What effects would rising uni fees have on the labour market?

The intuition that rising university tuition fees are a problem is a powerful one, but in need of persuasive theories and evidence to support it. As research cast more doubt on the idea that HECS negatively affected decisions to attend university, the argument switched to its effects after graduation.

The first serious attempt to do so was a paper in 2002 by a University of Tasmania academic, Natalie Jackson, suggesting that HECS might reduce fertility, as couples, and particularly women, postponed having children to pay off their HECS debt first. Though Jackson herself was cautious, given the data limitations, the idea was enthusiastically taken up by proponents of lower HECS, as I noted in my 2003 paper (pdf) criticising the idea. Subsequent analysis using HILDA data, published recently in the Journal of Population Research, showed that my argument was correct.

Another version of the argument is that, because of HECS, graduates will struggle to buy a home. Kevin Rudd has made this argument, effectively suggesting (as I pointed out at the time) that graduates be given a second first home buyers grant not available to the poor plebs who have to work to pay for their homes, rather than getting a wealth transfer from the Commonwealth.

A third version of the argument, which has come up this weekend in The Age and from commenter Matt, is that HECS debts will distort career choices away from public service type jobs towards employment that will generate the cash flow required to repay loans.

As The Age put it:

Tellingly, from a policy point of view, [law student Diana] Costaras feels the scale of the debt may steer her away from certain career paths, such as working in a human rights role.

Policy analysts fear she is not alone here — that medicine graduates may be steering towards more lucrative specialisations, and away from rural jobs and general practice, in a bid to get ahead financially.

Of course there is a serious shortage of rural medical practitioners now, even though the overwhelming majority of Australia doctors currently practicising had their education for free or at low cost. Clearly these high taxpayer subsidies have not translated into any felt obligation to treat people in areas where a good latte is hard to find. I think we need something a bit more hard-headed than spending huge sums of money on the off-chance that some of its beneficiaries may feel inclined to take jobs that lack the status or stimulation or comfort associated with the inner urban medical labour market.

This is a complex problem, which money alone doesn’t seem able to fix – even when high salaries are offered for regional practice there are often signficant difficulties filling vacancies. Rural medical schools, medical places bonded to regional practice, and greater incorporation of rural clinical training into the medical curriculum are all targeting it.

But to the extent that money is an issue, it should be directly spent on the problem – giving more to those people who change their behaviour, not to everyone. And I don’t see why the money should be spent specifically on HECS relief, as this narrows field to recent graduates (though there is a cost-shifting argument for focusing on HECS debt, if medical employers take advantage of the bonuses for early repayment to deliver a greater financial benefit to their employees than the added salary cost).

An underlying problem is that past policy bungles mean that there is an undersupply of health workers generally; unsurprisingly many medical workers decline to take the less attractive jobs. Unfortunately there are no quick fixes to this problem, but to the extent possible we should increase the supply of medical professionals so that is less of a seller’s market. This has actually been happening to an extent – thanks both to more HECS places and the full-fee degrees. The debate on the cost of university education focuses exclusively on how prices affect demand, overlooking the role of prices in stimulating supply, which is what we lack in this case.

The situation with people like human rights lawyers is rather different. Unlike dealing with sprains and sinuses in country towns for medical students, a human rights practice is appealing for some law students. The question raised by The Age article is whether higher fees would necessitate more lucrative work to service the resulting debt. With income-contingent loans, higher debts don’t have any effect on annual repayments, just on the number of years it takes to repay. So there is no cash flow reason to choose a particular form of legal practice.

Higher fees would, however, presumably enter into the overall calculation of how much a law graduate was prepared to pay – both in university costs and the opportunity cost of not pursuing more lucrative fields of law – to do work that was more interesting or more meaningful. Of the two, the opportunity cost is likely to be the larger for the most talented law students. But what trade-offs people will make is an empirical issue that I don’t think we can answer now in the absence of data.

