Economy

The Economics of Education, or Exploring the Multiverse


Since Murphy is a product of the British education system, it is natural that his early research deals extensively with that system and that even his current work uses differences between it and the American system to illuminate the effects of differing policies. Here is a sample of his observations:

Free College vs. Tuition

In at least one regard, the British higher education system has moved closer to the American: in just two decades it has gone from free to one in which tuition is among the highest in the world. The effect has been that per-student spending by universities increased and that the educational gap between rich and poor decreased.

What explains this somewhat surprising finding? Before, everyone had access to free education, but only the well off used it because the others couldn’t afford the associated costs of attending college — living expenses and the cost of not working in order to attend. “The main issue in higher education is liquidity,” Murphy says, “cash on hand.”

In the English system, despite now charging tuition, there is no upfront cost to students because the government provides a loan big enough to cover tuition and living costs. This loan is then paid back like a tax on graduates, a percentage of their now increased income. “If there is a shock like unemployment, the graduate is not on the hook for a loan repayment; they’re only paying if they’re making money,” he explains, and even then, they are only paying a portion of their education cost, which is still heavily subsidized by the national government.

College Is Only Valuable If . . .

Asked if he thinks everyone should go to college, he quickly answers no. “College is a place where you learn very specific skills. Some people will get a lot out of it and some people won’t. There may be an argument that the current K-12 system under-provides for certain students who, if they had been invested in appropriately, would have gotten a lot out of college. But by the time they finish 12th grade, they don’t have adequate preparation to get a lot out of it. So it’s on the policymakers to not encourage those people to go to university but to change the system in the first place to improve K-12 so they are prepared.

“During COVID I was bored and needed to get out of the house, so I cycled all the way to Mozart’s (Coffee Roasters) on Lake Austin. On the way, I noticed there was a golf course. I found out it’s a municipal golf course and is quite cheap, which is great. But I don’t have the skills to golf, and if I don’t know the golf course exists, then I’m definitely not going to use it.” That’s like college, he argues: If it exists, but students haven’t been prepared with the skills to take advantage of it, then, for them, it might as well not exist.

Additionally, he says, “It’s really hard for students to ascertain the quality of an institution before they go there, and even when they are there, they still don’t know if they’re getting a good education or not until they’re out in the labor market. I tell my students, ‘You probably don’t know that this is very useful for you, but in a few years’ time, you’ll say this was quite a good course.’”

Narrowing High School Focus and Late College-Entrance Tests

Another major difference between the American and British systems is that in the final two years of high school in the U.K., the focus narrows to just three subjects. By the time students get to college, they are basically done with their prerequisites and “you hit the ground running at university.” Murphy’s own curriculum narrowed to math, physics and economics.

Yet another major difference is that in the U.K., students take their college-entrance exams in the final two months of high school, which keeps their motivation high. In the U.S., SAT and ACT exams that determine college acceptance are typically taken in the junior year or early in the senior year. This produces a “relaxed” senior year, which might be great fun but does not motivate continued striving to learn.

The ones who are engaged will continue learning, “but those aren’t the ones the policymakers need to worry about.” he says. “We need to imbue the others with a passion for education. We can do that by setting incentives: If you do really well your final year, you can make better grades and get into the university you want to get into. Maybe through that learning and trying hard, you actually start enjoying the subject instead of thinking, ‘I don’t really need to do this.’”

National K-12 Funding.

In the U.K., every school gets funding from the national government on a per-student basis, and if a student is from a disadvantaged background or has special educational needs, the school gets more money.

“There’s an incentive for schools to enroll students from different backgrounds,” Murphy says. “In the U.S., school funding relies on property taxes, which means you get a vicious circle: A school does well, people want their children to go to that school, house prices go up, the tax take increases, the school gets higher funding, the rich get richer.”

Phones in Classrooms

In another study, Murphy dug into the test scores of schools that had banned cellphones in classrooms and compared them to schools that had not. He found that students in no-phone classrooms did better on high-stakes tests, and the difference was the equivalent of an additional hour of teaching every week. That might not sound dramatic, but the real takeaway came when he looked more closely: Virtually all the students who drove that increased average were in the bottom half of their class.

“Mobile phones are very distracting. Allowing mobile phones in the classroom increases the desire to procrastinate, makes procrastinating easier,” he says. The theory for explaining the differential is that kids in the top half are able to concentrate through classes anyway and are interested in the content, “and so they can have a mobile phone in their pocket going off, like mine is at the moment (he laughs), and ignore it, whereas kids who are finding the content more difficult and who aren’t engaged — a mobile phone in their pocket just exacerbates their struggles.”



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