Skill-Biased Technical Change and the Cost of Higher Education: An Exploratory Model

John Jones and Fang Yang

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: We document trends in higher education costs and tuition over the past 50 years. To explain these trends, we develop and simulate a general equilibrium model with skill- and sector-biased technical change. We assume that higher education suffers from Baumol's (1967) service sector disease, in that the quantity of labor and capital needed to educate a student is constant over time. Calibrating the model, we show that it can explain the rise in college costs between 1959 and 2000. We then use the model to perform a number of numerical experiments. We find, consistent with a number of studies, that changes in the tuition discount rate have little long-run effect on college attainment.

Date: 2011
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Working Paper: Skill-Biased Technical Change and the Cost of Higher Education: An Exploratory Model (2012)
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