Value, and Policy Implications
Walter W. McMahon
University of Illinois at Urbana-Champaign
March 2010 |
Existing price signals in the higher education market do not reflect the true value of a college degree to an individual or to society. Because non-market private and social benefits are not measured and accounted for in traditional estimates of the value of higher education relative to its costs, such benefits have been ignored in higher education decision-making. This market failure has resulted in years of underinvestment in higher education and contributed to a nationwide skill deficit.
Human capital created by higher education is used on average about twice as much at home or in the community as on the job. And beyond the private market and non-market benefits are the external societal benefits. Systematically identifying and estimating the economic value of both the private and societal benefits of higher education reveals that the value of the private non-market benefits are about 120% above and beyond the earnings benefits for both Associate and Bachelors degrees, and the value of the societal non-market benefits are about 88% above and beyond the earnings benefits. Such a framework for analysis places higher education policy issues of access, affordability, accountability, declining state support, and privatization into a coherent human capital formation framework offering new insights.