2. Valuing and Evaluating the Liberal Arts in the Research University The Liberal Arts & Sciences in the Research University Today: Histories, Challenges, and Futures Paul Courant Jeffrey Smith May 22-24, 2013

3. In a nutshell 1.It’s ok, even useful, to talk quantify benefits from higher education and liberal arts education. 2.Contrary to some beliefs, the return on investment, pecuniary and nonpecuniary, is still high. 3.There are many significant benefits and costs of higher education that don’t show up as additions to or subtractions from income. 4.There is an enormous amount of heterogeneity, in students, in curricula, in the effects of higher education on average and on individuals.

4. “I think (hope) we can agree that accountability is key in connection with essentially everything we have been discussing: admissions policies, financial aid structures, pedagogy, graduation rates, and so on. Fortunately, there seems to be much more willingness today than in times gone by to look with a cold eye at the actual evidence concerning outcomes, and to be willing to make adjustments, or even to shift directions entirely, if something is not working. It will not do simply to assume that what appears to be a good idea is in fact a good idea.” William G. Bowen

5. Money payoff to college Caveat: literature not just about research universities. Clear unconditional mean difference But what do the means mean?

6. Owen and Sawhill 2013

7. Limitations of mean differences Not causal Synthetic cohort assumption dodgy – see Heckman, Lochner and Todd (2006)

8. Selection bias Students do not attend and/or complete at random Conditioning on “ability” and other background variables lowers the money payoff to college Best evidence still suggests a substantial causal effect; see e.g. Card (2001) Econometrica

9. What about the current cohort? They are paying a larger share of the cost Earnings payoff lower when entering the job market in a cyclical downturn Opportunity costs lower too No reason to think recent increase in premia will decrease

10. Costs and benefits for individuals Compare current costs (direct, opportunity) to current and expected future benefits of all kinds Lots of heterogeneity in costs and benefits Marginal student likely differs from the average student => estimated average effects of policy a poor guide to effects for marginal students moved in or out by policy

11. Other payoffs to college College reduces employment risk College improves health outcomes College reduces criminal behavior College increases voting College increases subjective well-being

12. Heterogeneous money payoffs: college quality Earnings effects increase in college quality Evidence: Dale and Krueger (2002, 2013), Hoekstra (20009), Black and Smith (2006), and many others Dillon and Smith (2013): college quality effects much more important than mismatch effects

13. Completion Literature suggests non-trivial “sheepskin” effects of college completion Completion rates a key mechanism by which college quality affects earnings How much of low completion is experimentation? Policy aside: ways to better predict who will not complete would have a huge payoff

14. The liberal arts and sciences What does the literature on college major have to say about the determinants and effects of major choice? Big differences in money payoffs to major choice Conditioning reduces but does not eliminate these

15. Black, Sanders, and Taylor 2003

16. Interpreting major choice effects Majors have many aspects: 1.Current consumption and effort: who is in the library or the lab on Friday night? 2.Labor market payoff in dollars 3.Labor market payoff in other job characteristics 4.Earnings variance – Dillon (2013) The marginal student in each major is indifferent

17. Major issues How much information do students have? A lot! Evidence: Stinebrickner and Stinebrickner (2013), Wiswall and Zafar (2012) and others Stability of the earnings differences suggests ignorance is not the main story Tastes matter a lot

18. Bottom lines 1.Measure and evaluate, but respect the subtlety of meaning 2.College still has a large economic payoff for most students 3.College affects many outcomes other than earnings 4.Heterogeneity matters a lot!