Does the growth in higher education mean a decline in the quality of degrees? The role of economic incentives to increase college enrolment rates

In this paper we construct a theory about how the expansion of higher education could be
associated with several factors that indicate a decrease in the quality of degrees. We assume
that the expansion of tertiary education takes place through three channels, and show how
they are likely to reduce average study time, academic requirements and average wages,
and inflate grades.
First, universities have an incentive to increase their student body through public and
private funding schemes beyond a level where they can keep their academic requirements
high. Second, due to skill-biased technological change, employers have an incentive to
recruit staff with a higher education degree. Third, students have an incentive to acquire a
college degree due to employers’ preferences for such qualifications, the university
application procedures and through the growing social value placed on education.
We develop a parsimonious dynamic model in which a student, a college and an employer
repeatedly make decisions about requirement levels, performance and wage levels. Our
model shows that if i) universities have the incentive to decrease entrance requirements, ii)
employers are more likely to employ staff with a higher education degree and iii) all types of
students enrol in colleges, the final grade will not necessarily induce weaker students to
study more to catch up with more able students. In order to re-establish a quality-guarantee
mechanism, entrance requirements should be set at a higher level.