University: A Matter of Opportunity, Inequality and Human Capital

By Afreen Shafeeque

Amidst a stressful exam season, I sometimes wondered if all this work is worth something. Many of us students leave home and bear high costs to attend university. While scepticism about the value of a university degree has grown, economists have maintained that higher education is very important. Many outcomes of university education such as higher lifetime earnings are not surprising. But what do economists have to say about higher education? And what do those ideas imply for government intervention? 

Gary Becker’s work on Human Capital Theory in the sixties, has deeply influenced the mainstream view on higher education. Central to this theory is the idea that education adds to an individual's productivity. As labour is widely considered to be an input to economic growth, this theory linked education to economic growth. This also supports government provision of education as it suggests that education will bring greater economic benefits than its cost of implementation. 

Another explanation is based on Michael Spence’s Nobel Prize-winning work on signalling theory. This suggests that it is not education that makes individuals productive, but rather it helps identify the individuals that are productive. An individual being able to complete their degree, implies a certain level of capability and discipline to employers. Based on this signal, employers can put productive people to work. Signalling theory suggests that education is just a means to signal an individual's productivity. Hence, it doesn’t strongly support free higher education as productivity gains are not considered to be a result of education. 

As higher education leads to higher lifetime earnings, many believe that access to education is key to reducing inequality. However, inequalities are rampant in the education sector. Particularly, in countries like the US where the university sector follows a selective and competitive model. A key concept to consider is intergenerational mobility: the extent to which individuals can change their socio-economic status in comparison to their parents’ socio-economic status.

Data shows that, as university education has expanded in recent history, intergenerational mobility has weakened. Higher education, especially at the most elite institutions, is mostly accessible to individuals from well-off families. Historic data shows that  the correlation between an individual and their parents’ income increased in the nineties when there was a great expansion in higher education. Universities may then be a mechanism for the rich to get richer, exacerbating existing inequalities. 

A lot of research has been conducted on improving access to higher education and increasing enrolment. Disadvantaged minority groups are shown to greatly benefit from attending elite institutions. But overall university enrolment of disadvantaged groups is still not sufficient. For equal opportunity and life outcomes, research shows that policy support throughout an individual’s student life is beneficial. From the early ages where cognitive abilities such as language develop, to adolescent years where individuals consider their post-highschool choices and as young adults evaluating their ability to finance higher education. A combination of quality early education, access to information (about the admissions process, or future prospects) and financial aid are found to promote enrolment and future attainment. 

The increase in future income may also not be as high as expected. As the education sector expanded, individuals with degrees lost some of their competitive edge. Incomes have remained the same or even decreased, even though average academic performance has improved.  Unfortunately, it seems that higher education isn’t the great equaliser that many hoped it would be. But regardless of the privilege or lack of privilege we’re born into, higher education still seems to be a worthwhile strategy to play the cards we’re all dealt with. 

Sources

Becker,G.(1994).Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education (3rd ed.). The University of Chicago Press.

Doumet,M.H.(2018).The Economic Value of Higher Education. OECD Education and Skills Today. https://oecdedutoday.com/the-economic-value-of-higher-education/

 Dubner,S.J (Host).(2022). What Exactly Is College For? (No. 500) [Audio podcast episode]. In Freakonomics Radio. Freakonomics Radio Network. https://freakonomics.com/podcast/what-exactly-is-college-for/

Spence,M.(1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3),335-374.