Labor’s faulty uni intuitions cost taxpayers $562 million

Fulfilling an election promise, this year’s budget contained:

$562.2 million over four years to encourage students to study maths and science and compensate universities. From 1 January 2009, the maximum annual student contribution amount for maths and science will be reduced to the lowest ‘national priority’ rate for new students.

As I pointed out when Labor first announced this plan in early 2007, it rests on two false assumptions.

The first assumption is that choices between broad academic disciplines are driven by relative prices. There is no evidence in the history of changing HECS levels that this is the case. A moment’s reflection explains why: for most people, a choice of course is a career decision, and who in their right mind would choose a field that did not interest them to save a few thousand dollars in eight or nine years time (when their HECS repayments would finish earlier than would otherwise be the case)? And for students motivated by money, a few thousand dollars in tuition costs is not going to change substantially the lifetime earning relativities between occupations.

The second assumption is that demand influences supply, when due to the quota system of allocating university places it has very little influence. For universities, the only shifts that are reasonably easy to make are within so-called ‘funding clusters’. The main other discipline in science’s cluster is engineering, but it would hardly make sense to shift places from a field with a tight graduate labour market to science, which offers relatively poor employment prospects (make that three false assumptions; we don’t need more science students). The number of science students is driven by the historic number of places allocated to science, not by demand for science courses.

From Victoria, we have the first indications of how demand for science is going with its new low prices, with “demand for science courses down nearly 28%”. And that’s in an overall market up by 6%.

Given the usual year-to-year stability in market share between disciplines this is a surprising result, but further evidence that if a swing is on fiddling with prices isn’t going to make a difference. It will be interesting to see what happens in other states.

But I think we can pass judgment on the policy now: the government has wasted $562 million of taxpayers’ money on its incorrect intuitions about higher education.

20 Responses to “Labor’s faulty uni intuitions cost taxpayers $562 million

  • 1
    charles
    October 25th, 2008 23:31

    Clearly if the policy is that bad the number of students will fall to zero and the total cost of the policy will be zero ( assuming the students take other subjects, get well paid jobs and the tax called HECS is otherwise collected).

    Actually there could well be a net return to consolidated revenue, you may be able be able to fire all the maths and science teachers.

    To talk about the policy costing tax payers is nonsense, the policy may change the rate for the tax called HECS, this will clearly result in reduced tax revenue if a similar number or less students take the subjects. Clearly the policy itself is not going to increase the GST from 10% or company tax from 30% or whatever.

    Your whole argument is difficult to follow by a member of the group that believe HECS is an exotic tax aimed at passing education costs to the next generation. My guess is you like me are old enough to have had your education paid for by the last generation, that is you like me is a member of the selfish generation.

    Society and individuals benefit from roads and education, I find it difficult to see why one should be funded using one sort of tax and the other a tax of a different form.

    If it really concerns you that education may lead to a higher income, support progressive taxation.

  • 2
    Mitch
    October 26th, 2008 05:32

    Even if HECS was a tax, it still makes more sense that those who benefit most from something should pay for it. That way what they get for it will be that much better, since the service providers are directly accountable, unlike with most of the stuff tax money goes to. This means better education, which is in our interest as students.
    And besides, even under your idea of how it would be funded we’d still be paying for the next generations education instead, and at about the same time of our lives as we have to with HECS, so it doesn’t really work out to be that big of a difference, except for the benefit I’ve just highlighted under the current scenario.

  • 3
    Andrew Norton
    October 26th, 2008 06:55

    Charles – I’m not saying that the price cut is driving down demand, as I am not sure why this would be the case unless students are inferring lower value from a lower price.

    Due to a change in the last Howard budget, there is now some flexibility in increasing enrolments so that other courses may expand as science shrinks. But the enrolment patterns for this year suggest that universities are not using this except as a ‘margin of error’ in managing their enrolments, so their target numbers for each discipline will remain as set out in their funding agreements with the government, the mechanism by which central control operates. Consequently, I would expect most of the increased demand in other disciplines to flow through to the unmet demand statistics, and not to enrolments in other courses.

