The New Geography of Jobs (part 2)

October 17, 2014

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Enrico Moretti makes a good case that where a worker lives still matters, and that job opportunities are unevenly distributed across metropolitan areas of the United States. The best jobs in the innovation sector of the economy are to be found primarily in a small number of thriving metropolitan areas.

I find Moretti less convincing when he addresses more general economic questions, such as how many good jobs the new economy can create. He presents a rather rosy view of job creation that would be contested by other authors.

How much opportunity?

Moretti cites the spectacular growth rates of certain kinds of jobs, such as in software, scientific research and development, and pharmaceuticals. But even in these areas, the absolute numbers of jobs are not as impressive as the growth curves (which tend to rise steeply when they are starting from close to zero). Moretti says that the innovation sector can be the main engine of economic growth without providing a majority of the jobs, but one would still like to know how much it can grow beyond its estimated 10% of jobs today, considering that manufacturing jobs used to employ 30% of the labor force.

Moretti asserts that “2.6 jobs are typically created for every one destroyed,” but he doesn’t suggest a time frame for that process or explain why job creation has been so sluggish and unemployment so high during this particular transition.

Consistent with his rosy view of job creation, Moretti regards the concentration of good jobs in certain metropolitan areas as a temporary state of affairs:

Just like people, industries have life cycles. When they are infants, they tend to be dispersed among many small producers spread all over the map. During their formative years, when they are young and at the peak of their innovative potential, they tend to concentrate to harness the power of clusters. When they are old and their products become mature, they tend to disperse again and locate where costs are low. Thus it is not surprising that the innovation sector— the part of the economy that is now going through its formative years— is concentrated in a handful of cities.

Cities that have fallen behind can catch up by means of a “big push: a coordinated policy that breaks the impasse and simultaneously brings skilled workers, employers, and specialized business services to a new location.” Apparently this is only theory, however, since “looking at the map of America’s major innovation clusters, it is hard to find an example of one that was spawned by a big push.”

I would suggest that the jury is still out on whether the information society can create as many well-paid, full-time jobs as the manufacturing society in its heyday. The last book I reviewed, Jeremy Rifkin’s The Zero Marginal Cost Society, argues that it cannot. Rifkin believes that the information age is calling into question the whole idea of the paid job as defined by capitalism. The fact that knowledge is so easily shared may place a limitation on how much it will be bought and sold in the marketplace. When people can access the ideas of the most renowned scholars on the Internet for free, how many intellectuals will be paid to think?

I accept the assumption that as machines do more of the routine work, people will be liberated to engage in more creative activity. The question is how much of that creative activity will take the form of paid work. Maybe we will do less paid work in the aggregate, but distribute what paid work there is more evenly.

Why inequality?

Moretti’s take on inequality is consistent with his belief that the demand for qualified employees is ample, and the problem is on the supply side. In other words, the system is a meritocracy, with low pay and unemployment resulting from inferior qualifications. The way to remedy that is to invest more in education and/or admit more educated immigrants. (He notes that highly skilled immigrants can be job creators rather than job stealers because of their contribution to innovation and its economic multiplier effects.)

This meritocratic view is contested by other economists, notably Thomas Piketty in Capital in the Twenty-First Century. (See my review, especially Part 3.) In his view, the distribution of income depends not just on merit but on institutional factors, such as the organization and bargaining power of unions and the influence of executives over their own compensation. The widening pay gap between executives and other workers cannot be accounted for by a widening education gap. The distribution of income also depends on the share of national income going to owners of capital, which has been rising recently (from a range of 15-25% in rich countries in 1970 to a range of 25-30% recently). This happens when the return on capital remains high although the rate of general economic growth has slowed. Getting ahead through wage growth becomes harder compared to profiting from accumulated wealth.

Moretti makes a contribution to economic geography, but his general view of the job market never gets beyond the conventional wisdom to address the more interesting controversies.


The New Geography of Jobs

October 16, 2014

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Enrico Moretti. 2013. The New Geography of Jobs. Boston: Houghton Mifflin.

