Thursday, March 22, 2012

Striking Out the Value Equation

Society benefits from a more educated population. There are tons of studies out there that demonstrate how a more educated society has more innovation, higher standards of living, and is more peaceful. My personal belief is that education is wonderful because it facilitates social and economic mobility. Philosophically, then, I support the subsidization of higher education to make education accessible to people of all socio-economic groups. I love the rags to riches stories.

Striking down value
That brings us to today. Tens of thousands of Quebec students marched and protested a $325 per year tuition increase. Their march blocked roads and made traffic jams. Their protest got commercial shipments late. Some sick people missed their doctor's appointments. Hard working employees were late for work. Munchkins in day-cares had to wait longer for mom or dad to pick them up. These are real costs to individuals and to society. The protests down the streets destroy economic value. To the "striking students", this is not the way to win friends and influence people.

Tuition rate value
Let's put this student "tuition hike" in perspective. Since most of the student strikers are undergrads, I'll use undergraduate tuition numbers. I'll pit McGill University's tuition (for Quebec residents) against the tuition prices that they would pay at other comparable-tier schools.

McGill's tuition is comparatively so low, you can barely see it on the chart. But wait a minute. Let's exclude the private universities from the comparative sets. Don't some of these state universities (like University of Michigan or University of Southern California) have privileged rates for state residents? How would Quebec tuition rates stack up against these subsidized rates? Let's take a look.


Here too, the Quebec rate is a huge bargain. In fact, it is the least expensive tuition rates in Canada (Bloomberg) and it doesn't come close to American resident state school equivalents.

Why do universities charge so much? It is expensive to educate a student. Without accounting for overhead (you need classrooms, computers, projectors, pensions for staff, cleaners, security, cleaning staff etc), the marginal cost for educating each additional student is about $16500 per year. This is why even private schools with huge endowments charge around $35k per tuition per year.

The expert value
One of the coolest things about working in academics (especially at a place like McGill) is meeting world-class subject experts. I've engaged with profs who have won the Order of Canada, advised American presidents, and who have been nominated for Nobel Prizes. Many others have been inventors while others have been on the cover of magazines. These are individuals, who are paid thousands of dollars per day for their expertise in the business world. Yet, they choose to be in lower paying university environment because they love their field and enjoy sharing their passion with students. It's not a bad deal to pay $400 per a course to learn from a world expert who commands $7000 per hour long speech. Obviously, most profs are not at this level, but the professorial talent bench is often stocked with best-in-subject matter experts.

The degree value
Ever wonder how much a university degree is worth? According to "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings" (.pdf), high school graduates can expect, on average, to earn $1.2 million over the course of their lifetime; those with a bachelor's degree , $2.1 million; and people with a master's degree, $2.5 million. So an undergraduate degree is worth about $900,000. So the $1625 tuition hike over the course of an undergrad degree ($325 x 5 years) represents about .1% per year hike of future earning benefits that the undergrad degree provides. The hike is not a lot.

The Value Equation
We are left with this reality. The annual tuition increase amounts to less than the price of an iPhone or pair of designer jeans. The $1625 and is a pittance of future income earning benefits the degree provides. Education has a very simple value equation. Tuition is way under priced. The benefits of a degree even with full market tuition is still worth it. ($200,000 in tuition for $900,000 in benefits) This blog is a reminder to striking students to learn this most basic value equation. If striking students can not understand this, perhaps university is not for them.





13 comments:

  1. 1. How convenient you chose to compare us to US/rest of Cda instead of countries that offer free post secondary education. You could have chosen France, Norway, or any other Northern European country. Instead of comparing us to the best possible example for a society, you chose to compare us to the worst, and only the worst.
    2. When you discuss the value of a degree in a lifetime, you are using a US census. Might I remind you, we are in Qc. Our salaries, wages, taxes are different.
    3. The economic cost of a one day 3 hour long protest demonstrates a clear lack of understanding of protest. I suggest you brush up on your history to learn about the impact of a protest on govt policy. When the govt does not listen to its citizens, especially to the student class of citizens through dialogue, then other means of pressure need to be used. Protesting is one of those.
    4. Last, but not least, your opinion on education is based (from what I can gather in your blog) on the american model of post-secondary education not the Qcois one that was formed during the Quiet Revolution.
    Think about it. That is what you are supposed to do with a PhD right?
    You can start with some Qc sources for a change:
    http://www.iris-recherche.qc.ca/publications/faut-il_vraiment_augmenter_les_frais_de_scolarite

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    1. 1. Here are the canadian stats. Pretty much the same grid and still the lowest tuition rates in canada. Do you see why you don't get our sympathy vote....lowest in canada
      http://www.statcan.gc.ca/daily-quotidien/100916/t100916a1-eng.htm
      3. These protests didn't just happen this one day. I recommend watching the news, than you'd realize that they've been protesting for weeks(blocking bridges, traffic, metros, preventing students from entering buildings etc.) My best friend had an appointment she's been waiting to go to for 6 months to treat her heart condition, couldn't make her appt because of this protest. Thats just one person.

      Pretty sad that these kids are putting a price on their education. Remember kids, you get what you pay for.
      You want free education:
      -expect increase taxes ten fold. So you maybe happy with free education but when you have to work in the real world you wont be happy having to pay huge tax fees.
      -teachers, admin don't work for free. You'll have professors that aren't nearly as qualified or passionate about teaching.

      These protesters need to realize if they want to get to the bottom of this protest our corrupt government. Demand that our tax dollars be put to our province, not into politicians/mafias pockets. If we were all to put our foot down maybe schools wouldn't have to raise tuition fees. We pay one of the highest taxes but our province has nothing to show for it.

