Supply does not equal demand in higher ed

According to an article in The Australian this morning on increased first year university enrolments:

AUSTRALIANS are turning to university in an effort to improve their career prospects, reversing a trend of school-leavers taking advantage of record low unemployment and the resources boom to land full-time jobs.
The latest commonwealth figures reveal a 6 per cent jump in first-year enrolments for Australian undergraduates last year,…
Part of the boost can be attributed to extra places being created as a result of measures by the Howard Government. …

Chief executive of the Australian Vice-Chancellors Committee John Mullarvey said the latest enrolment figures were “very positive”.

“It shows that demand (for university) is still high despite the economy booming,” he said.

Note the wobble between demand-based explanations (Mullarvey/journalist Dorothy Illing’s analysis) and supply-based explanations (extra places available). In market-based industries, this distinction may not be that important, since suppliers generally work to keep supply as closely aligned to demand as possible. But in higher education, where though trending downward most students are still enrolled under a centrally allocated system, the distinction between supply and demand is crucial.

Without proper price signals, in higher education overall demand always exceeds overall supply (because the low price encourages demand and discourages supply). So the increase in places noted in the article, plus the new private higher education providers taking extra students thanks to FEE-HELP loans, reduced excess demand.

But we can’t infer from this that there has been any reversal of a trend toward school leavers preferring to do something else, at least for a while. Between 2005 and 2006, demand as recorded by the centralised admissions agencies actually went down. Since these agencies are the main route into university for school leavers, the demand figures are consistent with school leavers continuing to prefer doing something other than study in the short term (though the initial demand figures for 2007 suggest that this trend might reverse itself slightly next year).

As I have noted before, there are trends such as later starting ages for university and more people qualifying for Youth Allowance, consistent with people taking a year or two off before starting university. Unfortunately despite 2006 nearly being over DEST has not released the 2005 statistics I need to see if this continued between 2004 and 2005. Using the 2005 commencing students statistics, commencing bachelor-degree students aged 19-21 were up 11%, compared to 4% for the 18 years and under group. I need the ‘new to higher education’ statistics to remove those who are just switching courses, but this enrolment data is at least consistent with some of those who have taken a gap year or years now returning to study.

If my inference is correct, it supports the overal labour market theory of demand. The strong labour market of the past few years has temporarily diverted some people from study to work, including those with school results strong enough to secure a place some time after completing Year 12. It suggests that when the economy turns down again we could see unmet demand increase significantly, as fewer school leavers take gap years and those who have taken gap years in the past decide to sit out the economic downtime at university.

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