Economics Explains Why School Fees Rise

Sad to see the passing of an eminent economist, William Baumol, but fascinating to get insights from his work that explains many of the most prominent issues in the news these days, as well as a very clear explanation for parents whose children attend private schools to understand why their fees go up.

‘Baumol’s Cost Disease’ explains why countries like UK and USA are struggling and battling to meet the medical health care needs of their aging populations in the face of the double impact of increased demand and rising costs. You can’t really automate the work of doctors and nurses. It’s highly labour intensive. There are finite limits to how many patients a doctor can see in a day (and still ensure that they give a safe, effective service).

Vox – Baumol Cost Disease Explained

manufacturing gains in productivity, with the result that salaries are pushed up, whilst prices of finished goods can still come down. However, in any field that is labour intensive, those higher wages have to lead to higher prices and service delivery costs.

In education, we see that in the private and international schools, teacher – student ratios of between 6 and 12 are the norm and this represents a very labour intensive model. Salaries form a very significant part of the running costs and thus fee levels are very sensitive to salary levels.

There is an important factor that those of us in education leadership need to take in to account.Being aware of these pressures for ‘price’/ fees to rise over time we must ensure that we are not wasteful or extravagant in the way that we run schools and manage their finances. Prudent cost consciousness is critical to ensure that there’s money available to spend on the right things, that teacher numbers and standards are not compromised, but that costs are kept sensibly under control. When we let costs get out of control or inflate fees for ‘profit’ excessively we do untold harm to the schools. Not least, as the fees rise too rapidly, the education available from the school gets priced out of reach for too many in the community. A school then finishes up with a very homogenized parent and student body. Without diversity, students miss out on a great opportunity in their education.

In addition, however long we may be in charge of a school, we are mere custodians for a limited time in a much longer history, with duties to all pupils past and future, as well as to those studying in the school presently. Over the very long term, schools need to replace all their infrastructure – even buildings and so some funds must be built up slowly over the longer term to meet such needs effectively.

I do believe, like Clayton Christensen (Disrupting Class), that there is the potential for IT enabled disruption to change some of the paradigms in education that rely on the principle of ‘learning is being taught’. When greater power, control and responsibility for learning passes in to the hands of learners, so this changes the dynamics of teacher requirements, concepts of class cohorts and the ability of one teacher to support a limited number of pupils’ learning at a time. However, there’s a long road ahead for those kinds of changes.

Sure, we’d all (especially parents) wish that Baumol’s Cost Disease wasn’t at work in education. Failing that, it gets tempting for people to believe that ‘someone’ – government, philanthropists or just anyone should be subsidising all this extra cost so as to limit the rise in education costs. When this doesn’t happen, especially when parents don’t know about economics – we the educators will be to blame!

Such is life.


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