A university education is the basis of a bright future and a good life, or so we’re told by our parents and our teachers. With a degree we will be able to become better, more successful people. We will be able to get jobs that will allow us to swim in money. Graduating from a university is supposed to help us make it in life and benefit us immensely.
However, not only does a post-secondary education benefit each individual, these benefits spill over and have a positive effect on the people around them. The education that a student gains from attending university creates numerous positive externalities. One major positive externality would be the improvement that higher education has on a society’s labour force. A more educated population means a more educated work force. This means more chances for innovation and development by that society. A more educated and prepared society would also have more people ready to work, lowering unemployment rates. This would be another increase to the social welfare of that particular society.
A university education, as far as I can see, only creates positive externalities. How can someone becoming more educated in a career field possibly have a negative impact on those around them? People going to university for medicine now means a healthier society later. People researching new technology in university now means a more advanced world for everyone later.
Everything that we use or that benefits us is a good, therefore a university education is a good, but what kind of good is it? Well a good is defined by two characteristics, whether it is excludable and whether or not it is rival in consumption. A university education is both excludable and rival, making it a private good. It is excludable because in order to attend classes and go to university, you must be able to pay the university fees, such as tuition, boarding, textbooks, among other things. If you cannot afford those, you are excluded – not able to have access to the good that is university education. It is rival in consumption because there is only a limited amount of space available for any given university program. For example, if a program only accepts 500 out of 1000 applicants, that means that the good in this case, university education, can only be consumed by the 500 accepted applicants. The rejected applicants will not be able to consume the good, meaning that it is rival. This means that university education is a private good because it is both excludable and rival.
In addition to being a private good, I believe that university education is also a merit good. A merit good can be defined by two characteristics. Firstly, its consumption and secondly, the externalities associated with the good. The government believes that merit goods would be under-consumed if left alone in the market, so merit goods are often subsidized or even offered for free, such as high school education. Regarding the externalities, merit goods are goods that create positive externalities, “where the social benefit from consumption exceeds the private benefit”.
Based on those two characteristics, university education must be a merit good. Although university education is not offered for free in Canada, there is substantial funding by the government that goes into post-secondary education. In 2005 – 2006, approximately 30.6 billion dollars was spent by all levels of government in Canada on funding for universities and colleges. Also, the government does assist those that need money by offering grants, scholarships, and financial loans to those that meet their standard or requirements. They do this because they are aware of the potential benefits that each university graduate can bring to their country and society. The benefit one offers to society with the knowledge gained from higher education is vast. A doctor can save countless lives, a teacher is able to impart knowledge and prepare future generations. While the education may mean a job and money for the individual, it means much more than that to their society.
As previously stated, there are multiple positive externalities associated with receiving a university education, and because of that, there should be more incentive for youth to attend university. In order to do that, university must be more accessible. There is already an economic incentive associated with getting a university education, the chance at a more successful career then one could have had without it. However, this incentive is not strong enough because it is not instant. It takes a lot of time for the incentive that lured students in, discovering a career and earning good money, to become a reality. There is also the negative economic incentive that comes with a university education, which would be the cost.
Using the above chart, we can see that the average cost of tuition, between these six programs, is $9 145.50 per year. This is a strong incentive for Canadian students not to attend university, the high costs.
However, changing the way that university is paid for now would only negatively affect the market for university education. Of the four types of goods, the only type of good that is not considered a market failure is the private good, which we have established that university education is. Therefore, I believe that the current funding system should remain. Students should pay for their own education, but they should be helped by the government if they require it. With the government aid most likely coming from tax money.
In an interview with Robert B. Archibald, economist at the College of William & Mary in Virginia, USA, he states,
Everyone has three objectives for higher education: lower tuition, higher quality, and less government spending on subsidies. The unfortunate truth is that we can have any two of these, but we can’t have all three. If we mandate low tuition, we have to give on one of the other two. Either the government has to increase spending on subsidies, or the quality of the education schools will be able to provide will suffer.
I believe this not only applies to American colleges, but colleges and universities all around the world, including Canada.
Let’s pretend that university education was made completely free in Canada. Tuition, board, any other costs associated with gaining a university level education was taken care of by the government. The education would no longer be excludable, but remain rival. It would no longer be excludable in the sense that no one would have to pay for university education, they would only have to have grades that meet admission requirements and from that point, it is rival, since there may still be limited spaces. This would mean that higher education would become a common resource, a good that is also a type of market failure. If university education became a common good, it would suffer from overuse. This would likely mean a lack of professors available to teach, resulting in a negative impact on the market and leading to a poor education for those attending.
Furthermore, it has been documented that lower university tuition costs do not mean that more people attend university. According to the Higher Education Strategy Associates, Canadian provinces such as Nova Scotia, with the highest tuition fee, also has the highest university participation rate. Whereas Quebec, which has the lowest tuition fee also has the lowest participation rate. Coincidence? This supports the idea that lower tuition costs does not equate to higher attendance rates by children of lower income families.
Even Alex Usher of The Globe and Mail agrees.
To conclude, universities are more than just an education, universities are economics. A university education is a valuable good, a private good that we must pay for. A private good that offers not only those that are paying for it benefits, but also offers social benefits as well.