for growth: Why and for whom” is more relevant. The aim of the paper is to bring together the micro- and macro-economic literature examining monetary return on investment in education (the focus of the microeconomic research) and macro growth research exploring whether the level of education in a country is related to the country’s GDP growth rate. Yet the argument that this paper makes is much more nuanced and less certain than Goodall suggests. In Section 2.2, Social versus Private Returns to Education, Krueger et al say [all emphases mine]:

The social return to education can, of course, be higher or lower than the private monetary return. The social return can be higher because of externalities from education, which could occur, for example, if higher education leads to technological progress that is not capturedin the private return to that education,or if more education produces positive externalities, such as a reductionin crime and welfare participation,or more informed political decisions.The former is more likely if human capital is expanded at higher levels of education while the latter is more likely if it is expanded at lower levels. It is also possible that the social return to education is less than the private return. For example, Spence (1973) and Fritz Machlup (1970) note that education could just be a credential, which does not raise individuals’ productivities. It is also possible that in some developing countries, where the incidence of unemployment may rise with education(e.g., Mark Blaug, Richard Layard,and Maureen Woodhall 1969) and where the return to physical capital may exceed the return to human capital (e.g., Arnold Harberger 1965), increases in education may reduce total output.” (p. 1107).

Furthermore, Krueger et al argue:

A potential weakness of the micro human capital literature is that it focuses primarily on the private pecuniary return to education rather than the social return. The possibility of externalities to education motivates much of the macro growth literature… Micro-level empirical analysis is less well suited for uncovering the social returns to education. (p. 1108)

“The micro and macro literatures both emphasize the role of education in income growth. A large body of research using individual-level data on education and income provides robust evidence of a substantial payoff to investment in education, especially for those who traditionally complete low levels of schooling. From this micro evidence, however, it is unclear whether the social return to schooling exceeds the private return, although available evidence suggests that positive externalities in the form of reduced crime and reduced welfare participationare more likely to be reaped from investments in disadvantaged than advantaged groups.” (p. 1130)

They conclude by pointing out that there are “conflicting conclusions regarding any deviation between the social and private returns to education.” (p.1131).

So Goodall’s statement inaccurately suggests that the evidence is conclusive. Also she fails to make it clear that the evidence she draws upon is based on microeconomic perspective (which as Krueger et al say, is less well suited to uncovering social benefits of education) and doesn’t take into consideration findings from macroeconomic literature (in particular those related to positive externalities from education).  This omission is ironic, because Goodall spends some part of her introductory chapter elaborating on positive externalities and social benefits from research, which suggests to me that she is aware of and sensitised to the argument.

References:

  • Goodall, A. (2009). Socrates in the boardroom: Why research universities should be led by top scholars. Princeton and Oxford: Princeton University Press.
  • Krueger, A.B., & Lindhal, M. (2001). Education for growth: Why and for whom? Journal of Economic Literature, 39(4), 1101-1136.
  • Oreopoulos, P. (2007). Do dropouts drop out too soon? Wealth, health, and happiness from compulsory schooling. Journal of Public Economics, 91(11-12), 2213-2229 .
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