Tuesday, October 21, 2008

Universities Do Not Operate in the Economy

I've been seeing this a lot recently, an example from the IDS:
Ambitious plans and a sputtering economy might put pressure on IU trustees to find other ways to balance their budget, such as increasing tuition and cutting back on employee pay, IU officials said.
During a recession, cutting back on labor costs is not unusual, but charging your customers a higher price?


Anonymous said...

Education is a substitute for working. If there is a recession, such as that wages fall, then the demand for education increases. Ceteris paribus, this leads to an increase in P and Q.

Justin M Ross said...

Good point, if the opportunity cost of attending falls then demand should increase, which would be a countervailing effect to the income effect. I guess it would be an empirical question to see which is stronger (the article mentions nothing about enrollment).

It would probably be important if there is a skill bias in the recession.