Economics of Higher Education: Wealth by Degrees Report

This report analyzes the economics of higher education, focusing on the impact of supply and demand on degree prices, particularly in scenarios of falling government subsidies. The report explores how increased demand for skilled workers influences the market for university graduates and the subsequent effects on the demand for higher education. It also examines the concept of the “College Wage Premium,” discussing the salary gap between university graduates and secondary-school degree holders within the context of saturated labor markets and minimum wage regulations. The analysis considers the financial returns associated with a university degree, referencing the job markets of America and the Eurozone, and highlights the scope of earning good payment due to healthy demand for skilled workers.

Quantity
Supply
Demand
Price
P*
Q*
P1
p
P2 Q2
Q3
S3
Q3
S4
Wealth By Degrees
(1)
Effects on the price of a degree in a scenario of falling government subsidies:
Figure-1
The demand-supply diagram of Figure-1 describes the scenario of demand for quality higher
education at a particular price and the supply of quality education at that price. As per the above
diagram, the downward sloping demand curve describes that the investment or demand for
quality education decreases as the price for quality higher education increases. The positively
sloping supply curve describes that with higher payment of price or investment the supply of
higher education increases. Thus the demand-supply curve describes the scenario that the price
or cost of earning a higher education degree with good quality is rising over time.
At the equilibrium price P* the demand for higher education is Q*.If the cost or price rises to P1,
then the demand for higher education is expected to decreases to Q3 but at this price the supply
of higher education is “S3”.Thus if the cost or price of higher education increases then there will

D2
Q3’
Quantity
Supply
Demand, D1
Price for skilled labour
P*
Q*
P1
p
P2 Q2
Q3
S3
Q3
S4
be a excess supply gap of higher education by the amount of Q3S3.Similarly if the cost of
earning higher education decreases then there will be a excess demand gap for higher education
by the amount of Q2-S4
(2) “When firms are hungry for skilled workers, their demand for university graduates
grows”
Figure-2
When the firms are showing a higher demand for skilled workers who are supposed to be the
university graduates, the demand for university education increases as indicated by the outward
shift of the demand curve from D1 to D2 in Figure-2.With the new demand curve D2 when the

price or cost of earning of an university degree increases and reaches to P1 then the demand for
the education will be Q3’.Thus increase in the demand for university graduates will enhance the
demand for higher education even if the cost of earning the education increases and the new
excess supply gap of higher education at price P1 will be Q3’S3 which is less than the previous
supply gap of Q3S3 at the same price P1.
3.
College wage premium
The term “College wage premium” refers to the gap between the average salaries offered to the
university graduates and that of secondary-school degree holders.
The European labour market has become saturated enough with skilled labour or the university
graduates due to the rapid change of that market. Due to the market saturation as well as the
requirement of maintaining a generous minimum wage for all, the college premium is relatively
flat in Europe.
4.
A discussion over the usefulness of the university degree
The university degree is often considered as a good investment as in America and in the euro
zone the university graduates manage to earn good pay packages (Economist.com, 2017).
Thus it can be seen that although return from investment in higher education is little uncertain,
but still there is a good scope of earning good payment due to existence of healthy demand for
skilled workers in the job markets of America & Euro zone.

Reference:
Economist.com. (2017). Wealth by degrees. [online] Available at:
https://www.economist.com/news/finance-and-economics/21605909-returns-investing-
university-education-vary-enormously-wealth [Accessed 23 Sep. 2017].