    However if it did flow through to enrolments in other courses these would also cost the government money, so there are unlikely to be any net savings to government compared to science. On the other hand, unlike with the science policy they/we would get something for ther money – extra students- so the policy is not the waste that the cut to HECS for science represents.

    I see it as a waste as it does not induce any behaviour change. It is simply redistributing wealth to people who happen to study maths and science.

  • 4
    conrad
    October 26th, 2008 07:27

    “to science, which offers relatively poor employment prospects”

    I think this is a rather broad statement, which is confusing, since the outcomes differs across science subjects. In addition, if you look at outcome statistics in terms of starting salaries, many science courses are fine (not that I’d recommend doing many types of science in Australia).

  • 5
    charles
    October 26th, 2008 08:59

    Mitch

    My point is my generation has reneged on it’s responsibility, what the next decides to do is their problem.

    As to people paying the cost directly leading to a better education outcome, ya I’ve heard it all before, and I still don’t believe it. I suspect the need to get students into the second year so the fees keep coming has a far greater effect on standards. I went through in the 70’s, there was over 60 in the first year and 7 in the second. I bet that doesn’t happen today.

    Perhaps your looking at it from the ease of getting through, while I’m looking at it from the point of view of an employer; standards matter.

    Andrew

    I was being a smart ass.

    There is a shortage of engineers, we get paid well and in the end the shortage is going to effect our standard of living.

    In all seriousness maths science is on a downward spiral. There is a lack of good teachers, so there will be a lack of graduates which will result in a lack of good teachers.

    In my view the solution is to look back to the 70’s, pre AUS study. If you did maths/science followed by one year teaching diploma and agreed to teach math/science for two years you could get a scholarships that included a living allowance

    It really comes down to one question, should governments look at demographics and try and push the education system to produce what will be needed in the coming decades or allow it produce what is in fashion this year. In other words should governments stand back and allow markets to fail. Surely the dimmest can see that markets fail in the current environment.

    The counter argument is of cause, Australia an advanced economy has to import doctors ( the importation of engineers is coming) form the third world because of miss-directed government policy in the 80’s,90’s and 00, combined with a failure to bring the medical union under control.

    Personally I think HECS is an an appalling misdirected tax.

  • 6
    Andrew Norton
    October 26th, 2008 11:47

    Conrad – In the Graduate Destination Survey the sciences have above average unemployment levels. Using census data I have only examined maths to date, but throughout their 20s for men (worse for women, but harder to interpret the data) a quarter are in jobs that don’t require degrees of any kind. Only about 3% of people who majored in maths end up as school teachers, so a general cut in HECS has a long way to go in making this an attractive employment option.

  • 7
    charles
    October 26th, 2008 14:17

    “A quarter are in jobs that don’t require degrees of any kind.”

    And by who’s definition. Very few degrees are vocational.

  • 8
    Andrew Norton
    October 26th, 2008 15:16

    The ABS classifies occupations according to the level of formal education or equivalent experience required. I have used their classifications.

  • 9
    charles
    October 26th, 2008 16:29

    Can’t fault the classification.

    Out of curiosity; how many students major in maths in one year.

    Or to put it another way, are the budget papers only talking about maths and science majors or the full range of degrees that include maths and science as subjects.

  • 10
    Andrew Norton
    October 26th, 2008 16:45

    I don’t know how many maths majors there are, but last year enrolment in maths units was equivalent to 14,000 full-time students. There would be a significantly larger number of actual persons doing at least some maths in their courses.

    For funding purposes, what counts is the unit of study, not the actual degree or major. So a student just doing first year maths, for example, would get the lower price.

  • 11
    Andrew Norton » Blog Archive » Is HECS a tax?
    October 26th, 2008 17:24

    […] Charles objects to HECS as an exotic tax aimed at passing education costs to the next […]

  • 12
    Mitch
    October 26th, 2008 17:59

    Actually Andrew, this could have an effect on demand besides to simply subsidise maths and science students. I’m looking at doing nursing. Here in Perth, Curtin Uni offers a Bachelor of Science (Nursing) and and the one I was planning on going to (and probably still will) simply offers a (6 month shorter) Bachelor of Nursing. I bet the former fits under this policy and the latter doesn’t.
    No doubt there’s such an application outside nursing. In the short term I imagine it could change peoples Uni preferences and in the long term force Uni’s to change the structure of their courses (hopefully not to one size fits all) to accomodate.

