Justifying the Increase in Tuition Fees - Research Paper Example

TUITION FEE DEBATE Education is very important in a man’s life and plays an important role in our economy too. Education was once a basic necessity provided by the government to its people making it a public good. It is also given a large portion of the national budget comes budget allocation. But why in our ever changing world, the government has to withdraw its support for higher education and tuition fees in universities have to be increased? The knowledge and skills acquired from basic education is as essential as food and clothing for a simple man wanting to survive his daily life. Spending on education has also become a part of family’s consumption. Parents would save portion of their incomes for their children’s education. It is because they see a brighter future through education. Education promises a good job in the future. A good job will give a man a better position in his future life. These were the cases before. Our world now is becoming demanding. It now requires more knowledge and skills for us to continue our existence. This means we need not only to have our basic education but also to enter a university and finish a degree. We have to pay for our education if we want a good paying job after graduation. The Government has withdrawn its support for undergraduate studies. This may be the result of shortage in the Government budget not being enough to finance all the spending for its people’s basic education up to higher level. So, the private sector needs to help the government in providing higher education for the people. As a result, annual tuition fees of top universities are expected to increase. Debates may arise as proposals for higher tuition fees enter the scenario. In our dynamic economy, the future is always uncertain. We never know what will happen next. We will never know where our decisions will take us. We will never know how other people will react on our actions. So there is always the risk. So in these times when everything seems to go high, from the prices of basic commodities up to tuition fees in universities, we are faced with tough decision making. A lot of questions now are playing on our minds. Will I continue my studies and accept the increase in tuition fees? Will the increase in tuition fees worth my stay in the university as I expect to land a good paying job after I graduate? Or will I stop studying, leave the university and work instead? Will companies hire me against an applicant who has a degree? To help a school leaver decide under this uncertainty, we have to analyze the expected utility and the cost and benefits of going to the university. A high price discourages consumers from buying; a low price encourages them to buy (McConnell and Brue, Microeconomics, 1993). Will this be also the case for the tuition fee increase? Students like other consumers are always rational when it comes to their annual tuition fee spending. They want to “get the most for their money” so they will try to dispose their money so as to derive the greatest amount of satisfaction from it or to maximize their total utility. In maximizing their utility, the students have clear-cut preferences for different goods and services they need for their studies. They have the idea of how much utility they expect to get from the purchase or availing the goods and services. In case of the students faced with the increasing tuition fee price, they will stay in university because of their expected utility. This is the possibility of getting a high paid job after graduating. Students are like consumers who continue to patronize a product or service despite its expensive cost because it promised them to give satisfaction after consumption. So, even if students are asked to pay higher tuition fees in the university they will still stay and study because of the hope that their future degree has promised them – a good career that will pay them off in the future. But consumers with limited income are also subject to budget restraint. This will cause them to stop from buying some products and resort to alternatives instead. Students with the same problem have to stop their schooling and leave the university. But before deciding to leave the university, students have to analyze the not only the costs they have to spend but also the benefits they will gain from going in the university. Going in the university will cost the students money for the tuition fees and lost opportunity to earn income for instead of joining the labor force they are studying and a lot of time and effort. Time and effort for self, family or friends are also foregone because they have to attend to school related activities. This is the result of having limited time. But if students are smart enough to manage their time properly and make the best combination in choosing activities to engage in they will be able to enjoy all activities without sacrificing something. Efforts to perform well in school are also an example of implicit cost. We cannot calculate its actual value but it is very significant in staying in the university and can save you lots of money and energy. Because when you enjoy the things you do and do the things you enjoy, it will be done effortlessly. Aside from the knowledge and skills acquired from studying in the university, the social and economic well-being of the students is also expected to improve as their benefits. Going to university can give the students information that not everybody is given the privilege to have. This serves as their advantage over those who do not attend university. Because of this, their self-esteem or self-worth is boost giving them the confidence to face anybody in the society. As a result, they will establish good social relationships and connections. These relationships or connections may also help them expand their horizons in job-seeking after graduation. Earning a degree