Unlike in medicine, however, there are far more law graduates than there are first-year places in any form of legal practice. If people want to be lawyers, for the foreseeable future some of them are going to have to take less financially-attractive fields, such as human rights or (more likely) the cases of people whose lives have been stuffed up not by exciting things like oppressive governments but the depressing realities of bad families, bad schools, bad friends, bad relationships and bad luck (ie legal aid cases).

I don’t think there are any knock-down arguments against increasing tuition costs further in these labour market considerations. While there will be some point at which prices start having adverse consequences, we may not ever reach it because market forces will keep prices down.

27 thoughts on “What effects would rising uni fees have on the labour market?

  1. I don’t agree with the idea that doctors don’t want to work in rural places simply because there is an undersupply of them. If there was an oversupply, are you suggesting that large amounts of them would take these positions rather than (a) put up with slightly less money in the city; (b) move overseas; or (c) do something else — most doctors are at least reasonably smart people after all.
    I think this is really an empirical question, and I know where my money is. My bet is that if there was an oversupply of doctors (as there is of qualified teachers, for example), it wouldn’t solve this problem (as it doesn’t with teachers). Many country towns in Australia are basically racist dumps, and some are also very ugly harsh places to live. The type of premium that would be needed to get people in these areas would be huge, as can be seen from what the mining industry has to pay for their employees.


  2. Conrad – I did not mean to say that undersupply was the only problem; I have changed the ‘the’ to ‘an’. As the preceding paragraphs suggest, this is multifaceted. But a tight Australian and global medical labour market means that fewer people need to consider a stint in a country practice.


  3. Andrew, I must admit that I have not read your recent postings on university tuition costs as carefully as I should have – so please bear with me.

    You are right that since demand (applications) exceeds supply it must mean that the overall clearing price cannot be too high. But there are structural and distribution effects to consider. Tuition costs could for example be deterring many poor families or country people.

    Imagine if a scarce life-saving drug was only available at full price to everyone. If it doubled in price; total demand could still exceed supply but some disadvantaged families would miss out.

    While I agree that it is policy failure at the earlier stages of education rather than HECS that is inhibiting low socio-economic groups, further increases in HECS fee could make things even harder for them, especially in the preferred occupations.

    This suggests that the need for targeted vouchers and scholarships is increasing and will increase further if HECS fees continue to go up.

    I know that you believe in equality of opportunity but that most government intervention is next to useless or counter productive. But you also believe in market-based price incentives so why not advocate an appropriate shift in incentive structure to help level the playing field in education? Your support would carry great weight in this field.


  4. In The New York Times Magazine yesterday Andrew Delbanco asks, “Has the modern university become just another corporation?” US and Australian systems are not directly comparable but it does raise another question. While your post is about the demand side of tertiary education Andrew, there is a supply-side question of whether corporatisation and commercialisation are degrading the quality of the product. Are students getting value for what they are paying?

    Or are universities getting themselves into a similar situation to the credit rating agencies: being paid by their customers to judge how sound their customers’ offerings are? That doesn’t necessarily involve compromising standards but what safeguards are there to prevent it?


  5. And of course, all of this assumes that people in the country are deserving of better health care than they get at the moment. Perhaps less access to health care ought to be seen as simply a disadvantage of living in country, just like lower land prices, better air quality and low commuting times are advantages.


  6. Mike – What you are talking about is a structural issue, in that the same people teach the course and assess the students. This of course has existed since universities started. In my view, splitting them would be a good innovation.

    However in Australia at least commercialisation has in my view overwhelmingly been for the better, forcing universities to pay far more attention to undergraduate teaching. While arguably still inadequate, staff now get some training in teaching and universities monitor performance in teaching and generally don’t just promote based on research. There have been occasional soft marking issues, but not enough to show in flat pass rates over time. The incentive to avoid such scandals is now greater than it was in the past, since with block grants and quotas there were no financial repercussions from reputation loss, but now there are.

