The Returns to University Schooling in Canada: A Comment

Abstract

In their recent paper in this journal, Vaillancourt and Henriques provide evidence on the monetary returns of university schooling in Canada and on its private and social costs. They show that university schooling has a private rate of return of 7 to 14 per cent and a public rate of return of 6 to 10 per cent. They use these results to argue that students could be asked to pay higher tuition without reducing demand significantly (assuming increases in financial aid for the needy). They further argue that government should reduce its subsidies to universities because public returns to university education are generally below the rate of return on physical capital. I have concerns about this paper on three levels, discussed in more detail below. First, the use of cross-sectional earnings data to estimate lifetime age-earnings profiles facing those with and without university requires both careful use of the data and a number of assumptions about future supply and demand for workers with different levels of education. There appear to be problems in the use of the data, and Vaillancourt and Henriques say nothing about the supply and demand issues that could have an impact on the rate of return estimates. Second, the numerical differences between the projected earnings of those who obtain a university education and those who do not, do not necessarily represent either private or social returns to education. These rest on assumptions of the role of education in explaining those differences. There are several different models of what higher education does, and each produces very different results. Given the importance of the authors' conclusions, these alternative models require more consideration. Finally, universities do more than just educate students. As the existence of this journal itself testifies, academics do research and provide independent policy analysis, both of which have some value and may help explain subsidies to universities. To base the case for subsidy only on earnings differentials is to ignore all this. One is free to do so, but this involves peculiar assumptions that ought to be made explicit to the reader. I do not want to be too critical. The calcula-