Editor’s note: Robert Martin is an emeritus professor of economics at Centre College in Danville, Kentucky, and author of the Pope Center paper The Revenue-to-Cost Spiral.
Parents often go to extraordinary lengths trying to get their children admitted to highly selective colleges and universities. The one thing they can be certain about in the market for higher education services is that a degree from an elite school sends a very favorable signal to future employers about the student’s ability.
It’s generally thought that there is a synergy in having a student body composed of high-achieving students. More good students raise the performance bar for all students and more good students create networking opportunities. Good students challenge and teach each other in and outside of class, an important supplement to faculty efforts. Furthermore, it is considerably easier to teach good students than it is to teach poor students. In other words, peer groups matter in higher education.
As a result, very selective colleges are elite colleges with strong academic reputations. Selectivity creates an aura of exclusivity, which gives the institution real power in the higher education marketplace. Selectivity builds reputation and academic reputations are the primary means by which institutions compete with each other.
As we shall see, however, selectivity has a downside as well as an upside.
In a recent article, Bentley MacLeod and Miguel Urquiola considered the impact of selective admissions on the value added by teaching (the accumulation of skills) and on labor market signals. They came to the conclusion that more selective admissions increases the value of the labor market signal, but it may also have negative effects on traditional teaching value added.
First, they argue, higher selectivity dilutes the “schools’ incentive to enhance productivity, since a low value added school can always enhance its reputation by being more selective.” The schools have less incentive to compete on the basis of teaching value added, since it is easier to compete on the basis of a labor market signal; that is, given the choice of improving their reputation by producing more teaching value added or improving their labor market signal, it is easier to improve the signal. Adding value to your existing students is hard work and less likely to be recognized than simply getting better students.
The second adverse effect on teaching value added is the impact on the student’s incentive to work hard. MacLeod and Urquiola find that when the student’s native ability is known to the labor market “effort cannot affect the market’s perception of one’s ability, reducing effort incentives.”
In other words, once a student has won the selective admissions tournament, he can add little to the value of that signal by working hard in college. Some students may think, “I’ve made it into Harvard, so why work to my maximum? I can coast and still get the valued Harvard degree.” If the student works less, there is less value added by his time in college.
MacLeod and Urquiola find other results stemming from selective admissions including “stratification by parental income” and “increased transmission of income inequality.” That is, wealthy families tend to have smart children, whom they manage to get into highly selective schools. The authors contend that this has a negative impact on economic mobility, which is a cornerstone of our society.
So parents’ eagerness for their children to compete for admission to elite institutions may be misplaced. A stable, high-quality student base at an elite institution does not necessarily mean the institution is adding a lot of value through its teaching. It may only mean that the parents of those high quality students are purchasing an expensive labor market signal.
Additionally, the existence of the labor market signal means that a student at this elite college has less incentive to excel than if he or she were at a less selective college. If bright students just coast through with less exertion, parents may actually do them a disservice by purchasing expensive labor market signals.
If colleges did not compete using selective admissions to build reputation, there would be more competition on the basis of teaching value added. It is important to recall, however, there is an upside to increased selectivity, so direct regulation that prohibited competition on the basis of selectivity (a dubious prospect anyway) could have serious unintended consequences.
The selectivity problem and the current imbalance between faculty research and teaching have a similar origin: uncertainty about teaching value added. Faculty put too much emphasis on research because there are few rewards for teaching. There are rewards for research because there is a market for senior scholars and there are few rewards for teaching because there is no market for exceptional senior teachers.
The root cause of both problems is that higher education does not measure teaching value added. Educational leaders claim that teaching quality (value added) cannot be quantified, but if that is true then grading student performance is a hoax.
Furthermore, scholarship quality is as subjective as is teaching quality; yet, we have a thriving market for scholars that produce world class scholarship. The metrics the market uses to measure scholarship are not perfect, but they are efficient. Higher education refuses to measure teaching value added because it is not in the faculty member’s or the institutions’ interest to measure it.
Individual faculty members and institutions have a financial interest in maintaining ambiguity about teaching value added. If parents, students, and potential employers know the value added by each institution, the market would draw the appropriate balance between the credential’s signal value and teaching value added by the institution.