In policy circles, we talk a lot about whether education is a public or a private good (it’s both), and what the implications are for pricing.  But one thing we don’t talk enough about is the extent to which education is a positional good.  And that’s a problem because our decisions on this topic have serious implications for the way we fund higher education.

What’s a positional good?  It’s a good that derives part of its value from the fact it’s valuable, but not everybody has it.  It’s kind of like when a particular article of clothing becomes “cool” – if too many people wear it, it ceases to be cool.  Status goods are a zero-sum game – every time someone else gets something I have, its value to me decreases.

Now think about education.  If too many people get a Bachelor’s degree, its value as a signal of skill goes down, even if everyone’s still gaining the same set of skills.  Think about what that means: the consequence of education being a positional good is that as access to higher education increases, the value of a “plain” Bachelor’s degree decreases, and degree-holders have to find new ways to distinguish themselves.

One way to do this is to focus less on the credential and more on where it was obtained.  Thus, one common pattern in higher education is that as access increases, so too does stratification.  Harvard degrees, for instance, have increased significantly in prestige as access to education has improved. We haven’t seen much of this phenomenon, because – as Joseph Heath recently pointed out – in Canada our most prestigious institutions accommodate a pretty large proportion of our student body.  Combine McGill, Toronto, and UBC and you’ve got about 14% of the entire population (the equivalent for, say, Yale/Harvard/Princeton is about 0.1%).  Since our top institutions don’t confer (much) exclusivity, Canadians look for higher education distinction in the collection of additional degrees.  Hence the explosion in professional Master’s degrees and (to a lesser extent) PhDs.

What makes higher education so weird as a field of policy is that it’s pretty much the only type of status good that governments subsidize.  And that’s really quite weird when you think about it.  What idiot would try to promote universal access to something that, by definition, not everyone can have?

We justify subsidizing degrees because to some extent they do raise skills and productivity, which is good for everyone, not just the people who get the degrees.  But the fact is, when it comes to private returns, in the early career phase at least, what matters is the positional value of the degree.  And not everyone can get into Harvard, or into a PhD program.  If they could, those goods would lose all meaning.  Scarcity is what makes them valuable.

The cry of people who say that there are too many spots in higher education/ law school/ teacher training are really making an argument that there aren’t enough status goods to go around.  That’s in part the consequence of subsidizing education to improve access – you’re bound to get excess demand.

As they say in the computer business, that’s a feature, not a bug.