Am I failing my degree, or is it just the market?

 With higher fees, poorer quality, and reduced funding, is university worth it?

Exploring market failures in higher education.

Universities are vibrant hubs driving knowledge, fostering innovation, and propelling societal advancement. Amidst their contributions, a closer examination reveals a series of market failures plaguing the sector. Delving into the multifaceted nature of market failure within the UK universities market, this blog hopes to shed light on the significant flaws and explore pathways towards reform.

Would I lie to you?

https://www.thecompleteuniversityguide.co.uk/league-tables/rankings

One major shortfall within the market for university education is asymmetric information. This phenomenon occurs when both parties do not have access to the same information. In our case it’s all-knowing admissions teams against naïve prospective students. Universities will have a good idea about what students do, and don’t know, and take full advantage of this divide. When advertising degree courses, universities do this strategically using insider knowledge. The effect of this imbalance of information is amplified by the mental shortcuts we use whilst making decisions.

We use these to guide decision making to reach conclusions faster. Prospective students have exams looming and daunting decisions to make. The easiest option is often to believe what universities are telling you. You’re being fed information you want to hear by the university: high ranking, successful alumni, and modern facilities. In a period of ambiguity, what the university is promoting provides some certainty, and after all the universities do know more than you…

Degrees on discount?

The market for degrees has steadily grown, a change initially praised for democratising access to knowledge and skills. Now, this expansion is creating new problems which are affecting more people. Think of the job market as another marketplace where employers shop around for their goods like they would other items. Degree titles differentiate one good from another, in this case potential employees. A degree was once a clear signal of a candidate’s ability, work ethic, and intelligence. However, as more people enrol at universities the marketplace has become flooded. The abundance of degrees and graduates has diluted their value, making it increasingly difficult for employers to distinguish between the endless ‘qualified’ candidates. 

Originally, a degree was a loud and clear market signal of a candidate's value. Now, with weakened signals, inefficient hiring decisions are made, resulting in missed opportunities and risks not accounted for. Employers find themselves in a dilemma, searching for new ways to identify genuine talent. The situation calls for innovation in signalling mechanisms. Just as markets evolve, so too must the signals within them. Employers are now looking past degrees, seeking out work experience, portfolios, and extracurricular activities as indicators of a candidate's value.

“Academic standards have collapsed” (Lambert, 2022)

Effective markets fosters competition, bringing numerous benefits: increased quality, greater innovation, and importantly for consumers, lower prices. With many universities in the UK, benefits of competition can be found, but the market fails to compete in one aspect: price. In fact, not only are universities not lowering prices, but they are raising them. Since the 1980s, the UK government has begun to gradually reduce its funding support for universities. The main reasons for this include fiscal pressures, policy reforms, and increased private capital investment in universities.

In order to improve quality of education - one aspect they do compete on - universities need to invest more resources. This includes recruiting good lecturers and tutors, providing advanced teaching facilities, and strengthening cooperation with industry. For universities to remain competitive in what they can offer, they continue to raise prices.

Another cash cow?

International students make an important contribution to the UK’s education industry and economy every year, in part due to the heavy price discrimination between international and home students. Enterprises use price discrimination to set different prices for different customers to maximise their own interests. As tuition fees for British students are capped, universities hike up the fees they charge to international students, with even the lowest tuition fees for international students at nearly twice the price ceiling for their domestic peers. Price discrimination does not necessarily lead to market failure but may lead to consumer unfairness. With consumers facing different prices, it raises issues of social equity.

Yet another weakness of this market is how it fails to rival its European counterparts. In many European countries university education is provided as a public good: accessible to all. To achieve this, many universities are free or subsidised, so society benefits. UK universities have not caught onto this idea yet. Instead, they are doing the opposite by constantly increasing the financial burden of university education. Should the UK keep university education as a private good or follow in Europe’s footsteps?

“Getting a college degree used to be free or low cost because, as a society, we saw providing higher education to young people as an investment” (Jayapal, 2017)

The bad neighbour

Markets are not self-contained; they are complex and have far reaching consequences outside of the market. The costs and benefits of transactions taking place in markets can spill over to third parties. Whilst universities serve as catalysts for positive social change, as their influence extends beyond campus boundaries, this can often lead to some unintended negative consequences.

Universities have created new negative externalities as the influx of students is accompanied by a surge in demand for housing and other amenities in the local area. Inflationary pressures are driving up prices making the area unaffordable for local residents. Additionally, the inflow of students during term times, can overwhelm local infrastructure such as businesses and transport routes. Cities and towns are often unable to manage this increase in population, leading to waste and noise pollution, degrading the environment.

By acknowledging these market failures, the government and universities can implement policies to prevent, or reduce, the failures occurring within the market, and eventually start increasing the market’s efficiency. Or perhaps we should be turning our attention to substitutions for a university degree, such as degree apprenticeships.

References:

Jayapal, P., 2017. Why I Introduced the College for All Act. [Online] Available at: https://www.thenation.com/article/archive/why-iintroduced- the-college-for-all-act/ [Accessed 11 April 2024].

Lambert, H., 2022. The great university con: how the British degree lost its value. [Online] Available at: https://www.newstatesman.com/politics/2019/08/thegreat- university-con-how-the-british-degree-lost-its-value [Accessed 11 April 2024].