  • 13
    Andrew Norton
    October 26th, 2008 18:25

    Mitch – I agree that price signals could influence demand between similar courses. In this case it will depend on the precise units of study taken. I imagine that the two courses are the same in actual number of units taken but one is more compressed (eg has summer school or something like that). Entering the labour force 6 months earlier would make up for some of the additional expenditure on the course, if indeed it turns out to be more expensive.

  • 14
    charles
    October 26th, 2008 18:51

    That being the case Andrew what has the career outcomes of math majors got to do with it. Surly your not going to claim engineers have poor employment prospects. Further in this day and age you don’t have to do a math major to end up in high school teaching maths, so the percentage of maths majors teaching doesn’t tell you much.

    The number if maths majors would be an interesting figure. It’s been my experience that maths schools seem to have very few direct students, I think finding that figure out would help you in your analysis. I think you might have missed small things like how many schools would run in difficulties if not enough students with math subjects come through.

    Looking at comment 13 I do wonder if you have lost the plot. Why it is good to send a young adult to university? It is more than just a personal career cost/benefit analysis. There is a big advantage in adults having a wider view of the would ( the reason why I think the young liberals going to the senate complaining about being exposed to alternate views is a joke).

    But then I come from a family that has believed in higher education for generations.

  • 15
    Cathy
    October 26th, 2008 19:35

    Charles, according to the Australian Mathematical Society Gazette, there were 154 completions of honours degrees in mathematics in 2006.
    http://www.austms.org.au/Publ/Gazette/2007/Nov07/Degrees.pdf
    I think that is a fairly typical number, recently. And as you note, much of the teaching of mathematics at university is done in service courses for other faculties. For instance, the university I graduated from (UNSW) generally produces 10-15 honours graduates a year, but teaches several thousand students in first year mathematics courses.
    I think the problem with the supply of qualified maths and science teachers is not amenable to solution by tinkering around with the HECS. Most of the state education departments are already running scholarship schemes whereby they will cover 100% of the cost of your HECS debt in return for 3 years of service in a hard to staff school. However, none of these schemes address the fundamental problem which is the low rates of pay that teachers receive relative to other occupations that require a similar level of tertiary education. Essentially, you spend up to five years at uni qualifying for a job that pays about as well as bus driving…

  • 16
    Andrew Norton
    October 26th, 2008 19:56

    Charles – But giving discounts to people who have to do maths as part of other degrees isn’t going to make a difference either to the total amount of maths education. Anyway, I will tell you sometime in 2010 if I can see any movement in maths enrolments.

    As for why send young adults to university, the main reason people go is to improve their job prospects, though of course to separate that extrinsic concern with intrinsic interest is often artificial and misleading.

  • 17
    charles
    October 26th, 2008 20:45

    Andrew I’m being difficult, I think for good reasons, in my view some of your arguments are misplaced, but in the end I think your conclusion is right.

    I will now go and read what is no doubt your counter argument for my view that HECS is a badly designed tax.

  • 18
    Mitch
    October 27th, 2008 02:33

    Believe it or not Charles, it is possible to get a ‘wider view of the world’ without going to University.

  • 19
    Sacha
    October 27th, 2008 20:17

    At least a couple of years ago (and I doubt it’s changed), the number of people doing maths subjects was like a pyramid – heaps at first year, probably fewer at second year, many fewer at 3rd year and very few at honours level. There are lots of students from many different degrees doing first and second year subjects – e.g. in stats.

  • 20
    Andrew Norton » Blog Archive » Trying hard to find a redeeming feature in Labor’s full-fee place phase out
    October 30th, 2008 19:59

    […] details of which were announced yesterday and reported this morning, in the same category as the $562 million wasted in a futile attempt to boost maths and science. Putting the two policies together, $811 million […]