Rarely does a month pass without a news story appearing on the skyrocketing cost of higher education. Politicians rail about it. Boards of trustees discuss it at length. Parents and prospective students fret about it as part of the larger affordability crisis. A complex and opaque system of discounting tuition and differential pricing makes it even harder to comprehend. And yet, in a glaring oversight, analysts and experts have rarely communicated to the public how the work of prominent economists helps explain higher education’s cost escalation.
To this day, the work of the economist William Baumol remains central to understanding the cost structure of higher education. Baumol’s cost disease, developed in 1965 with William G. Bowen, later the president of Princeton University, posited that productivity gains were particularly difficult to achieve in the academic setting. In 1900 it took one professor to teach a seminar of 15 students. In 2026, the math is the same: one professor to teach a seminar of 15 students.
Worse, Baumol added another twist. While efficiencies were absent in higher education, wages nonetheless rose dramatically. This followed from fierce competition for human capital. In sectors where productivity grows rapidly — manufacturing, logistics, software — workers can produce more per hour over time. Those efficiency gains produce higher wages. In labor-intensive services where productivity growth is limited, organizations must still pay competitive wages to recruit and retain talent, even if output per worker changes little. If we paid professors what they earned in 1900, they would choose other higher-paying professions.