from a university can make the probability of obtaining a high paid job higher. More economic benefits from going to university are felt after graduation and getting a good position in a company. Once you are given a good position in the company and performed well, you are also offered a higher rate of compensation compared to those who did not finish college. This is the time when everything you have spent in the university will start to pay off. In today’s labor market, the demand for degree holders is also increasing reflecting the increase in tuition fees in universities. Competition and promotion inside the corporate world has become healthy that everyone wants to improve themselves professionally. This has also caused universities to review their courses and programs offerings. Now, they have to offer what’s in demand. They have to offer graduate programs and open new undergraduate courses aside from their usual offerings to cater to the growing new demand in the labor market. And even tuition fees will be increased; students will still be going to these universities because of the “college wage premium”. Does education affect wages? The answer is yes and the connection is clear. Education can affect wages through labor market signaling. As the labor market has increasing demand for degree holders, more people want to enter college to finish a degree. With this increasing demand, the supply of resources from the government is becoming limited resulting to universities asking for higher tuition fees. To justify the increase in tuition fees the so called “college wage premium” is used. College wage premium is the explanation why workers with education are valued in a firm or company and are to receive higher wage rate over those workers without degree. The cost of education or degree attained by the worker is used to justify the wage gap. The difference in the wage rate is supposed to compensate for the annual cost that the degree holder spent in going to the university. This situation has already widened the wage gap between the degree and non-degree holders as workers evaluate themselves differently. The annual cost of going to the university and obtaining a degree is now equal to the wage to be received at work. Workers with education are mistakenly thinking that they have higher productivity than their counterparts and thus should be given higher wage rate while workers without education are underestimating their productivity and are satisfied with the lower wage rate. And if the cost of annual tuition fee will be increased for everyone, high ability individuals will still choose to go to university to finish a degree while the low ability individuals will settle for lower education level. In a separating equilibrium, education choices are determined by workers’ beliefs about their marginal cost of acquiring education (Santos-Pinto, 2010). High ability individuals believe that they have lower marginal cost in acquiring education than the low ability individuals so they will still choose to obtain a degree even with the increased annual tuition fees. In this separating equilibrium, the wage of overconfident and unbiased high ability worker is higher than the wage of under confident and unbiased low ability worker (Santos-Pinto, 2010). A condition will exist saying that if the fractions of overconfident and unbiased high ability worker and under confident and unbiased low ability worker are small, then education can serve as signal of their productive ability. The significant difference in the education and productivity of workers creates the new separating equilibrium. With the proposals of increasing the annual tuition fees in the university, the competitive market force will still work in the university marketplace and competition will be healthy but either the universities or the students have to pay the price set by the marketplace. All universities will come up with the strategy to cope with the rising competition but a collusive behavior is also possible. As in the model presented, the possibility for universities to set a high or lower rate of tuition fees will affect their profits or gains. If both universities will decide to set a high rate of tuition fee, then they have to share with the students and divide the profits between themselves. Deciding to set a lower rate for both will bring the same result. This may happen because of the possibility of collusion between the two. The collusive behavior among the players however, will interrupt the competition in the marketplace. This will then result for the high rate of tuition fees to be sustained and students are left with only one choice – that is to bear the high cost of education. But on the other hand, if one of the universities will decide to set a lower rate of tuition fees and the other will set a higher rate, then it is rational that all students will go to the university with lower tuition fees and that university will enjoy 100 per cent of the profit leaving the other university with zero profit. This will only happen if the university is capable of bearing the cost of setting a lower rate and if students cannot bear the cost of high rate of tuition fees. If this will not be the case, both universities will set their tuition fees at high level and students will be able to accept and pay the price of high tuition fees, then the high rate of tuition fees will be sustained. Competitive market forces will still set the equilibrium. This equilibrium will be determined by the number of students going to the universities and the rate of tuition fees set by the universities. This will be the point where both sides meet and tuition fee will be set where everybody’s goal is attained and satisfied. BIBLIOGRAPHY McConnell, Campbell R. and Stanley L. Brue. Microeconomics. United States: McGraw Hill Inc., 1993. Santos-Pinto†, Luís. "Labor Market Signaling with Overconfident Workers∗." (2010): 6. Read More