UK Logic: Supply and Demand on Universities

The rise in tuition around the world has been prevalent because of the need to properly fund the education needed for success of students.  However, the UK has recently developed a method which they attempt to make universities more competitive by raising tuition costs by £9,000.  The Economist reports the scenario in which UK universities have created the idea that higher costs mean less willingness to pay for the education.  The process allows for a more selective group to be placed in the universities; however, this has not proven to be the case.

Since the creation of the £9,000 ceiling, placed last year, there has been a similar amount of youth applying to gain access to the universities.  The large fallout of applicants ranges in the older applicants.  The Economist believes this is occurring because of the benefits of the current jobs older applicants currently hold, relative to the increased costs of the universities.

The chart above shows the lowered amount of applicants planning on going to universities in the upcoming year.  The demand curve also shows there is a drop in the number of applicants.  The trend occurring in the UK could lead to long run harm for the economy. (The Economist)

The article continues to ask the exact same question that I had from the initial report: what are they thinking?  Sure the amount of tax money necessary to fund the universities is much lower, but by creating a barrier of students who may enroll based off monetary reasons is not a smart idea.  The benefits of younger, educated adults entering the market are important for economic growth of a country.  While supply and demand may matter in different markets, the market for high levels of human capital is one that can use massive abundance. 

To relate with the United States, the high costs in tuition that is happening may be heading down a similar road as the UK.  While the US has no intentions to set specific laws to permit higher tuition for a more “competitive environment”, the funding for universities should attempt to come from the government and the people rather than the individual student. 

Students who receive an education are more likely to obtain higher incomes.  With higher incomes, more tax money is brought into the government.  That tax money can be used to reinvest in future generations of university students.  The cycle repeats.

However, with the limited amount of money being put into our education in the United States is going to lead to less potential growth in the skilled labor market.  Also, in the UK situation, many youth who choose not to attend university opt to compete for positions that offer immediate outlets to income.  This overflows the market for unskilled workers, and may cause for higher employment than allowing people who obtain higher education to maximize their potential for a wide range of positions.

Reference:

1. “Universities: Pile them High”. The Economist. http://www.economist.com/node/21546003?fsrc=scn/tw/te/ar/pilethemhigh