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Skill-Biased Technical Change and the Cost of Higher Education: An Exploratory Model

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  • John Bailey Jones
  • Fang (Annie) Yang

Abstract

We document trends in higher education costs and tuition over the past 50 years. To explain these trends, we develop and simulate a general equilibrium model with skill- and sector-biased technical change. We assume that higher education suffers from Baumol's (1967) service sector disease, in that the quantity of labor and capital needed to educate a student is constant over time. Calibrating the model, we show that it can explain the rise in college costs between 1959 and 2000. We then use the model to perform a number of numerical experiments. We find, consistent with a number of studies, that changes in the tuition discount rate have little long-run effect on college attainment.

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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 11-02.

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Date of creation: 2011
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Handle: RePEc:nya:albaec:11-02

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Web: http://www.albany.edu/economics/research/workingp/index.shtml

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  1. Daniele Coen-Pirani & Rui Castro, 2011. "Public Policy and College Attainment," 2011 Meeting Papers 1350, Society for Economic Dynamics.
  2. Meta Brown & John Karl Scholz & Ananth Seshadri, 2009. "A New Test of Borrowing Constraints for Education," NBER Working Papers 14879, National Bureau of Economic Research, Inc.
  3. Dynarski, Susan, 2001. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," Working Paper Series rwp01-034, Harvard University, John F. Kennedy School of Government.
  4. Donghoon Lee & Kenneth I. Wolpin, 2004. "Intersectoral Labor Mobility and the Growth of the Service Sector," PIER Working Paper Archive 04-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Felicia Ionescu, 2009. "The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 205-231, January.
  6. Ahmet Akyol & Kartik Artheya, 2003. "Risky higher education and subsidies," Working Paper 03-02, Federal Reserve Bank of Richmond.
  7. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  8. Lance J. Lochner, 2009. "The Nature of Credit Constraints and Human Capital," 2009 Meeting Papers 745, Society for Economic Dynamics.
  9. Giovanni L. Violante & Costas Meghir & Giovanni Gallipoli, 2008. "Equilibrium Effects of Education Policies: a Quantitative Evaluation," 2008 Meeting Papers 868, Society for Economic Dynamics.
  10. Donghoon Lee & Kenneth I. Wolpin, 2006. "Accounting for Wage and Employment Changes in the U.S. from 1968-2000: A Dynamic Model of Labor Market Equilibrium," 2006 Meeting Papers 172, Society for Economic Dynamics.
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