Do higher education subsidies produce public benefits?, 1985 version

Posted by on January 1, 2013 2 comments

I spent the last day of 2012 tidying up my chapter in a book I am co-editing on the Dawkins higher education reforms (the aim is to publish in mid-2013 to coincide with the 25th anniversary of the government white paper). The subject of my chapter is the Liberal response to the Dawkins reforms, which turned into a story about the Liberal role in the long, convoluted path from the state-dominated higher education system created in 1974 to a more privately-funded, market-based system.

Mid-1980s Cabinet papers released today provide a bit more of the background. At this point, Labor was still committed to free education for domestic students. But the Department of Finance thought that this was a bad idea, and wrote a memorandum explaining why.

It has the usual material about free higher education not changing the socio-economic profile of students. But it also contains a version of the key argument in my Graduate Winners report:

While these external benefits [better organised and functing political and social systems, potentially lower crime, sickness, disease, application of research undertaken in conjunction with education] are of course very difficult to measure they are widely believed to exist. To acknowledge their existence however is not to make a case on efficiency grounds for the full public subsidisation of higher education: full susbidies would only be warranted if there were no private benefits at all which is not likely to be the case; most people would expect extra income, status, and work satisfaction as a result of tertiary education…

It goes on to note that there is no public benefit from hobby or recreational study, and there is a risk of over-investment – ie, there could be greater economic and social well-being from investing the same money elsewhere.

I don’t think Finance’s document quite describes the underlying logic of its argument, which 1) are there public benefits from a course? (if no, just leave it to the market); 2) If yes, are the private benefits large enough to attract students? (if yes to this question, just leave it to the market); 3) If the private benefits are not large enough, will public subsidies lead to enough public benefit to justify intervention?

But they are certainly right that a public benefit argument can’t possibly justify full public funding of higher education, as susbequent events showed.

Australia’s university with no courses or students

Posted by on December 7, 2012 5 comments

In October 2011, the for-profit Laureate International Universities group announced that it was opening a new university, Torrens University Australia, in Adelaide. Back then, I commented that it was just in time – that it was using provisions for new universities that were to be abolished under the new standards system enforced by TEQSA.

My comment about it being just in time for a while seemed premature, as when the TEQSA register of higher education providers was created in early 2012 Torrens was not there. The problem seems to have been that though there were transitional rules putting all existing higher providers on the register automatically, the definition of ‘higher education provider’ in the TEQSA legislation referred to an organisation offering or conferring a higher education award. As Torrens did neither, it was not automatically transitioned to the register.

That created significant problems, as the rules on creating new universities make it very difficult for this to ever occur. To become an Australian university, it is necessary to offer undergraduate and postgraduate degrees, including PhDs, in at least three broad fields of study (a specialist university can have one field – MCD University of Divinity is the only example). It is also necessary undertake research leading to ‘the creation of new knowledge or original creative endeavour’ in those three fields.

A version of these rules has been in place since 2000, and unsurprisingly no new Australian university has commenced operation since. Our existing private universities would not have met them in their earlier years, and Notre Dame is still only just likely to qualify (three fields of study get a rating in the Excellence in Research for Australia exercise). With restricted public research funding eligibility, few organisations can fund the loss-making research needed to qualify as a university.

It seems like a regulatory workaround was created in June, though I (and it seems most other people) missed it at the time. A new regulation was created retrospectively allowing higher education providers registered but not operating to be included in the transitional arrangements. So Torrens University now appears on the TEQSA National Register (and also has a website promising a 2014 start). It is Australia’s 40th full university, albeit one with no students or courses.

Torrens University is registered until the end of 2017, so it has five years to meet the three field of study course and research requirements. While drawing on foreign resources is the most plausible way a new university could be created, I’m not sure why a for-profit like Laureate would devote large sums of money to activities that are unlikely to deliver financial returns. If Torrens does not meet the threshold three fields, there will be a messy situation in which the regulator tries to strip an institution, its students and its graduates of the ‘university’ title. Perhaps they are hoping that between now and then the government will take a more flexible view of what constitutes a ‘university’.

Why don’t female graduates work full-time?

Posted by on November 6, 2012 6 comments

On my Facebook page, there has been a bit of debate about my article in this morning’s Age. My basic point was that women with bachelor degrees are less likely to work full-time than men, and that this inevitably has consequences for what proportion of senior jobs go to women. These jobs are typically more than full-time, and usually go to people with a lot of experience.

Obviously childcare is a big part of the story. As the figure below shows (all data from the 2011 census), the more kids women have the less likely they are to work full-time during the years when children need care.

But the figure also shows that childless women are less likely than men to work full-time. And it shows that while full-time labour force participation increases as children grow up, women in their fifties lose interest in work regardless of how many kids they have had in the past.

Rates of full-time work, bachelor degree holders 2011


Read more »

Is law the new arts?