Economist Enrico Moretti has a surprise for those who think that advanced means of communication and transportation have rendered the geographic location of work unimportant. The world is so connected, so the theory goes, that the same activity can be carried on almost anywhere. A factory can be located in Birmingham or Bangkok, and a software designer can work in a downtown office or a rural cabin. Moretti, on the other hand, contends that location matters, that the innovative work that drives today’s economy clusters in geographic centers of innovation. As a result, “Your salary depends more on where you live than on your resume.”

Moretti starts his book with the story of a young engineer who made a very consequential move in 1969. Seeking a more peaceful environment, he moved from Menlo Park in Silicon Valley to Visalia in a more agricultural area. In those days, the two places were statistically rather similar, but after forty years of change, they represent the geographic diversification Moretti is discussing. While Menlo Park exemplifies the thriving, high-tech, high-education center of innovation, “Visalia has the second lowest percentage of college-educated workers in the country, almost no residents with a postgraduate degree, and one of the lowest average salaries in America,” along with a high crime rate.

This is not an isolated phenomenon. Moretti calls it the “Great Divergence”:

A handful of cities with the “ right” industries and a solid base of human capital keep attracting good employers and offering high wages, while those at the other extreme, cities with the “wrong” industries and a limited human capital base, are stuck with dead-end jobs and low average wages. This divide— I will call it the Great Divergence— has its origins in the 1980s, when American cities started to be increasingly defined by their residents’ levels of education.

Moretti acknowledges that some forms of convergence are occurring as well. As poorer countries develop, many of them are becoming more similar to richer countries. Traditionally poorer regions such as the American South are also converging with other regions in many respects. But within countries and regions, some cities–such as Austin, Atlanta, Dallas, Durham and Houston in the South–are emerging as the affluent and educated centers of innovation, while others are being left behind.

From production to innovation

“Over the past half century, the United States has shifted from an economy centered on producing physical goods to one centered on innovation and knowledge.” Moretti notes that even in hi-tech areas such as computers, production jobs are declining, and job opportunities are mostly in the more professional, technical and managerial areas. We haven’t stopped making things–US manufacturing output is actually increasing, and locally made goods are often very fashionable–but manufacturing can no longer provide employment for tens of millions of people.

According to a study of companies in twelve industrialized countries, some firms are much more successful than others in finding a place in the new economy. The more successful ones “buy more computers, spend more on R & D, take out more patents, and update their management policies.” They don’t just produce what any number of other companies could produce; they lead in innovation, creating the jobs in what Moretti calls the “innovation sector.” He estimates that it currently includes only 10% of the jobs, but it is increasingly the “driver of our prosperity.” That’s because it is the major source of productivity gains, and it has a powerful multiplier effect that creates other jobs, especially in both professional and nonprofessional services. He calculates that five additional local jobs are created by each new high-tech job. Not only that, but the presence of many highly educated, highly paid workers in a metropolitan area boosts the productivity and wages of other workers in that area. As a result, even workers without college degrees are better off living in an area where many residents are well educated.

Geographic concentration

Why are the innovative companies and jobs clustered in a such a small number of metropolitan areas? A striking example is Seattle, which has benefitted greatly from Microsoft’s decision to move there from Albuquerque in 1979. The presence of one big hi-tech firm attracted others, such as Amazon, and had many other unforeseen consequences. For example, former employees of Microsoft have started 4,000 new businesses, most of them in the local area. Before the move, the percentage of college-educated workers in Seattle and Albuquerque differed by only 5%; today the difference is 45%!

Traditionally, the location of cities has depended on natural advantages such as harbors or access to natural resources. Since centers of innovation depend more on human capital, their location depends more on creative interactions among human beings. Once someone starts the creative ball rolling–a major university helps–then innovative activity feeds on itself in many ways. Moretti identifies three “forces of agglomeration” that foster the growth of an innovative center:

  • Thick labor markets: A labor market that already contains a lot of highly educated labor attracts more employers who need that labor, and vice versa. The more specialized the skills needed, the harder it is to find them outside of a major innovation center.
  • Specialized service providers: Innovative companies need specialized services such as “advertising, legal support, technical and management consulting, shipping and repair, and engineering support.” As those develop, they help create an entire “ecosystem” supporting innovation.
  • Knowledge spillovers: New ideas foster other new ideas to create a stimulating cultural environment that benefits all. In that way, education has a “social return” that benefits many others besides the holder of a degree. Moretti notes that this is a strong reason for society to share the costs of education, since it shares the benefits.

