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The General Effects of Educational Expansion

May 2015
Working Paper
15-008
By  Nicola Bianchi
In an effort to raise skills or promote equality, states sometimes engage in sweeping reforms that rapidly increase access to education for a significant share of their population. Such reforms are hard to evaluate because they may alter more than the outcomes of marginal students induced to enroll. They may change returns to skill, school quality, peer effects, and the educational choices of apparently inframarginal students (those who would have enrolled in the absence of the reform). I identify such general equilibrium effects by examining a dramatic 1961 Italian reform that increased university enrollment in science, technology, engineering, and math (STEM) fields by more than 200 percent in a few years. The peculiar features of the reform allow me to identify students who were unaffected, directly affected, and indirectly affected. They also allow me to identify key channels through which the effects ran. Using data I collected from tax returns and hand-written transcripts on more than 27,000 students, I show that the direct effects of the reform were as intended: many more students enrolled and many more obtained degrees. However, I also find that those induced to enroll earned no more than students in earlier cohorts who were denied access to university. I reconcile these surprising results by showing that the education expansion reduced returns to skill and lowered university learning through congestion and peer effects. I also demonstrate that apparently inframarginal students were significantly affected: the most able of them abandoned STEM majors rather than accept lower returns and lower human capital.