Some strange human capital economics

Australian governments typically offer human capital or ‘equity’ justifications for public investment in higher education. So what should we make of claims for tuition subsidy that would reduce the value of Australia’s human capital?

In a follow-up Age story to the weekend article about full fees for TAFE students who already have higher qualifications, the paper reports that:

Malcolm King, who directed the program from 2000 to 2004, said most degree-educated students could not afford to pay another $8000 a year to study at TAFE.

Many of the students who enrolled in the creative programs formed part of Melbourne’s “cultural milieu”, fuelling the writing, film, media and advertising industries, he said.

“RMIT is freaky in that it always attracted high-calibre students like ex-doctors and lawyers who produced very fine work and have had a huge impact on cultural life in Melbourne,” Mr King said. [emphasis added]

So what Mr King is arguing is that we should offer public subsidy to divert people from an occupation of serious shortage (doctors) to an occupation (creative writing) in which supply always vastly exceeds demand – in the process wasting the $150K plus that taxpayers will already have spent training a doctor.

King has unwittingly highlighted another argument in favour of the Victorian government’s reforms.

18 Responses to “Some strange human capital economics

  • 1
    Charles Richardson
    July 14th, 2009 09:46

    Well, yes – certainly would screw up the economic incentives. On the other hand, the doctors & lawyers who would rather be writing screenplays probably aren’t going to be very good doctors or lawyers, so a public subsidy to get them into a different line of work isn’t a completely crazy idea.
    I guess this is the paradox of capitalism as we work it: we rely mostly on financial incentives to get people to do things, but the people who do something just for the money usually aren’t the best people to be doing it.

  • 2
    fxh
    July 14th, 2009 09:47

    If the barriers to entry to being a doctor were lowered, say to allow chiropractors, homeopaths, chemists, reiki therapists, economists and policy wonks to work as doctors there would be no shortage.

    If the barrier to entry for calling oneself a writer were lifted then we might all benefit.

  • 3
    Rajat Sood
    July 14th, 2009 11:58

    Charles, I think the notion that there are lawyers and doctors out there who don’t like their jobs and want to become writers but would be held back by the lack of a subsidy is totally crazy. I did a winter clerkship at Mallos with Maria (‘MJ’) Hyland in 1992. She could have been – with a fairly high degree of certainty – a partner for 10 years by now, raking in $1m pa. Instead, she chose to become a writer and fortunately (and maybe quite deservedly – I wouldn’t know) has become quite successful. But the idea that someone like her might have been deterred from her career change by a few thousand in fees strikes me as absurd.

  • 4
    Fitzroyalty
    July 14th, 2009 11:59

    It does sound economically suspect but of course culture is beyond economics. Why would anyone want the torture of working 80 hours a week as a young registrar when starting a medical career? Why is it that some jobs seem excluded from occupational health and safety requirements? Why can doctors operate after being awake for 36 hours but pilots must get enough sleep? Thw whole world of work is mad. If everyone was only expected to work 40 hours per week there would be fewer professionals leaving their careers for a better quality of life (such as by studying creative things).

  • 5
    Factory
    July 14th, 2009 19:40

    “$150K plus that taxpayers will already have spent training a doctor.”
    How do you arrive at that figure? Also it should be taken into account that trainee doctors have to work in public hospitals doing similar work to consultants for less pay and with worse hours. This ‘free’ work could easily account for more than 150k.

    Also if a doctor doesn’t pass their consultant exams, then they might have a good education, but their job choices are severely restricted.

  • 6
    Andrew Norton
    July 14th, 2009 21:43

    A guesstimate – about $110,000 in direct deewr subsidy for the basic degree, plus whatever it costs the hospitals for the clinical component. There are big dollops of capital for training facilities paid on top of recurrent grants. The precise amount does not matter – they are in the highest subsidy band and have long courses.

  • 7
    lomlate
    July 14th, 2009 22:46

    First off, based on full fee costs of $36000 a year a med course costs in the ball park of 180,000. Subtract $41000 in hecs and you have the government’s cost in broad ball park figures.

    Second, this myth of underpaid young doctors is a bit rich I think. First off: interns are barely profitable employees. They are still being trained. Junior registrars are the same, and senior registrars get paid quite well. Compared to first year article clerks doctors have job security+ the ability to work in an expensive teaching environment.

    Also, while they are training doctors may be underpaid but it’s an investment in the salaries they’ll get as consultants. If you aren’t a fully trained doctor your value in the market is not much!

  • 8
    Mitchell
    July 15th, 2009 00:12

    Lomlate – average time from intern to senior registrar is 6 or 7 years.
    It is a bit rich to claim that a doctor is barely profitable for this period of time – it is these doctors who generally run the hospitals while the consultants are out in private practice.
    To get an idea of their value in the market, look at the locum rates: a junior doctor can comfortably make 4-5x their award rate by working locums

  • 9
    Francis Xavier Holden
    July 15th, 2009 12:02

    “There are big dollops of capital for training facilities paid on top of recurrent grants.”

    This will be good news to Victorian hospitals at least, most of them don’t know where to apply to get these “big dollops of capital”. You have a secret source?

  • 10
    Andrew Norton
    July 15th, 2009 12:26

    They could (and do) try the state and federal governments. Here’s an example at Sunshine Hospital for U of M students. Here’s some of what Deakin has picked up for its new medical school, which also had a significant Cth handout. And have you been down Flemington Rd in the last few years? You might have noticed massive redevelopments of the RWH and RCH, with a big new cancer hospital to be put opposite RMH.