In the United States today, Silicon Valley is the #1 innovation cluster, followed by Austin, Raleigh-Durham, and Boston. The ten metropolitan areas with the largest share of college-educated workers are Stamford (CT), Washington, Boston, Madison, San Jose, Ann Arbor, Raleigh-Durham, San-Francisco-Oakland, Fort Collins-Loveland (CO), and Seattle-Everett.

One downside to living is these areas is the cost of housing, which is driven up by the competition of well-paid workers for proximity to good jobs and schools. This is another factor maintaining the geographic divergence between areas with different educational levels. Today the educated are more mobile, since they have the money, skills, and information to go where the opportunities are. Less educated workers can also benefit from the higher wages of thriving metropolitan areas, but only if they can reside there in the first place.

The divergence of places extends to many aspects of public and private life. Metropolitan areas that differ in educational and income level also differ in average life expectancy, family stability, political participation and resources for charitable giving. For example, men in some poorer metropolitan areas in the U.S. have life expectancies comparable to those of poor countries.

Continued


Higher Education in America (part 3)

October 11, 2013

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The second of Derek Bok’s “urgent priorities” for higher education–besides increasing the number of students earning college degrees–is improving the quality of instruction. While most of the highest-ranking universities in the world are in the United States, that in itself does not establish the quality of American undergraduate education. “The impressive global rankings of American universities reflect the accomplishments of only a handful of institutions, and even the high regard in which the latter are held is largely due to the excellence of their research rather than the quality of education they provide.” Bok fears that an increase in the number of degrees granted could come at the expense of quality. “Efforts to increase the percentage of young Americans with college degrees (and lower the costs of educating them) are attracting far more high-level attention than attempts to maintain and increase the amount they learn along the way.”

The diversity of institutions described earlier makes it hard to achieve a generally high standard of quality. For-profit colleges have come in for special criticism. They specialize in providing job preparation for students of modest means who rely heavily on federal grants and loans to pay the tuition. Critics charge that they recruit students too aggressively by overselling what they offer, then leave too many students underprepared and overindebted. “Six years after entering a for-profit institution, students are more likely to be unemployed and out of school than students of similar qualifications who entered not-for-profit institutions.”

Results for community colleges have also been somewhat disappointing. Although two-thirds of their students start out with the intention of transferring to a four-year college, no more than one-fourth actually do so. “The most careful study to date suggests that even six years after entry, only 36 percent of students entering community colleges have either earned an associate’s (two-year) degree or gone on to graduate from a four-year college.”

As economic inequality continues to worsen, “America could easily end up with a two-tier structure of undergraduate education: an expensive, quality tier primarily for those who can afford it, and a low-cost, heavily vocational education of marginal quality for all the rest.”

However, Bok sees lots of room for qualitative improvement in the comprehensive four-year colleges as well. He believes that a movement is already underway to implement new methods of instruction based on a growing body of research about what works. In particular, he welcomes a movement away from lecturing, “a method repeatedly shown to be one of the least effective means of developing higher-level thinking skills or helping students to achieve a deep comprehension of challenging subject matter.” Instead, professors should “spend much of the time in class having students grapple with problems raised by their readings.”

Bok also sees great pedagogical potential in online education. Students can interact online with their instructor and one another, access source materials more easily, conduct experiments and participate in simulations. Instructors can monitor online discussion groups and assignments and adjust their teaching accordingly. Much of this potential remains to be realized however. As it stands now, only the most highly motivated students complete online courses very often; teachers haven’t resolved how to prevent cheating and give reliable grades; and a portion of the population still lacks broadband access. Effective design of online courses is also a big challenge. Bok quotes Lawrence Bacow: “To date, no sustainable platform exists that allows interested faculty either to create a fully interactive, machine-guided learning environment or to customize a course that has been created by someone else….”

Another concern is what students are actually studying, considering the range of goals that higher education is supposed to achieve:

For almost a century, undergraduate education in the United States has pursued three large, overlapping objectives. The first goal is to equip students for a career either by imparting useful knowledge and skills in a vocational major or by developing general qualities of mind through a broad liberal arts education that will stand students in good stead in almost any calling. The second aim, with roots extending back to ancient Athens, is to prepare students to be enlightened citizens of a self-governing democracy and active members of their own communities. The third and final objective is to help students live a full and satisfying life by cultivating a wide range of interests and a capacity for reflection and self-knowledge.