Posted by on October 30, 2012 1 comment

I often hear it said that “law is the new arts” – a generalist degree more than a pathway to the legal profession. The release of new census data today lets us examine this issue. Certainly Australia’s universities seem to be churning out lots of law graduates. According to the census, in August 2011 73,700 Australians had bachelor-level legal qualifications as their highest qualification. That’s up by nearly a quarter on August 2006 (59,500).

We might expect that this would overwhelm the legal profession. But it is managing to absorb a large number of law graduates. The figure below shows that for male graduates the share working as legal professionals (mainly solicitors, barristers and judges) is down a bit on 2006, but still more than half by their late twenties.

Male law graduates working as legal professionals

Young women are similar to their male contemporaries, suggesting that the labour force is absorbing most graduates, though at a slightly lower rate than in 2006. But by the second half of their thirties, the proportion working as lawyers drops below half. I have not yet examined what else they are doing in any detail. But a quick look at overall rates of graduate workforce participation shows the same pattern as the 2006 census: even for childless female graduates full-time workforce participation declines in their thirties.

Female law graduates working as legal professionals

Certainly 2006 compared to 2011 shows that a lower proportion of law graduates are working as lawyers in 2011. And there is no doubt that law graduates are found in many different jobs (I have a LLB gathering dust in my spare room). But as there is still a clearly dominant occupational outcome for law graduates, it is not yet the “new arts”.

Not so joined up government

Posted by on October 28, 2012 No comments

The Government will make changes to the rate of funding for the Sustainable Research Excellence (SRE) program to ensure sustainable growth. … This is estimated to provide savings of $498.8 million over four years.

- Mid-Year Economic and Fiscal Outlook, 22 October 2012

By 2025, 10 of Australia’s universities will be in the world’s top 100.

- Australia in the Asian Century white paper, 28 October 2012

What do OECD comparisons tell us about Australian higher education funding?

Posted by on October 3, 2012 1 comment

In The Australian this morning, Simon Marginson suggests that there is something wrong with the methodology in Graduate Winners.

He starts by accusing Grattan of starting with conclusions and backing them with ‘selective studies’ and cherry-picking data from other sources. My colleagues who did the empirical work for Graduate Winners are very unimpressed with this impugning of their professional integrity. We started with the public benefits claimed in the base funding review, and looked for whatever primary Australian data we could find. There was no cherry picking, no selectivity – and nobody has come forward with anything Australian that we missed.

Particularly on the non-financial benefits, I can confidently say that nobody in Australia has ever analysed this issue as carefully and comprehensively as we did. Jim Savage’s work on this did not get the attention it deserved due to the political controversy over tuition subsidies, but his technical paper has to be the starting point for any future work in this area.

Marginson’s alternative methodology is to look at OECD comparisons, stating that ‘it is significant that the Grattan report carefully avoids both the method and content of the OECD. It would have us believe Australian higher education has nothing to learn from global comparisons.’ Given how often this point has come up, in hindsight perhaps I should have included a section on this subject. But I don’t think the OECD funding data in itself tells us much other than that countries have very different mixes of state and private funding, and that these are reflected in their higher education financing systems. A high fee university system would not mesh well with Scandinavian tax rates. But it does fit with the lower tax rates in Australia, the US or Japan.

Similarly, I find Marginson’s claim that other countries report stronger relationships between education and social engagement uncompelling (we report this fact, he did not need to go to the OECD). American colleges and universities expressly inculcate civic values, Australian universities very rarely do so. The differences between the countries reflect the different histories of their higher education systems, and not public funding levels.

If I had 15 minutes to prepare a debating case on higher education, I probably would turn to the OECD for some handy facts and figures. The key OECD document is called Education at a Glance for a reason. But if as was the case I had months and the help of colleagues to explore the Australian data and think through the conceptual issues, that is surely preferable. In my mind the two big issues in higher education public funding are whether it causes significant additional public benefits (on top of those that would be derived from a market system), and whether there are access implications from fees. We focused on these big issues.

In any case, if we had used OECD data it would have tended to support our conclusion that the level of public funding is not the key variable in higher education systems. As I showed in an earlier post, there is no evidence that lower fees result in higher attainment. Indeed, the data suggests the reverse. One of my colleagues updated our analysis today with the latest Education at a Glance data, and (unsurprisingly) it shows again that high fees and high attainment tend to go together.

Even if OECD comparisons were a better methodology, they don’t always get Marginson where he wants to go.

Can more per student higher education public funding reduce higher education attainment?

Posted by on August 16, 2012 8 comments

One criticism of Graduate Winners was that I should have paid more attention to OECD comparisons. I am wary of ‘OECDitis’- taking OECD averages as normative when they are merely descriptive. In my view, higher per student public spending on higher education in some other countries reflects their overall political and economic systems, and does not make their higher education systems better.

