A simple demand function for higher education

Abstract

Because of the shrinking pool of high school graduates and college-age students, there are renewed interests in college enrollment projections. Based on a proposition of human capital theory that an increase in the expected rate of return to education brings more people to schools, a simple demand function for college enrollments may be constructed. Following Levine, Koshal, Koshal, and Lindley [NYEconomic Review, Fall 1988, pp. 3-18], it is viewed that each prospective student makes an investment in oneself as human capital. In addition, the cost of such investments, the availability of resources for financing education, and economic conditions may also influence such investment decisions. The demand for enrollment in higher institutions is measured by college enrollment rates (CERs), which are obtained by dividing total college degree enrollments by the sum of high school graduates in the current and three preceding years. CER is principally determined by real per capita personal income (INC), the cost (price) of college education, which is measured by a weighted average of tuition and room and board charged by public and private colleges (COST), state's rate of unemployment (UNEMP), and dummy variables to account for qualitative factors (DUM). It is expected that both the INC and UNEMP variables have positive signs, and the COST variable to have a negative sign. To estimate the demand for college enrollments in Mississippi, the CER is regressed on the independent variables, using data for the 1965-86 period. The regression results are: