- No increases in productivity accompanied by rising costs. Higher education remains a labor-intensive industry with limited opportunities for capital-labor substitution. There has been some labor-labor substitution as schools use more non-tenure-track and part-time faculty. But this has not been enough to offset rising salaries for faculty and staff.
- The widening gap in earnings between highly educated labor and less educated labor. Colleges make extensive use of workers with advanced degrees and such workers are about the only ones getting ahead in today's economy. If colleges employed more roofers and gardeners than professors, their labor costs would be holding steady or even dropping.
- Sticker versus actual prices. Everyone knows the sticker price at Harvard, but no one knows the actual price paid by the average student. Mankiw shows that list prices have risen by 70 percent over 20 years, whereas the net price (after scholarships) is up 32 percent.
Two other factors that may be at work behind the national trend: (a) rising financial aid and loan access serves as a subsidy and pushes prices even higher and (b) declining teaching loads for tenure-track faculty.
In the UNC system we have seen declining state support lead to tuition increases over the last eight years.
Spellings has put a stake in the ground around expanding access to higher education. Looking forward, I imagine the UNC system will be looking at innovative ways to deliver education in a more cost effective manner.