UV Letters

23. 10. 2012. BACK

Debating the Dystopian Counterfactual

UV Letter - Volume II, #22

Only a few topics in the Presidential debates produced complete agreement between President Obama and Governor Romney. The middle class? (Check. Both candidates seem to be in favor of the middle class.) The importance of families? (We’re still waiting for the first anti-family Presidential candidate. Would be interesting.) And higher education. Both candidates view higher education as the key to prosperity for individuals, and to economic competitiveness for America.

Singing this gospel of higher education has become as American as motherhood and apple pie. The media faithfully report the numbers: 4.1% unemployment rate for those with a bachelor’s degree vs. 8.4% for high school graduates with no college and 12.5% for those with less than a high school diploma. College graduates earn an average salary of $78,000 compared with $29,000 for high school drop-outs.

Recently, the Gates Foundation produced a video that is a classic version of the gospel. The transcript is as follows:

In 2009, the unemployment rate for high school dropouts was more than twice as high as it was for college graduates. But increasingly, even a high school education isn’t enough. A student who earns a college degree or other credential beyond high school has a much better shot at a brighter future. The proof is in the numbers. The lifetime earning potential for a student with a bachelor’s degree: $3.4M. A high school degree: $1.8M. A high school dropout: $1.2M. In 1973, 28% of jobs required an education beyond high school. In 2007, 59%. By 2018 63% of all American jobs will require some sort of education beyond high school. In real numbers that means American employers will need 22M workers with postsecondary degrees. But research shows that if we don’t do something about this problem, we’ll fall short by 3M graduates. The future of our young people and our country is at stake. We must educate our way to a better future.

On Edudemic, where we encountered the video, the blogger writes: “Enjoy the video and hopefully it will either scare or excite you to improve the future.” Well, the video does scare us. But for a different reason. Into our minds crept a Bizzaro version of the Gates video that went something like this:

In 2009, the unemployment rate for high school dropouts was more than twice as high as it was for college graduates. A student who earns a college degree or other credential beyond high school has a much better shot at a brighter future. This is because employers want to hire people who not only have the talent and grit to complete the multi-year project commonly known as high school, but also who have the initiative to apply to college, and then demonstrate the talent and grit to finish a second multi- year project. Although nothing they learn in high school or college is relevant to employers and although resources deployed to higher education are mostly a deadweight loss to the economy (the exception being college sports, which are fun to watch), by 2018, 63% of American jobs are likely to be filled from this self-selected pool of college graduates – the economy’s largest, most easily identifiable pool of prospective workers.

We call this the Dystopian Counterfactual. What if the 100% of the supposed benefits of higher education are a result of self-selection bias? What if the pool of individuals who earn college degrees would have demonstrated higher employment levels and incomes anyway, simply as a result of their initiative, talent and grit? If the pool of college graduates went back in time and did absolutely nothing of educational value for four years – for example, watch President Obama debate Governor Romney in an endless loop – would we still have the same economic outcomes?

Perhaps the Dystopian Counterfactual is playing a role in the increasing hue and cry over the value of higher education. A study conducted earlier this year by Pew Research Center reported that 57% of Americans say higher education fails to provide students with good value. A new study from Carnegie and Time Magazine found 89% of U.S. adults agreed with the statement that “higher education is in crisis.” These rebellious thoughts are not going away anytime soon. Indeed, we see them spreading to other markets that have until recently been rocking back and forth to their own version of the gospel of higher education. So how can higher education best deal with these doubts and dispel Dystopia?

***

The first answer is data. We need data to demonstrate that higher education itself (as opposed to self- selection) produces better economic outcomes, as well as other positive outcomes like more stable families (assuming you’re pro-family), and better citizenship. Today, available outcome data is crude – graduation rates, loan repayment rates and if we’re lucky, employment rates within 6 months of graduation. All these metrics are probably better explained by self-selection than by any contribution of universities.

More important, there is absolutely no outcome data relating to student learning. We know what courses students have taken and their grades. But we don’t know what students are supposed to have learned in these courses, what capabilities they are supposed to be able to demonstrate as a result, and the extent to which they’ve done so. All of this is as mysterious as religion. In an age of terabytes of data, it’s shocking. It’s no wonder that dystopian doubt is creeping in.

There are a number of reasons why we lack this data. The primary one, however, is that because payments for higher education are made for inputs rather than for outputs, no one has bothered to collect and report it. Students enroll and pay tuition in order to receive 45 hours of seat time for a 3- credit course (as well as 90 additional hours of reading and work outside the classroom). That’s what universities are paid for. That’s what they deliver.

We face a similar issue in healthcare: historically, payments have been based on procedures. Same thing in law: payments based on hours billed. In a recent article in The New York Times, Harvard Business School professor Robert Pozen discussed this issue in medicine and law:

A measurement system based on hours makes no sense for knowledge workers. By applying an industrial-age mind-set to 21st century professionals, many organizations are undermining incentives for workers to be efficient.

Pozen went on to discuss the movements in both medicine and law to tie payments to outcomes as opposed to inputs. Compensating doctors for successful health outcomes, and compensating lawyers for successful legal outcomes accomplishes two things: (1) measurement and reporting of outcomes; and (2) improvements in efficiency. Experts predict this shift will revolutionize both professions.

We need a comparable movement in higher education. Although the notion of paying for educational outcomes is somewhat outlandish, it will seem much less so when universities begin reporting what students are supposed to be learning, the expected capabilities as a result, and how students measure up.

America leads the world in many aspects of higher education. Unfortunately, this includes the extent to which the Dystopian Counterfactual has progressed. The silver lining is that by facing this challenge head-on – by defining and reporting new outcome metrics, and perhaps establishing innovative payment models down the road – American higher education has the opportunity to write a modern gospel of higher education: a tune the rest of the world will follow, and which future Presidential candidates will sing in unison.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.

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