A final way in which educational institutions can be responsive to employers and the local labor market is through their sensitivity to enrollment patterns. Community college administrators are quite knowledgeable about the revenues and costs associated with various types of classes and about the enrollments necessary for a class to break even--to generate as much revenue from tuition and state aid as it costs in instructor time and materials. As a manager from the high-tech industry in Palmdale who serves on an advisory committee to a local community college commented,
Each class is considered a profit and loss center. Each class, not the program, not the college, not the campus, not the district--each class lives and dies on a profit basis.
As a result, community colleges tend to eliminate classes whose enrollments fall below the break-even level and even eliminate entire programs. For example, Frankton Community College had eliminated a number of their machining classes and a program in the area of numerically controlled machining, and several community colleges in the Palmdale area had eliminated their electronics programs when the recession eliminated jobs and student demand for this subject evaporated. Certain vocational programs--particularly those that are capital intensive such as programs in machining and electronics or health programs--are especially susceptible to being curtailed because their costs per students are so high. A "rational" community college trying to maximize net revenue will therefore eliminate expensive, low-enrollment technical courses and expand low-cost, high-demand classes in subjects like ESL.
Conversely, community colleges can expand classes when demand increases, and through their advisory committees, they generally have a mechanism for developing new programs in emerging occupations. As long as student demand for classes in particular occupations is sensitive to employment, postsecondary providers will be reasonably responsive to labor market conditions.
However, these incentives do not necessarily work smoothly. Since community colleges and area vocational schools are funded according to enrollments, they are enrollment-driven and sensitive to student demand, but they are not generally outcome oriented. They typically lack information about the subsequent placements of their students, as we have mentioned, and there are no financial disincentives from enrolling students who then fail to find related employment.[58] Therefore, student behavior rather than employer demand is the linchpin in this adjustment process and--except perhaps in extreme cases such as the decline in high-tech employment in the Palmdale area--students are not necessarily well-informed about employment conditions.[59] The sources of information about local labor market conditions are weak; students seeking initial training and retraining have little information about the occupations they are seeking to enter (as distinct from those needing upgrade training who have experience in the occupation); and the students we have labeled "experimenters" by definition know little about the alternatives they face. There is so little information about the placement and earnings of community college students that it is hard to know how they can make fully rational choices among the institutions and programs they face. It is difficult to be confident that student behavior is a suitable mechanism for bringing demand for occupations into line with supply.
Furthermore, student enrollments are also subject to manipulation by educational institutions. The rise of "marketing" during the 1980s at all levels of postsecondary education began to apply the principles of advertising to public and private education: Students might be persuaded to "consume" what they otherwise might not want or need. Institutions facing enrollment shortages therefore began to stimulate demand by advertising and outreach. One community college department head mentioned that "students don't know we're here," a preface to describing her informational campaign to attract more students.
Conversely, because they are enrollment-driven, community colleges do not maintain programs in areas where students fail to enroll despite substantial demand from employers or--a special problem in the case of machining and electronics programs as well as in many health programs--where costs are high relative to the state reimbursements and tuition students generate. In Cotooli in particular, employers complained about community colleges and technical institutes reducing their high-cost machining and electronics programs despite demand for graduates. In Frankton, the personnel director of a hospital complained about the priority of the local community college as being similarly finance-driven: "It's cheaper to educate unemployed liberal arts majors than it is to train nurses." (In this particular case, local hospitals came up with their own "private" solution to the problem by financing an additional instructor in the local community college program, in effect offsetting the high costs of the nursing program.) Of course, an important part of these shortages is the low entry-level wages and the unstable employment for machinists and technicians and the relatively low wages and dreadful working conditions of nurses. But the point remains that the institutional incentives to maintain education and training programs are linked to state reimbursement levels and costs and not to placements or labor market demand.[60]
Furthermore, the response times of community colleges are often slow. A manager of new products in a high-tech firm, an individual who served on the advisory committee of a well-regarded community college in the Palmdale area, commented,
My fear is that the bureaucracy of colleges is so humungous that the lag time between new technology and the implementation of courses about that new technology is vastly delayed by three, four years in cases. And likewise the other thing occurs: When a technology is obsolete or no longer useful in industry, colleges continue to teach it for many years. . . .Thus you would graduate without having any potential for getting a job in that discipline. Eventually it does get killed, but it takes many many years because the bureaucracy is slow to respond to the changing conditions. So it's bad in the beginning and it's sort of bad in the end, but in the middle it's pretty good.
Others complained about the lag in eliminating obsolete skills. For example, shorthand is still taught in many secretarial programs though it is rarely used; a personnel manager in Cotooli who had served on an advisory committee to the local community college described how her suggestion to eliminate shorthand had been rebuffed and then sighed, "We'll catch up sooner or later."
It is possible that the loose link between educational institutions and labor markets conditions may change under the pressure of performance measures currently being developed under the 1990 Amendments to the Perkins Act. Indeed, employers in Cotooli came to the idea of measuring performance and then making funding contingent upon performance on their own after discussing the problems with programs closing because of enrollment-driven funding:
Employer 1: Wouldn't it be interesting if you could fund colleges based on the types of jobs the graduates get and how successful they are in their careers--rather than just funding them based on enrollment?Employer 2: Pay for performance.
Employer 1: Yeah. How about that--pay for performance! What a novel idea!
As funding mechanisms are currently structured, however, there is every reason to be skeptical about the responsiveness of educational providers to labor market conditions.
[58] Florida is one exception to the lack of incentives tied to outcomes. In that state, programs which fail to place seventy percent of their completers in training-related employment face elimination, and there seems to be a greater consciousness about employment effects. Two of the eight communities studied in Grubb and McDonnell (1991) are in Florida. Ohio also requires programs with placement below seventy-five percent to be reviewed for possible elimination.
[59] While we have little direct information about student knowledge of local labor markets, it seems likely that their knowledge is imprecise. For some older research on the extent of student knowledge about employment, see Parnes and Kohen (1975). This study found that knowledge about the world of work was highly correlated with general academic ability. Given that community college students generally come from the middle rather than the top of the distributions of ability and high school achievement, it seems likely that their knowledge about employment conditions is less sophisticated than that of students completing baccalaureate degrees. Some indirect information about student motives comes from enrollment studies like those of Betts and McFarland (1992) and Grubb (1988), which indicate that enrollments in two-year colleges are more sensitive to costs than to benefits--that is, the employment consequences.
[60] This is the source of potentially substantial inefficiency. In economic terms, education and training are worth providing when the total marginal benefits--to those educated, to employers, to coworkers, and to consumers in the form of lower prices--outweigh the marginal costs. But community colleges provide education slots when the marginal revenue--state reimbursements plus tuition--outweigh the marginal costs. Since there is no relationship between the marginal benefits to society and the marginal revenues to the community college, education providers systematically over- and underprovide various types of education.