Trends in Expenditures by US Colleges and Universities, 1987-2013

By Hinrichs, Peter | Economic Commentary (Cleveland), September 14, 2016 | Go to article overview

Trends in Expenditures by US Colleges and Universities, 1987-2013


Hinrichs, Peter, Economic Commentary (Cleveland)


Why have college costs been rising in recent years? One set of explanations is related to questionable spending on amenities for students, salaries for administrators, or other expenditures that are outside the traditional teaching and research focus of colleges and universities. other explanations are related to economy-wide forces that the higher education industry has little direct influence over. For example, higher education may be an industry that is impacted by Baumol's cost disease. Under this idea, productivity improvements in some sectors of the economy lead to higher wages in those sectors. But then other sectors will also need to raise wages in order to compete for workers, even if these other sectors-and higher education may be one exampledo not experience productivity improvements of their own.

An earlier Economic Commentary (Hinrichs 2016) studied the employment mix in higher education. That piece found that the proportion of college faculty who are full-time employees has declined over time and that, contrary to popular belief, there has not been a large change in the share of employees who hold administrative positions. These employment results may provide some insight into changes in spending by higher education institutions, but they do not provide the complete picture. First, not all spending by colleges is paid out to employees. Second, there may be changes in wages or salaries for employees that impact the overall wage bill for colleges but are not reflected in employment counts.

This Economic Commentary studies trends in spending by US colleges and universities in broad expenditure categories between 1987 and 2013. Although this exercise does not provide a complete answer to the question of why the cost of college has been rising, it may help in identifying channels through which the spending increase has occurred. The results reveal that spending per student has risen in most major spending categories. This is true for both public institutions and private institutions. However, spending has risen more dramatically in some categories than others. For example, research is one category that has witnessed among the highest spending growth, and in percentage terms, there has also been a large increase in student services spending.

Delta Cost Project Data

The data I use come from the Delta Cost Project. The Delta Cost Project primarily relies on data from the Integrated Postsecondary Education Data System (IPEDS), a survey conducted by the US Department of Education's National Center for Education Statistics. IPEDS is conducted annually and is roughly a census of colleges and universities in the United States. The Delta Cost Project is an attempt to harmonize IPEDS data that come from different years and use different accounting standards. Most of the data I use in this Economic Commentary ultimately come from the IPEDS finance surveys. These data include information on operating expenses but do not include capital expenses.

The Delta Cost Project has published a number of its own reports with analyses of the Delta Cost Project data. The data and reports are available at http://www.deltacostproject. org. There are several differences between the Delta Cost Project analyses and this Economic Commentary. First, the Delta Cost Project analyses generally use a balanced panel of institutions that are in the data every year, whereas I use all available observations on the grounds that entry and exit of colleges may be one channel through which overall college spending changes. Second, the Delta Cost Project generally reports medians of institution-level spending, whereas I report total spending per student across institutions. I thus shift the focus of study from particular institutions to the higher education sector as a whole. Third, I show results for a larger set of years than the individual Delta Cost Project reports do. Fourth, the Delta Cost Project reports have a broader focus that also considers college revenues and degree production. …

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Trends in Expenditures by US Colleges and Universities, 1987-2013
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