No discipline for college

Arnold Kling (from the Econoblog at the Econlib) gives us a discussion question for today, referring to his post on the academic job market.

In another industry, if there were an excess supply of workers, a competing firm might offer a lower wage in order to cut its costs. Why does this not happen at colleges and universities?

Certainly something to ponder for later. First thought that comes off the head is that colleges and universities are not profit driven, and for public schools at least, funds can be drawn from the general assembly of the state they reside in.

Also, higher education is highly subsidized via cheap loans and easy grants & scholarships. This makes the demand for education somewhat price insensitive. So long as universities can continue to make up budget shortfalls with infusions of cash from their state benefactors and/or through increases in tuition, there is no natural pressure to cut costs (no market discipline).

Should there come a time that increased cost significantly reduces the demand for higher education, there will be pressure to cut costs. However, the institutional culture of college/university education probably would fight very hard against wage cuts.

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