Access to higher education and the value of a university degree

Nicola Bianchi

Governments sometimes promote reforms that increase access to education for a large share of the population. These reforms may lower the returns to education by altering returns to skills, education quality, and peer effects. This column examines a 1961 Italian reform that increased enrolment in university STEM majors among students who had previously been denied access. The reform ultimately failed to raise their incomes.

In an effort to improve skills or promote equality, states sometimes engage in sweeping reforms that rapidly increase access to education for a significant share of their population. For instance, starting in 1999, China expanded the number of seats available in its university system by more than 200% in just a few years (Heckman and Yi 2012). In the US, the federal government is considering actions to increase the number of university STEM graduates by 34% annually (PCAST 2012), while California is working on an education reform to increase the number of college degrees awarded in state by 40% (Senate Bill 850, 2013).

Reforms of this magnitude can have unintended consequences. For example, a higher supply of college-educated labour might drive down wages (Heckman et al. 1998a, 1998b). These reforms might also decrease the amount of skills that students acquire in school. For example, enrolment expansions can cause university resources to be overcrowded, thus reducing the quality of education (Bound and Turner 2007). These reforms might also change the composition of university students, especially if the students induced to enroll are less prepared. In the resulting classrooms, learning will be difficult if teaching is less effective with heterogeneous students (Duflo et al. 2011) or if the less prepared students exert negative peer effects (Lavy et al. 2012).

In a recent working paper, I illustrate the effects of a 1961 Italian reform that led to a 216% increase in enrolment in university STEM (Science, Technology, Engineering, and Mathematics) programmes over a mere eight years (Bianchi 2014). I find that:

The reform increased enrolment in university STEM majors among students that had been previously denied access, but ultimately failed to raise their incomes.

The enrolment expansion lowered the value of a STEM education by crowding out university spending and generating negative peer effects.

Due to lower returns to a university STEM degree, some students with the potential to succeed in STEM turned to other university programs.

Expanding access to university STEM programs

Italian high schools offer different curricula. Until 1960, a student who graduated from a university-prep high school (licei) could enroll in university in any major. A student who graduated from a technical high school for industry-sector professionals (istituti industriali) could enroll in only a few majors and most often did not enroll in university at all. In 1961, the Italian government allowed graduates with a technical diploma to enroll in university STEM majors for the first time. Technical graduates embraced this opportunity to the extent that freshman enrolment in STEM programs had increased by 216% by 1968 (see Figure 1).

Figure 1 Freshmen Enrolment in University STEM majors

To analyze the effects of this reform, I collected high school records, university transcripts, and income tax returns for the population of students that completed high school in Milan between 1958 and 1968. I chose Milan because it is Italy’s commercial capital and second largest city. It has the thickest market for university graduates and university-type jobs, and is believed to be the place where a university graduate can earn the highest returns.

Higher university access and lower value of education

The reform was successful in increasing university access among students with a technical diploma. After 1961, many technical students enrolled in university and completed their degrees. However, I find little evidence that technical students gained positive returns to university STEM education. This is an important result for two reasons:

STEM degrees were leading to high-paying occupations and

the outside option of technical students was to enter the labour market with just a high school diploma.

To explain these findings, I lay out a simple framework in which enrolment expansions affect returns to education through three main channels:

higher supply leads to lower wages,

higher enrolment crowds university resources and decreases the quality of education,

learning is lower in classes with students from different types of high school.

Crowding of university spending, peer effects, and changes in major choices

Several findings suggest that the enrolment expansion following the policy implementation lowered the returns to a STEM degree. To analyze changes in the value of a university education, I focus on the students who were not directly affected by the reform – the graduates from university-prep high schools. Among these students, returns to STEM education declined after 1961 to the point of erasing the pre-reform income premium associated with a STEM degree.

This decline can be partially explained by a lower amount of skills acquired in STEM majors after 1961. I find that human capital (measured by absolute grades) decreased more in STEM courses in which resources became more crowded and in which the entry of technical students had greater disruptive potential. Overall, lower resources per student can explain 31% of the income decline, while the change in class composition can explain another 37.3%. The remaining share can be attributed to higher supply of workers with a university STEM education or possibly other minor channels of general equilibrium effects.

By decreasing the value of STEM education, the reform might have deprived STEM majors of talented students. After 1961, many more students with a university-prep diploma decided to enroll in university majors that were still not accessible to technical students (see Figure 2). This effect was concentrated among the students with higher high school grades.

Figure 2 Cohort shares of students from university-prep high schools enrolling in university STEM majors and programs with restricted access after 1961

Implications for policy

There are instances in which students should invest more in education. For students who do not have the resources to pay for education, public intervention is needed to improve access, but should just ease the financial constraints of students under-investing in education. Public intervention, should not take the form of greatly expanded education provision by state-controlled universities. The inefficiencies in the public provision of education might be magnified by enrolment expansions and might limit the benefits for targeted students.

References

Bianchi, N (2014), “The General Equilibrium Effects of Educational Expansion”, Working Paper.

Bound, J, and S Turner (2007), “Cohort crowding: How resources affect collegiate attainment”, Journal of Public Economics, 91(5-6): 877–899.

Duflo, E, P Dupas, and M Kremer (2011), “Peer Effects, Teacher Incentives, and the Impact of Tracking: Evidence from a Randomized Evaluation in Kenya”, American Economic Review, 101(August): 1739–1774.

Heckman, J J, L J Lochner, and C Taber (1998a), “Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labour Earnings with Heterogeneous Agents”, Review of Economic Dynamics, 1(1): 1–58.

Heckman, J J, L J Lochner, and C Taber (1998b), “General- Equilibrium Treatment Effects: A Study of Tuition Policy.” American Economic Review, 88(2): 381–386.

Heckman, J J and J Yi (2012), “Human Capital, Economic Growth, and Inequality in China.” NBER Working Paper No. 18100.

Lavy, V, M D Paserman, and A Schlosser (2012), “Inside the Black Box of Ability Peer Effects: Evidence from Variation in the Proportion of Low Achievers in the Classroom”, Economic Journal, 122(March): 208–237.