Measuring What Matters

Reviewed by Patricia Simpson

Higher Learning, Greater Good: The Private and Social Benefits of Higher Education. Walter W. McMahon. Baltimore: Johns Hopkins University Press, 2009.

It is hardly news to most readers of Academe that higher education today faces a severe crisis. Obviously, the economic meltdown and ensuing deep recession that continue to haunt the economy have contributed to this crisis, but its origins can be traced back to a prolonged pattern of underfunding and withdrawal of resources from the public sphere that began during the Reagan administration.

Of course, the ascendance of conservative political-interest groups and complementary ideologies account in no small measure for this slow starvation. Correspondingly, theoretical frameworks for assessing the value of public goods have been woefully inadequate and biased toward underestimating the benefits to individuals and society that derive from these goods. This is nowhere more obvious than in neoclassical economics, the dominant branch of economics since World War II. Led by conservative thinkers such as Milton Friedman, the field has been characterized by studies that tend to support governmental retreat from the delivery of social services and programs. The single exception to this rule has been economists identified with a human-capital conceptual framework who have adapted neoclassical theory to derive mathematical models for assessing the returns from education. While sometimes skirting the larger issue of how higher education should be funded, human-capital researchers have produced numerous studies of higher education that link it to greater earning power.

Among noneconomists, however, a deep skepticism endures about whether it is possible to quantify the contribution of higher education. Some of this skepticism is connected to larger questions about the limits of measurement in the social sciences in general, but more often it centers on the failure of human capital researchers to move beyond the question of individual earning power in placing a value on higher education.

Here Walter McMahon’s Higher Learning, Greater Good: The Private and Social Benefits of Higher Education makes a laudable contribution. A retired University of Illinois economist of education, McMahon has moved well beyond the conventional human-capital perspective to offer a comprehensive assessment of both market and nonmarket returns traceable to higher education. In so doing, he sheds light on how grossly both policy makers and the general public have undervalued higher education and how great a risk our society runs by chronically underinvesting in it. He argues that the risks are especially high for globalizing, knowledge-based democratic societies like the United States.

McMahon begins his book with two chapters that establish a context for what is to come. He offers data on the decline in public funding for higher education and the simultaneous rise of what he describes as the “privatization” of public institutions, whereby hard-pressed administrators and faculty members are increasingly expected to become more “entrepreneurial” and find private funding for research. Privatization also entails shifting the cost of higher education to hard-pressed parents and students. McMahon describes an interrelated trend that he labels “vocationalization.” He associates vocationalization with the increasing shift of limited resources to academic units with a strong vocational slant, often found in business and information technology departments, at the expense of the humanities, arts, and social sciences. Finally, given that his book is meant for general readers, he also briefly outlines some basic economic concepts that he employs and in some cases extends in the ensuing chapters.

Chapter 3 begins with a straightforward review of the evidence deriving from conventional human-capital research, which has consistently demonstrated that college graduates earn significantly more than high school graduates throughout their careers. Increments associated with a college degree have only widened since 1980.

Expanding the assessment approach in chapter 4, McMahon tackles the issue of the nonmarket benefits to individuals associated with a college degree. He reviews studies that examine benefits ranging from smoking cessation to cognitive development, from family size to perceived happiness. Although some may question how any single summary measure can be computed based on results from a diverse range of statistical studies, McMahon does apply a rigorous methodology in estimating an average annual nonmarket benefit of $38,080 for individuals with a bachelor’s degree. This estimate is 122 percent of the market benefit ($31,747) of the degree.

As for benefits to the larger society, McMahon summarizes the extant evidence, examining the relationship between higher education and economic growth. Even after controlling for other possible determinants, like technology, McMahon affirms that there is a robust positive relationship between higher education and gross national product. In chapter 5, he analyzes the relationship between higher education and social outcomes like democratization, political stability, crime rates, and pollution levels. The data suggest that the percentage of a nation’s population having a college degree is consistently associated with favorable, if presumably indirect, effects on these domains. More precisely, McMahon estimates that a college degree confers $27,726 annually in nonmarket social benefits.

Like others, I am sure, I cringed at assigning precise numerical values to many of these benefit categories, especially democracy (what would John Dewey say!), but McMahon is doing important yeoman’s work here. Above all, he is taking an innovative first step toward providing the kind of “best estimate” that, for better or worse, highly influences policy makers and a large segment of the citizenry. Viewed in this light, the total annual incremental value that McMahon associates with a college degree, $96,980 ($31,174 private market benefits, $38,080 private nonmarket benefits, and $27,726 social benefits) in 2007 constant U.S. dollars, is a boon to those who advocate on behalf of more resources for higher education. Clearly higher education has been grossly undervalued using the limited estimation framework of the past. With McMahon’s book, we have a much more refined measure, which sheds important light on both the reality and the risks of this country’s continued underinvestment in higher education.

Patricia Simpson is associate professor of employment relations at Loyola University Chicago. She formerly served on the AAUP’s national Council and has been active in teachers’ unions and advocacy organizations throughout her career. Her e-mail address is psimpso@luc.edu.

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