    The strongest representations I had on soft marking issues I had while working for the government were from internatioanal students, worried that the value of the their degrees would be undermined by a university losing its reputation.


  7. Andrew, my impression is that the content of undergraduate courses, at least in economics, has declined significantly from when I was an undergraduate (which isn’t that long ago). In particular, the level of mathematics that you can assume economics majors can handle seems to be much lower now than it was back then. Now this comparison is complicated by the fact that I am not currently teaching at the same university in which I studied as an undergrad. Nonetheless, I suspect that this decline is across the board to at least some extent. Don’t get me wrong, I am not saying that the students are not smart. However they do not seem to be as well prepared as they uised to be. To be quite honest, I get the impression that Australian undergrad economics degrees are now much moree like economics majors in the liberal arts degrees in the US. My impression is that these are significantly weaker than the traditional undergraduate economics degree in Australia.


  8. Damien – Though I have a friend doing postgrad study at an Ivy League institution who says his economics subjects aren’t teaching him anything he didn’t learn in undergrad economics at a Group of 8 uni here.

    There was a survey of academic economists on this issue not so long ago (published in Economic Papers?). From memory, most but all thought there had been a decline. But without careful analysis of the evidence it is hard to know for sure; fallibility in intertemporal comparisons is high.


  9. Andrew, I’m very skeptical of your claim about improved teaching standards, during my time as a postgrad I have yet to have any form of teacher training, and during the twelve workshops during the induction period (even though it was meant to be compulsary, half the students did not attend – mainly through work commitments).

    Everyone in my department is much more concerned about research, research students as it is the only way to get scholarships and then jobs, staff as the teaching fund seems a pretty scattergun approach based on pretty subjective data, and hey its only $82 million, much better to focus on completions, articles and ARC grants.

    Also the degree of absenteeism of postgrads from campus has got to be of concern, I know research students that visit uni twice a year to see their supervisor, not in the slightest involved in the culture of the university, and while they are working to survive, I don’t see how working at a call-centre or working in admin will make them a better teacher.


  10. Stephen – I’m certainly talking about trends, not absolutes. Universities are still a long way from being modern and professional service organisations. But it would also be unfair and I think inaccurate to say that nothing has changed. In my 2002 book on universities, which was critical of teaching standards, I reported research showing that 44% of early career academics had received teaching training and 30% of later career academics. I haven’t seen that survey replicated, but I’m sure it would be much higher now, at least for ongoing staff. More academics have learnt to use IT to improve their presentations. Thanks to email, they are far more available than they used to be. Student surveys show satisfaction increasing, suggesting that the changes are having an impact. That said, on some indicators satisfaction is still quite low despite trending upwards.

    If you read university histories, while there may have been brief golden age for staff in the mid-1970s, there has never been a golden age for students.


  11. Conrad – If the academics are to believed (and I do think they tend to be whingers, and like most other people will be poor at comparisons over time) much of that is consistent with what I said to Stephen – they are spending more time with students, using more IT in teaching, there is more quality assurance and the students are responding by being more satisfied.


  12. It is not clear that things like email which increase availability are improving university performance. Increased availability for student consultation means reduced time for research. Since an academic’s job (and university performance) involves both teaching and research, this increased availability is not a productivity improvement. It either requires academics to work longer hourse or reduce the time they spend on research or both. As for more IT in teaching, I personally prefer to listen to presentations that are very low tech. Chalk and talk is still my favourite mode of listening to a seminar. It seems to me that this probably carries over to lectures. The old joke that the fanciness of the the method of presentation was inversely proprtional to the quality of the content being presented had more than a grain of truth to it!!!