But could higher per student spending make their higher education systems worse? I don’t think this is automatically the case. But I think high per student spending creates a greater risk of what I call the paradox of public spending: it may increase demand, but it also tends to decrease supply. Even big-spending European social democracies have budget constraints (as they are very painfully finding out). So if they can’t control spending by making students pay more, they control spending by reducing the number of students.

The figure below uses figures from OECD Education at a Glance showing average student fees at public institutions and overall higher education attainment rates. The Nordic countries tend to combine low fees and reasonably high attainment, but many other European countries have free or very cheap higher education and relatively low attainment.

Overall the higher fee countries have higher attainment than low fee countries (correlation of .35 between fees and attainment).

I don’t know enough about the particularities of each country to confirm my paradox. But given it is easier politically to control numbers than to increase fees (because the losers are less obvious, and less prone to rioting), it is likely that politicians in many OECD countries have capped supply of higher education, and reduced their rates of higher education attainment.

Misreadings and criticisms of Graduate Winners

Posted by on August 13, 2012 5 comments

The AFR published a response to Graduate Winners from Caroline McMillen, VC of the University of Newcastle. It provides an opportunity to respond to misreadings and criticisms.

Article starts, my responses in block quotes:

Access to a high-quality university education is the key to a stronger Australian workforce, economy and society. In turn, these are all important contributors to establishing a stronger place for Australia in the world.

An accessible university education is essential to ensure that Australia in what has been called the Asian century becomes a beacon for innovation and competitiveness.

The proposals contained in the Grattan Institute’s Graduate Winners report would jeopardise that future.

The report, which was made public last Monday, presents in measured language a reductive future for higher education in Australia, where students are motivated only by their graduate earning potential and the state withdraws its funding from what is currently recognised as a world-class university system.

Incorrect: The report shows (pages 56 to 59) that interest in the field of study is the top reason for choosing a course, and that a financially-based motivation model cannot explain why so many students with good ATARs choose humanities and performing arts, which have relatively poor employment and income outcomes.

The proposal is to shift the entire benefits and the risks of undertaking a university degree onto each individual student.

Incorrect: The report recommends a 50% cut in tuition subsidies for most courses; the taxpayer further takes risk through the HELP repayment threshold of $49,000 a year.

Read more »

Why do university lobby groups under-sell their product?

Posted by on August 12, 2012 4 comments

As expected, my Graduate Winners report generated plenty of controversy. Two of the university lobby groups put responses on their websites (Universities Australia here; Innovative Research Universities here). A couple of VCs added hyperbole to the sober complaints of their representative organisations:

Administrators and students alike have hit out, with Central Queensland University vice-chancellor Scott Bowman likening it to a “funding regime of which North Korea would be proud”.

Australian Catholic University vice-chancellor Greg Craven slammed the report’s focus on numbers while failing to recognise the wider community value of higher education. “This seems to be a calculator with a personality disorder,” Professor Craven said.

One common criticism was that Graduate Winners does not count every possible public benefit of higher education (though it has the most detailed empirical analysis of this issue yet published in Australia, it is true that not every public benefit claim was investigated). But you would struggle to realise from just reading the lobby group reaction that Graduate Winners also has generally very positive news about graduate prospects. The vast majority of graduates do well financially out of their degrees, and enjoy other non-financial benefits as well. And there was no criticism for not pursuing this issue further.

In other words, the VCs appear to think that total course cost increases of between $7,000 and $19,000 for most courses would have disastrous effects and must be loudly fought, but lifetime benefit, including financial gains from their services averaging hundreds of thousands of dollars, were not worth mentioning.

I think this one-sided reaction reflects the history of higher education in Australia, and mindsets that have not changed despite the underlying realities having substantially shifted. Read more »

Disruption

Posted by on August 10, 2012 No comments

Hello all, your friendly Ozblogistan Tyrant here.

This weekend I will be performing one of the biggest changes made to Ozblogistan in several years.

I am moving the site from its current home to a new one.

The new service is a company specialising in WordPress hosting. They will be taking responsibility for all the scut-work of making the site go.

Once the move is finalised, I expect that Ozblogistan will be snappier than it is now. I also won’t have to worry about fixing security problems, doing backups, finding out why plugin X has stopped working, working out why the site has suddenly died and so on. These will now be responsibilities I can delegate to the providers.

This has been in the works for some time. While I was a student I could afford the time it takes to keep Ozblogistan working relatively smoothly. As a professional I no longer have that time. So it makes sense to hire other professionals to do it for me.

The security problem we had a few weeks ago (and which is still causing false positives) was the straw that broke the camel’s back.

Moving providers is never pretty. Things are going to break this weekend. And various things will probably appear broken into the new week. It’s all for the good. Ozblogistan will shine out ever brighter.

Update Saturday 2:17PM WST: Failure. I will probably have to try again on Monday night. I’ve re-enabled comments.