Bok clearly regards the liberally educated person as both a better citizen and a better worker. He cites research demonstrating the value that companies and business leaders place on general abilities like “thinking critically, communicating effectively both orally and in writing, acquiring a sensitivity and concern for ethical issues, and learning to understand and work effectively with people of different cultures, backgrounds, and races.” He is concerned about the amount of coursework undergraduates complete in vocational specializations, citing research indicating that science and engineering majors show declining proficiency on many of these abilities over the course of their education.

Bok then questions whether traditional college course requirements are serving the objectives of higher education very well–so many credits in a major, so many credits of electives, “leaving only the limited time left over to achieve all the other purposes the faculty chooses to adopt.” That time left over is often spent meeting a “general education” requirement by taking a smattering of survey courses in various departments. The system works for the faculty, since each academic department in guaranteed a certain audience for its courses, but maybe not as well for the students. “It is possible that some of the requirements agreed to by the faculty are uneasy compromises that threaten to produce the worst of both worlds–making enough demands on students’ time to represent a burden but not enough to afford much chance of actually achieving the hoped-for results.”

Having recently reviewed Robert Samuels’ critique of higher education, I find it interesting to compare his perspective to Bok’s. They agree on a number of things: that universities often spend too much money on things that are marginal to educational quality, that the things that really matter are often less visible and harder to measure, that the time students are required to devote to their studies has been dropping, that an emphasis on research sometimes detracts from undergraduate instruction, and that instruction relies too heavily on the lecture method.

Samuels goes on to make a much stronger charge, that undergraduates are being fundamentally shortchanged, since tuition is going up but the portion of revenue spent on undergraduate instruction is going down. Samuels seems more concerned than Bok that the percentage of undergraduate classes taught by traditional tenure-track faculty has fallen to about one-third, and that many of the part-time and adjunct instructors who have replaced them are less qualified in academic degrees and experience. Bok is more ambivalent about this trend, saying on the one hand that “the use of part-time instructors…has also been found by some analysts to contribute to grade inflation, higher dropout rates, and other adverse effects on quality,” but on the other hand that “student course evaluations find that part-time and adjunct professors are usually rated at least as highly as the regular tenure-track faculty.”

If we place a high value on both Ph.D. programs and years of postdoctoral study and teaching experience, don’t we also have to worry about turning more classes over to less credentialed and experienced teachers, whether the students can tell the difference or not? I believe in course evaluations, and I believe that students can tell if teachers are organized, clear in their presentations, and fair in their testing, among other things. But the depths of a professor’s knowledge is much less obvious to them. I received surprisingly good evaluations as a young teacher called upon to teach subjects I knew very little about. I taught from a much more substantial knowledge base in my later years, but I’m not sure that my students knew enough to tell the difference.

Another issue where Samuels is more critical than Bok is class size. The non-lecture methods recommended by both writers require professors to give much more attention to the students’ individual thought processes, by engaging students in class and evaluating their oral and written arguments instead of just grading standardized tests. But only Samuels explicitly calls for smaller classes to facilitate such engagement.

Of course, highly qualified professors teaching small classes cost money. Both authors would like to reduce the costs for students, but Samuels is more willing to call for increased spending on undergraduate education to help bring this about. In a way it is easier for him to do so, since he believes that undergraduates are currently being overcharged in order to subsidize research and graduate education. One result is the production of more Ph.D.’s than can find the jobs they’ve been trained for, since the same universities that train them prefer to hire cheaper labor instead. So while Bok would improve the quality of instruction primarily through pedagogical and curricular reforms, Samuels would accomplish it more through a fairer redistribution of educational resources.


Higher Education in America (part 2)

October 10, 2013

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Derek Bok describes three key features of America’s higher education system. First, it is very diverse, including about 200 research universities, over 700 comprehensive universities, almost 1,000 private nonprofit colleges, over 1,000 community colleges, and over 1,300 for-profit institutions.

