President's Message: Colleges Need To Learn about Productivity

January 01, 2006
By  William Poole

For the past 10 years, one of the secrets to the growth of the U.S. economy has been the dramatic improvement in productivity. “Doing more with less” has been the mantra for manufacturing, the service industry and most other sectors. As a result, since 1995 productivity has grown at a rate that’s almost double what it was from 1973 to 1994.

One sector has yet to get on the bandwagon: higher education. Anyone who is paying college bills knows that there’s a great need in the ivory tower to cut spending. The cost of tuition over the past two decades has risen even faster than the cost of medical care. The burden on many families and students has reached the breaking point. And there’s no relief in sight. Fourteen states cut funding for public higher education between 2002 and 2003. In our District, the axe fell hardest in Missouri, which cut such appropriations by 10 percent. Not surprisingly, tuition jumped 20 percent—the second-highest increase then in the nation.

These costs might be easier to swallow if the quality of graduates were going up as fast as the cost of getting that sheepskin. Few think that’s the case. One reason could be that instructional expenditures per student (at public institutions) rose just 17 percent between 1990 and 2001, while administrative expenditures per student jumped 54 percent.

Other sectors of the economy have taken action to boost productivity in order to survive. Colleges and universities might want to follow their example, beginning with these steps:

  1. Outsource. Services that are not directly related to education—food service, housing, cleaning and records management, for example—could be contracted out. Competition from outside contractors would drive down costs.
  2. Decentralize. Employment in the administrative area has grown faster than in any other on campus, partly because of additional state and federal mandates and partly because hiring in this area needs to be approved only by other administrators. If authority—and money—were put in the hands of department heads, they would probably use it more efficiently to meet student needs. That might mean hiring another secretary, but such a move could free faculty from the many clerical duties they perform. As a result, students would get more attention.
  3. Improve the product. To do that in academia, more emphasis must be put on teaching—and quality teaching. At too many institutions, teaching is secondary to research. And even those who are in the classroom sometimes don’t know how to teach. Student quality could also be improved by raising admission standards and weeding out those who aren’t motivated to learn.
  4. Boost flexibility of the workforce. As demand from students for one type of class rises and another falls, universities need to be able to move professors around, increase their time in the classroom, even lay them off. Of course, such flexibility is difficult where tenure exists. If “jobs for life” can’t be eliminated, restrictions should be put on the percentage of faculty who are eligible for tenure. Decentralization could come into play here. A department could be allowed to exceed its tenure quota if it’s willing to give up something when that extra person’s classes fall out of favor—say, a portion of everyone else’s salary.

These ideas just scratch the surface. Certainly, with all the high-powered thinkers on our campuses, more and better ways can be thought of to lessen the financial burden on those who want to get a college degree.

Views expressed in Regional Economist are not necessarily those of the St. Louis Fed or Federal Reserve System.

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