  13. I wouldn’t disagree about e-mail, I’m sure it has made the transmission of student queries a lot easier (as well as well-designed web-sites that provide you with detailed information of the academic staff’s relevant specialisations). Although it does have one downside, one of the Phd students did warn me that when he provided contact details to students he found himself wasting a lot of time replying to lazy students who were trying to get the tutor to do parts of their assignment for them, so I guess with the use of email it is important to establish the bounds of interaction so that you are not providing an unfair advantage to the more assertive students. Which I assume is why having a uni policy of set student consultation times is a pretty good idea, in which you can lead someone to information, while forcing them to still do the digestion of analysis.

    “More academics have learnt to use IT to improve their presentations.”

    I think you’ll find that with my generation already being very computer savy this has added to efficiencies, it was in the first-year of my undergrad year that I learnt about e-mail, and by third-year computer applications like email were an essential tool, and those a few years younger it is even more of a natural process of communication. And with online journals and host of other applications, even the most crusty-old scholars have learnt to use computers, its only the NRA (Non-Researching Academics) that are the nemesis of my friend who services the IT at my uni, and I tell him “the NRAs at universities will all be extinct in about the next five years.”


  14. Damien – As the undergrads are effectively only there for half the year, I don’t see any problem with them dominating academic schedules for that time.

    Stephen – As someone who went to uni in the 1980s, the set consultation hours system was really bad. Many academics kept set and short hours, some of which would clash with other subjects, or which might require you to wait days after an issue first became apparent to when you could ask a question, delaying your work. And I would have thought that email helped the shyer students. It’s not perfect for everything of course, and I hope academics still have consultations, but for routine inquiries email is a big improvement.


  15. Andrew,

    That argument is spurious. If the introduction of email and the like has increased the amount of time academics need to spend dealing weith students then it has either increased their workload or decreased the time they have for research or both. Since it is the ability to conduct their own research that attracts most academics and allows universities to get away with paying what are pitiful wages compared to other jobs with similar hours, this increase in the teaching workload amounts to a reduction in the real wage of academics.

    In any event, teaching duties tie up much more than half of the year. Teaching duties do not just involve taking classes. You need to prepare the classes too. I get the impression that it is unusual for academics in Australia to get to teach the same classes for many years in a row. As a result, you regularly need to do preps. Furthermore, there are grading duties and supewrvisiuon of research students and the olike. On top of that, uni admin seem to think that the teaching breaks are great times to schedule meetings and workshops and a whole host of other things. The amount of time that you have unencumbered to spend on research is actually much more limited than most non-academics seem to think.


  16. Andrew, please ignore the first sentence of my previous comment. It is too harsh. I think the rest of the points are valid, however.


  17. Damien – Though the reality is that at many universities there has never been much observable research output, and I think we should work academics harder on teaching tasks. While teaching-related tasks may take up more than half the year, there will only be student emails when students are attending class or preparing for exams.

    I think students do deserve a better deal than what they have received. One reason we need reform of higher ed is to encourage the growth again of teaching-only staff and institutions.


  18. Andrew — unless you can work out some way to make renumeration better for academics, then working them harder on teaching tasks is simply making conditions worse with no compensation. In addition, lots of academics have professional duties, which have essentially no relationship to teaching times.
    Also (as Damien basically notes), in many areas, it is exceptionally easy for some academics to get either jobs in different locations (especially given the demographics of the US), or other better paying industries (especially given that many already contract/work part time in them — which universities want them to do, and so should students). So what it seems you are suggesting is that you are really willing to make standards of everything lower for better teaching in the short term. I doubt this would even work in the long term because you are going to be to forced scrape the bottom of the barrell for employees in many areas (which is already the case in some areas). At least in my experience, it seems to me that there are now many areas that only have staff thanks to immigration from non-English speaking countries, which isn’t exactly improving the quality of teaching, and even this source of employees is unlikely to last. If you want subjects like engineering that actually teach modern engineering, having worse pay/conditions than now is hardly the way to go.