      Like I've said before, when it cost more to have a degree from a community college than it does to have a bachelors from Canada's #1 school, McGill, there's something wrong. Take pride in your school and degree, you should be proud to pay an extra couple bucks.
      http://oncampus.macleans.ca/education/2011/10/26/macleans-2011-university-rankings-2/

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  2. To the poster above:

    1. Yes, he's comparing McGill to the other North American universities. We are in North America, yes? If you want to compare to French universities, for example, learn about them, please, before you comment. French universities are free, true, but you can't apply to most of them (you are restricted both by geography and by exam results). Teachers are public servants. Graduating from any but the top two or three universities in France is largely valueless. Name an internationally-renowned French or Norwegian university, by the way?

    2. Feel free to use Quebec figures for the value of a degree. You're going to argue that the lifetime value of a degree in Quebec is negated by a $340/year fee hike? Good luck.

    3. Yes, protesting is a form of pressure. When your protest inconveniences THOSE THAT PAY for your education, you can argue it is a fundamentally stupid form of pressure. Who do you think subsidies school fees? Workers who pay taxes and need to work. When you are stopping them from doing that, you are doubly annoying. Especially when the decision makers are in another city!

    4. What are you talking about?? The Parent report and the subsequent reforms of Lesage and other Liberals during the Quiet Revolution were meant to broaden access to education, through CEGEPs and largely removing the church from education. The goal was to provide access to education to girls, rural Quebecois, and others. It was never to offer free University education, which is why it specifically set up loans and bursaries for students who wanted to pursue university education.

    Your IRIS link is interesting, too, but note that the same institute that produced it has argued, in much the same way, that bonuses in jobs are a bad thing, that electricity rates should never go up, or that private health services such as in vitro fertilization are a bad thing. IRIS is a socialist think thank, with a broad agenda to argue against private sector financing of any type. Yes, they also oppose tuition fee hikes, and make some good points, but don't pretend that they are an unbiased "Quebec" source. Your linked study is an advocacy piece, nothing more.

    As it happens, I am also against the fee hike, albeit for different reasons. I think that any hike should come with a corresponding service level increase. If the Liberals want to hike tuition fees, fine, but each tuition hike should correspond to an increase in services in some way: more bursaries, more loans, more job-training services or internships, or better research facilities. I don't support this hike because while the hike is very real, the corresponding service level increases haven't been made very tangible yet. And that is not right.

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  3. Is IRIS a communist organisation?

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    1. Troll. Godwin point.

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    2. Ya I thought IRIS was all about reinforcing pro communist agendas!

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  4. Thank you Bob for your post. The way I see it, a university education is not for everyone, it is for those who want it and it is ultimately an investment.

    A quebec education is affordable, working full time in the summer and part time during the year is enough to pay for everything (even with the tuition increase). You just can't go out every weekend and spend your money at the bar!

    You may have to live very simply, but the way I see it, it'll be worth it in a few years.

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  5. Absolutely brilliant. True. Exactly what I think. Add to that the numerous students who just travelled away for "spring break :' and do not bat an eyelash that this trip is on their student loans and savings!!!

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  6. Instead of citizens fighting against each other, we should be united in this cause.

    The govt and the administrators of our universities are mismanaging are money (big salaries, severance packages, paying condos, renovating their own offices for $60k, corruption, etc). We already pay the highest taxes in in this province for public services but the service is not 100% there. Now the govt is asking for us to pay from our own pocket directly. However, it does not mean that the money will be properly used and the services will be improved.

    We need to block the tuition hike and demand an commission on our post secondary education.
    We need to get rid of this mismanagement of our funds by our universities.
    We need to have a debate in society as to what model we want to follow: stay with the ├ętat-providence/Qcois model where university is publicly funded. Where society considers higher education a collective good and investment for society.

    OR do we want to follow the American model of university where it it is a user-payer, an individual investment not necessarily a service that should be easily accessed by anyone in society.

    We need to decide if we find it justifiable to have students starting their adult like 20k-30k+ in debt. Is it fair to have 2 students finish with the same degree, he same qualifications but one starts off with a clean slate while the other one has a huge debt to pay that lasts for several years.

    We need to ask where is the money going to go from the tuition hike. The govt claims it will be decreasing its own contribution (directly to the university) by increasing ours (the govt's notion of " la juste part"). While transferring a portion of the money to the Financial Aid program where students can get loans to fund their education while the govt pays the interest on those loans. In other words, instead of funding the universities directly, the govt chooses to transfer taxpayers money to financial institutions in the form of interest payments.

    In addition, back in 1978, it took about 4 weeks of full-time work at min wage to pay for the tuition fees, now it takes about 8 weeks of full-time work. We are asking our future generations to work double as much as 30 years to pay for their education. In addition, the calculation does not take into consideration the admin fees added my universities individually.

    And these are just some of the many questions we need to be asking. The govt is making a HUGE decision that is changing the course of our publicly funded educational system without the consultation of its citizens. We cannot start making drastic change that will open the gates to americanisation of our educational system without our consultation.

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    Replies
    1. Harvard, Stanford, Princeton, Yale... American schools are still the best in the world (arguably with Oxford and Cambridge which also have huge tuition hikes). There is absolutely nothing wrong with having premium universities. They might cater to the rich- BUT they also are accessible to the elite academic students who are financially disadvantaged through scholarships.

      Also, if you are a $120k in debt after dentist school, who cares? As soon as the dentist graduates, the clock ticks at $200k per year. I'd say not a bad deal at all. Debt is not a bad thing at all if the degree is worth it.

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  7. Bob, you wrote exactly how I feel about this topic.

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  8. you know you have a great post when the comments are as long as the post lol

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  9. And what about the cost of all the enforcement? Another real cost.

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