Higher education.

• Position: Severance incentives and the economics of college education

The NBER's Project on Higher Education, directed by Charles T. Clotfelter of NBER and Duke University, organized a meeting in Cambridge on May 16 to discuss recent research in the field. The program was:

John Pencavel, Stanford University, "The Response of Employees to Severance Pay Incentives: The Faculty of the University of California 1991-4" Discussant: Ronald G. Ehrenberg, NBER and Cornell University Caroline M. Hoxby, NBER and Harvard University, "Does College Tuition Reflect the Changing Nature of Competition in the Market for Higher Education?"

Discussant: Sandra Baum, Skidmore College

Wilbert van der Klaauw, New York University, "A RegressionDiscontinuity Evaluation of the Effect of Financial Aid Offers on College Enrollment"

Discussant: Thomas J. Kane, NBER and Harvard University

Paula Stephan, Georgia State University, "Capitalizing the Human Capital of University Professors: The Case in Biotechnology" Discussant: Irwin Feller, Pennsylvania State University

Richard J. Murnane, NBER and Harvard University, and John B. Willett and Kathryn P. Boudett, Harvard University, "Do School Dropouts Benefit from Obtaining a GED? From Post-Secondary Education and Training?

The Answers are Related? Discussant: William E. Becker, Jr., Indiana University

In the early 1990s, the University of California (UC) faced a serious budget problem. To respond to it, UC used funds from the retirement system to induce older faculty to quit. Pencavel analyzes the three waves of early "retirement" programs in the UC system. He discusses the severance incentives made available to UC faculty, and then analyzes the pattern of "quits" in terms of the monetary inducements that existed. Since UC had a defined benefit program, the severance incentives took the form of additional pension benefits. Pencavel finds a consistent and unambiguous relationship between the severance probabilities and the replacement ratio (that is, the ratio of the annual pension benefits upon acceptance of the early "retirement" program to the faculty member's salary). On average, a 10 percent higher severance incentive is associated with about a 7 percent higher severance probability. Unfortunately, this sensitivity varies materially across the three early retirement programs, so the behavior revealed in one program does not provide a very reliable guide to severance in the next program.

The market for college education changed a great deal over the twentieth century, particularly from...