  • 11
    Cathy
    July 15th, 2009 12:34

    But Andrew, presumably those facilities are for more than just training doctors, even if that is one of their functions.

  • 12
    Andrew Norton
    July 15th, 2009 13:28

    Yes, they are multi-purpose. I haven’t been directly involved in this issue for a few years, during which there have been major developments I am not expert on, but the cost to hospitals of clinicial training is a major long-standing point of contention, which governments have had to take out their cheque books to help solve, given there is a huge survey of medical students coming through the system.

  • 13
    M
    July 15th, 2009 16:07

    Back to the original topic. $8K a year to study at TAFE is barely more than the HECs cost to study at Uni, except you actually have to pay today rather than when you have an income, which you won’t have because you continue studying and then enter a creative field where you barely make ends meet. Except for advertising in which case you are ……

    Maybe before contributing to our culture by writing, etc… they could work in a paying job they hate (this should provide plenty of motivation/inspiration). Seriously work for 1-2 years, save the cash rather than going OS on a trip every summer to Paris/NY to appreciate the “culture” and then study again. To be a struggling creative type involves doing some struggling.

    There is a large sub-set of students who chop and change and study a whole series of different things. Some (not all) seem to be terrified of graduating and having to actually get a full-time job.

    Graduates of almost any field who’ve spent a couple of years working and then go to study something else can afford to pay $8K themselves.

  • 14
    Malcolm King
    July 15th, 2009 16:39

    Andrew is quite right and the quote that ‘this is how TAFE’s should be structured’ was left out of The Age story.

    RMIT Creative Media used to be an excellent school and about 50 percent of TAFE writing students had first degrees. We called this reverse articulation. It was the place to go to get a good education in writing, multimedia and photography.

    I had a problem with it at the time as I could see the programs not letting in Koori and western suburbs students – although we had a fair share of the latter.

    The problem was that for their $80 per subject, they wanted to be treated like post graduates. Not on. I started a Masters of Arts in Creative Writing in 2001 and many took that option.

    The massive fee hike in an ironic way has solved the ‘reverse articulation’ problem. No one will pay $8K for a TAFE program.

    Back then RMIT Professional Writing & Editing was ’boutique’ or elitist – producing writers like Martine Murray, Alexis Wright and many more. It was a writing factory for the very best and it showed in books published. Those were the days.

  • 15
    fxh
    July 16th, 2009 11:54

    andrew – sorry for the drive by before..

    Yes – The unravelling of the real costs/subsidies/ of medical training “pinched” from service delivery to Unis is ongoing. The amount of $ that had been snaffled over the years from service delivery by Uni teaching and especially research is mind boggling.

    State health departments are extremely reluctant to fund floor space for research although are grudgingly coming around to understanding that teaching perhaps might need the odd computer and seminar room.

    Ironically the thing that speeded up the teaching/research costing excercise was the Unis greedily sucking up all those extra full fee overseas $, and expecting health services to supply the extra training spaces for sfa.

    Everyone, economists and lefties, likes to stick the boots in to the Medico Colleges for restricting numbers but the training system *in the services* is stretched to absolute capacity.

    anyway a bit off topic – lets get back to doctors and lawyers doing TAFE courses and RMIT having a problem ‘cos it can only attract the “best and brightest high achievers”, who resent paying, even to its TAFE courses.

    Malcolm – whats to be done about the idiocy of structures at the moment in TAFE – when a well regarded essentially short morphs into a bloody post Grad Masters fulltime and expensive to replace it.

    TAFE is now best known for colluding with dodgy immigration agents, near slave labour cooking/restaurant owners, 7/11 owners, hairdressers, and slum landlords to rip off overseas students.

    No space for a decent part time writing course at night or weekend that doesn’t require a mortage to pay for?

  • 16
    Andrew Norton
    July 16th, 2009 12:23

    I think it is the dodgier private colleges rather than TAFEs that are in the migration racket business.

    The international student industry is a curious case of an industry largely created by policies on other subjects: supposed skills shortages faced by domestic industry and supposed inability of local students to pay the cost of their courses.

    This accidental industry policy has been far more successful than any actual industry policy in generating profitable markets.

  • 17
    Malcolm King
    July 16th, 2009 12:40

    Don’t forget wage slaves (if paid) to the electronic games industry fhx.

    You make some good points. I didn’t have any problems with my old school of creative media creating a suite of full fee masters programs. I had problems that they were just ‘sponge cake’ curriculums of old TAFE programs, rebranded and pitched at a new audience. Nothing new. So it was a cynical exercise in profiteering. That’s what happens when you ‘morph’.

    The RMIT professional writing program was funded to provide training to certificate 4 and diploma level students. When I was there, about half the students had BA’s or post grad quals. The new head of school had problems with that and so did I.

    I think generally TAFE’s do a good job. They are underfunded but also carry, like unis, an extraordinary high admin salary load. Enough said.

    High demand writing programs should offer night and weekend classes. I’m surprised more don’t. It also maximises the use of their resources out of peak hours. Spoken like a true bureaucrat, I know.

    I launched two writing short courses for the babyboomers, on narrative construction and how to write for the web. Don’t know if they’re still going. They were $250 a semester.

  • 18
    fxh
    July 16th, 2009 13:52

    Nicely constructed narrative Malcolm and its on the web.

    $250 for 10 weeks of focussed help is ok in my book. (forthcoming book that is)

    yes the games and graphics industry are dreadful abusers of people.