  19. Conrad – The whole point of this post was originally to say that I do have a way of improving academic remuneration (ie student fees), and to explain why I think the various objections to this proposal don’t stand up. Across most of the professional fields I think highed ed providers (not necessarily unis) could recruit staff to teach but not research. The relatively flexible hours and places of work would suit many professional women I believe.


  20. On economics undergraduate education, my experience as a former student, tutor and now employer is that economics graduates these days have spent much more time gaining a mathematical understanding of the key concepts (eg consumer theory, producer theory, etc). This is in line with the trend towards the North American approach to graduate education over the last 30-40 years. Whether this has compromised modern students’ intuitive understanding of economics is hard for me to say, as the best students pick this up regardless. But thinking back to the teachers I had, I doubt whether the compromise would have been too great. Some were excellent and they are broadly still teaching 15 years later, but many were woeful they have tended to retire.


  21. #21 – I tried to push this idea at my employer last year. Actually set up positions where professional women could come to a teaching-only position for a period of time while she was having her family, or had young pre-school children. There would be no expectation of a long-term academic career, or research, or administrivia. Teaching and maintaining links with industry would be the sole purpose of these positions. (indeed, the University and employers could collaborate in these types of asociation). To be sure they would work better in some areas than in others, and wouldn’t suit everyone. Yet the idea wasn’t well received and people prefered to carry on about male hegemony and conspiracy etc.


  22. I did undergraduate university this century, and I never thought about HECS when I was an undergraduate – I was aware it was a substantial amount of money, but it didn’t really upset me at the time.

    But surely the debate about HECS is not only a debate about where university funding comes from, but also a debate about the social/economic contribution to society that people with degrees confer in the modern information age? Labor in the 80s set it at a certain percentage of university costs to reflect this, after all. So to focus on the level of HECS that students are willing to pay is missing some of the point of HECS, surely?

    What was much more frustrating about the undergraduate university experience was that it was 3-4 years where you allegedly studied full time. This either meant that students a) had rich, generous parents; b) full- or part-time jobs which inevitably got in the way of study; c) lived on a government allowance which would only cover the costs of living if you were incredibly frugal. The effect of b) which, in my experience was the most common, is that students spend less time studying, especially if they had some measure of financial independence from their parents. Surprise surprise.

    I think that the money situation for students while they’re doing the degree is far more frightening to potential students, especially low-socioeconomic/rural types, than HECS debts. They’re not thinking that far ahead. And it’s partly because of this situation that academic standards decline, as it changes the bell curve when marking assignments/exams, because less students are trying as hard as they could.

    The other side of the research vs teaching debate is that, ideally, you want people who know the latest debates/knowledge in a field to be teaching the course; otherwise the course is full of out-of-date received wisdom. At the same time, undergraduate courses are 50% bullshit anyway, because it’s too hard to teach the complicated reality in a semester.


  23. Tim – I’m not sure that the social/economic contribution of higher education is in itself relevant to public funding. If public funding does not generate benefits additional to what would occur in a pure market then the funding is really just a wealth transfer to people who are already, on average, better off than others in the community on just about every indicator. Given all public funding has an opportunity cost – ie the alternative uses of that money – it is hard to see how such a wealth transfer can be justified.


  24. I am not convinced that students need to be working more now than in the past. Nor am I convinced that they actually are doing so, although presumably there is data on this second topic somewhere. Since HECS fees don’t need to be paid until after students have finishes their degrees, what are the additional expenses that students face now that they didn’t face in the past?


  25. It’s certainly my anecdotal experience that students are working more hours than they used to. I saw some research that backed this up, although the rise they found wasn’t as large as I expected (I’m sure Andrew would be more familiar with this than I am).

    Arguably if students are working harder it is because they choose to spend money on things like mobile phones or rental houses that are nicer than 20 years ago, but I think even students willing to put up with the same standard of living as in earlier decades need to work more.

    HECS fees are one of the reasons I haven’t (so far) gone back to do further study, but they’re a tiny problem compared to inadequate levels of support for those studying at the time.


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