Higher Education Participation: Theory and Evidence

Human Capital Theory

The theoretical work of Mincer (1958), Becker (1964) and Ben Porath (1967) first presented the decision to accumulate human capital from a life-cycle viewpoint. They specifically detailed the association between the life-cycle earnings of an individual and their investment in education and that this investment will be based on the expected returns and costs. In the context of a decision to undertake higher education, these returns are the extra earnings from having a higher education level over one’s lifetime. The costs are the direct cost of the education itself (fees, books, etc.) and also associated indirect costs, such as the foregone labour market earnings while in education.

Support for the human capital model is found in international empirical work such as Willis and Rosen (1979), which showed the positive influence of expected gains in lifetime earnings in young people’s decisions to attend college. In more recent times, Lauer (2002), Canton and De Jong (2005) and Wilson et al. (2005) found a positive impact on attending post-secondary education from higher expected lifetime earnings using data from Germany, the Netherlands and United States (US) respectively. Card and Lemieux (2001) also presented evidence that enrolment rates for the US in the 1970s were correlated with changes in the earnings gains associated with a college degree, supporting the life-cycle theory of an individual choosing an educational outcome that will yield highest life-cycle earnings. In other studies, Fuller et al. (1982), Dubois (2002), Duchesne and Nonneman (1998) and Oppedisano (2014) focused on the potential role of opportunity costs on human capital investments. They each used simulated labour market earnings of potential higher education participants as a measure of the opportunity cost of attending university for the US, Canada, Belgium and Italy respectively. They all found lower opportunity costs to have a negative impact on participation.

Tuition fees provide another cost to an individual wishing to participate in education within the human capital framework, with the expectation being that higher levels of fees have a negative impact on participation. Leslie and Brinkman (1987) analysed 25 previous studies from across the US that investigated the sensitivity of higher education participation to changes in tuition fees. Using meta-analysis techniques, they concluded that increasing tuition costs had a negative effect on college enrolment. Neill (2009) and Coelli (2009) provided more recent updates to this work using Canadian data and came to the same conclusion: an increase in tuition fees negatively impacts on higher education participation. Using state-level variation in Germany, Hubner (2012) found that a €1000 increase in tuition fees decreased enrolment by 2.7%. Variation in tuition fees may also affect different individuals’ participation decisions in different ways. For instance, a rise in tuition fees may impact those from lower social classes more negatively compared to individuals from higher socioeconomic backgrounds (Reay et al. 2005).

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