Second, it involves government only to a limited degree: “Because our higher education system has a large private sector along with a federal system in which much funding and oversight of universities is provided by the states, it is harder to create a coherent and effective national policy for higher education than is the case in most other countries.” Although total spending on higher education is 2.4% of national income, about twice as much as the average European country, a greater share of the costs fall on households since public support is more limited. (Although I don’t recall Bok making the connection, this sounds a lot like the US health care system–most expensive in the world but falling a little behind in results.)

The third key feature is competitiveness. Educational institutions are in serious competition for revenue and students, especially students with academic ability and financial means. Bok identifies this as “the aspect of our system that seems to produce the most mixed results.” On the one hand, it is “the source of much of the energy and innovation that characterize our universities at their best.” On the other hand, Bok is concerned that institutions compete in ways that waste resources or undermine quality. The things that are educationally most important aren’t the most visible to the public, especially to young students. People may be more impressed by attractive buildings or winning football teams than by the quality of instruction. That quality is challenging to measure, and national rankings are based on more readily available indicators like average SAT scores. “The result is that much of what is most important to the work of colleges and universities may be neglected, undervalued, or laid aside in the pursuit of more visible goals.” Bok is especially critical of universities that let their undergraduate teaching mission be overshadowed by efforts to “climb to a higher rung on the ladder of prestige” by becoming more like the major research universities.

A metropolitan university that excels in teaching students is likely to add more value than it would by becoming another medium-quality research institution. Even so, because the contributions from first-rate teaching are hard to evaluate and seldom win public acclaim or achieve much prestige, they tend to be overshadowed by more tangible, measurable, gains, such as higher SAT scores, new programs, and successful fund drives.

One way that students might like universities to compete would be reducing prices, like successful computer manufacturers. But that’s hard for suppliers of highly skilled services:

Most entities like colleges and universities that make extensive use of highly skilled labor raise their prices faster than the cost of living. The reason is that it is difficult to substitute machines for employees and achieve the productivity increases common to manufacturing, agriculture, and other sectors of the economy….Competition in most industries tends to lower prices. In higher education, however, what appeals to talented students, foundation officers, philanthropists, and other valued audiences is often not lower prices but higher quality, or what is commonly thought to be higher quality [emphasis added].

Another reason for higher tuition is the declining share of public university revenue coming from state governments. That share went from 32% in 1980 to 18% in 2009. In about the last 30 years, the consumer price index has risen 106%, but college tuition and fees have risen 439%, even more than the 251% increase in health-care costs. Bok objects to the “blanket charge that colleges cost too much,” because tuitions vary so much among institutions and financial aid is so widely available. Nevertheless, he notes that money is the most common reason undergraduates give for dropping out, and he is concerned that cost is a major obstacle to increasing college attendance and graduation rates. “Most of the additional enrollments needed to raise attainment levels will have to come from low- and moderate-income families, since children from more affluent homes already graduate in high enough numbers to leave little room for further growth.” But these families have been hurt not only by the increasing costs of college, but by the stagnation in wages for most workers, the increasing concentration of wealth and income at the top, the shift in financial aid from predominantly grants to predominantly loans, and the increasing emphasis on merit rather than need in the awarding of scholarships. (Although rewarding merit is a good thing in many contexts, the result can be that universities compete to make the best offer to students who would have gone to college anyway, whether they got financial aid or not.)

Bok is skeptical about addressing the problem with increases in federal financial aid. He doesn’t think it’s likely in a period of public austerity, and he fears that it will just enable state governments to make further cuts in their support. He suggests a different approach to federal aid:

The federal government should try to make more effective use of its resources by offering additional aid in the form of matching grants to the states instead of simply increasing Pell Grants. In order to qualify for additional aid, states should have to match the added funds with need-based grants (rather than merit awards or athletic scholarships) and agree to keep public tuitions from rising faster than increases in need-based aid.

Bok also recommends two things for universities and colleges to concentrate on:

…On the one hand, lowering dropout rates by offering simpler, more highly structured programs and by providing more effective remedial education and better counseling and job placement services; and, on the other hand, reducing costs by eliminating nonessential activities (such as intercollegiate athletics), making greater use of online courses and part-time instructors, and instituting more effective ways of keeping students from taking more courses than they need in order to graduate.

Although Bok tries to be cautiously optimistic, he doesn’t underestimate the difficulty of achieving reform on the scale needed to raise the educational achievement of students of limited means. He acknowledges that many of the recommended ways of cutting costs will encounter stiff resistance (cutting back sports), endanger quality (part-time instructors) or have as yet unknown results (more online courses).

