10 Reasons College Costs So Much

Teaching Is Immune to Efficiency
Now, as ever, teaching is a time-consuming, labor-intensive profession that cannot be made efficient in the way manufacturing can. Creatas/Thinkstock

Back in 1984, the original Apple Macintosh sold for $2,495, which is more than $5,000 in 2014 dollars [source: Smith]. Today, a hugely more powerful and sleek MacBook Air retails for $999. That's a testament to the broad technological leaps in manufacturing efficiency achieved over the past 30 years.

Now compare the efficiency gains of manufacturing to the task of educating a single college student. In 1984, a college student taking five classes a semester required five professors, two paid teaching assistants and a smattering of administrative support staff. In 2014, that same college student requires five professors, two paid teaching assistants and even more administrative support. Teaching remains a time-consuming, labor-intensive profession. The only thing that's changed is how much faculty and staff are paid.

Economists have a name for this: cost disease. The term was coined by economist William Baumol to explain why the cost of education has risen so much faster than the average prices of other goods and services [source: The Economist]. Here's how it works:

  • As general productivity improves in an economy, companies make more money and wages rise.
  • Some sectors, like education, are "stagnant," meaning there are no significant gains in productivity.
  • Still, as wages rise across the economy, colleges need to pay faculty competitive wages to attract talent.
  • As a result, colleges pay faculty and staff more even as productivity remains flat.
  • This means education price increases will be higher percentage-wise than in sectors where productivity is improving.