A Neglected Explanation for Rising Tuition Costs

By Richard Vedder

My colleague, long-time co-author, and distinguished labor economist Lowell Gallaway is retired, but that does not mean he has stopped having important economic insights. Over lunch yesterday he exclaimed "I think Griggs v. Duke Power Company may be the most important reason tuition fees have risen over the last 35 years." Aided by Richard Epstein and other scholars, I long ago had decided that the Griggs decision had a real significant labor market impact so, as usual, I have concluded Lowell is almost certainly right.

Griggs (401 U.S. 424) was the 1971 case where the U.S. Supreme Court outlawed many forms of employer testing as a means of determining who to hire and promote,arguing such testing had a "disproportionate impact" on minorities and thus violated Title VII of the 1964 Civil Rights Act. (Ironicallly, in light of the discussion below, the Supremes declared that Duke Power also illegally required a high school diploma as a condition for promotion to high level positions).

Before Griggs, an employer hiring an employee could learn, fairly cheaply, a good deal about that person's aptitude for work through well designed tests. Most relevant here, the employer could learn whether a person without a college degree had roughly the same prospects for success in a career as a person possessing a piece of paper certifying he had a bachelor's degree. After Griggs, the cost of learning about employee skills and aptitudes rose dramatically, as certain forms of labor market information were denied to prospective employers.

In the post-Griggs world, an employee could still legally tell an employer that she had a college degree --and that provided real information. There is a striking positive correlation between the amount of education attained and a variety of personal traits, including maturity, discipline, cognitive abilities, and motivation. College grads by and large are fairly to very smart and work relatively hard. The value of a college diploma rose --as evidenced by a significant increase in the college graduate/high school graduate earnings differential. This increased the financial value of a college degree, and therefore enhanced the demand for higher education and, with that, led to higher tuition fees.

This also relates to the little televised contretemps I had the other night on Fox News with Jim Heckman, University of Chicago Nobel laureate in economics, an ordinarily insightful economist with whom I usually agree. I argued that much of the perceived higher productivity of college grads resulted from qualities that those individuals bring with them when they come to college -- qualities lacking in most high school graduates. Professor Gallaway pointed out to me the graph on page 152 of Richard Herrnstein and Charles Murray's overly maligned book The Bell Curve, which shows that persons of average or below IQ scores (100 or less) have less than one-seventh (roughly) the probability of graduating from college as those with high (130 or higher) IQs, after controlling for socioeconomic status and race. College graduates are in general brighter and that and other personal traits, more than the specific knowledge obtained in college, may explain why they earn almost twice as much as high school grads. That is why a college education may provide a good rate of financial return on the investment to many individual students, even while it does not necessarily provide a high return to society as a whole. College is a screening device, an expensive way of separating the bright, skilled and motivated students from the duller, less clever and lazier population.

College diplomas denote a high probability of strong cognitive talent (as measured by IQ or similar tests), information that employers previously could obtain by testing themselves. One of the many unintended consequences of Griggs, then, is that it increased the demand for higher education and contributed to the rise in tuition fees.