Bok suggests five possible directions higher education may go, the first two of which are unpleasant to contemplate:

The first is that students will eventually balk at paying higher tuitions and taking on increasing debt and either gravitate to lower-cost colleges or abandon plans for college altogether….

A second possible outcome is that federal officials will try to restrain the rising cost of college by withholding their financial aid from universities that do not moderate their tuition increases….The most probable result will be a decline in educational effectiveness.

Three more favorable directions involve possible changes to the economy, a new approach to government financing, or technological change:

The third alternative is for the economy to resume the pattern that existed from 1950 to the mid-1970s when the gross domestic product (GDP) grew at a healthy rate and the gains were quite evenly distributed throughout the working population….[But Bok acknowledges a catch-22: Evenly distributed income gains will be hard to achieve without a more educated workforce.]

The fourth possibility is that, one way or another, government and college officials will arrive at an arrangement whereby federal and state governments agree to finance at least a slow growth in the undergraduate population through increased institutional support and student aid in return for reasonable restraint in the growth of tuitions….

The fifth and final possibility is that online education and related technological advances will produce enough cost savings to remove the need for unsustainable tuition increases while greatly reducing the expense of educating the larger cohorts of students required to raise current levels of educational attainment.

Continued


Higher Education in America

October 9, 2013

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Derek Bok. Higher Education in America. Princeton University Press, 2013.

In his introduction to this comprehensive analysis of higher education, former Harvard President Derek Bok quotes the National Governors Association: “The driving force behind the 21st century economy is knowledge, and developing human capital is the best way to ensure prosperity.”

Although some rapidly growing forms of work, such as food service, do not require much education, the good jobs increasingly do. The earnings gap between more and less educated workers has been widening. “By 2010, the median annual income for adults holding college degrees reached $54,000 compared with $32,600 for those with only a high school diploma.” Countries and regions with more educated workforces will be attracting more of the good jobs and generating more wealth. Beyond the occupational and economic rewards, college education is associated with many other benefits, such as healthier lifestyles, civic engagement, lower crime rates and greater racial tolerance.

How has the United States been doing in providing higher education to its citizens? Bok describes a transition from elite to mass higher education. The percentage of high school graduates entering some type of college has risen dramatically, “from 17 percent in 1950 to 39 percent in 1980, 55 percent in 2000, and 68 percent in 2011.” However, progress in graduation rates has been much slower and more uneven, and the proportion of adults holding at least a bachelor’s degree has been increasing more slowly in the United States than in many other countries. According to the Century Foundation, it’s now about one-third for Americans 25 to 29. The United States ranks ninth among nations in the proportion of young adults enrolled in college, but only sixteenth in degree attainment. This is disappointing, since for much of the twentieth century, this country was the undisputed world leader in college completion.

Just yesterday, the Organization for Economic Cooperation and Development released its international Survey of Adult Skills, which compared adults 16 to 65 in nineteen countries on literacy and numeracy. Adults in sixteen of the countries were also tested on “problem-solving in technology-rich environments,” using digital devices to locate and use information. Adults in the United States ranked near the middle in literacy and near the bottom in numeracy and technical problem-solving. The countries with the highest scores were Japan, Finland, Netherlands, Sweden and Norway. Particularly disturbing was the evidence of generational decline. Americans 55-65 scored above the international average; those 45-54 were about average, but those 16-45 were below average. Much of the decline may be due to the failures of elementary and secondary education; Americans without college educations compared even less favorably to their international peers than more educated Americans compared to theirs. Nevertheless, the overall results are pretty mediocre for a country that sends so many of its citizens to college.

Bok discusses a wide range of issues in higher education, including graduate and professional education as well as undergraduate. In the end, he concludes that two problems are the most urgent: raising the percentage of young people who complete college degrees, and improving the quality of education they receive. What will be hard is doing both at once. To some extent, improving quality means raising standards, but that could mean making it harder for some students to complete their course of study. Or looking at it the other way, raising graduation rates could mean admitting more academically marginal students and demanding less of them, thus lowering quality. So Bok is most interested in reforms that have the potential to help achieve either goal without sacrificing the other.

Continued