Do we have too few graduates?

~ Andrew Norton

No matter how many times Bob Birrell updates his argument that we need more graduates, he gets lots of publicity. This morning was no exception. According to The Age

THE Federal Government should massively increase university places rather than offer 450,000 new training places if it wants to equip young Australians with the skills needed in future, a Monash University study has argued.

Similar stories appeared in the SMH and The Australian.

The basic argument goes like this: there is strong employment growth in managerial, professional and associate professional occupations. However, growth in university commencements has been much lower, and even fell in a few disciplines between 2002 and 2006. Employers have had to use migrants to fill vacancies. Therefore we need more graduates.

However, on closer examination of the evidence the argument falls apart. Of these three broad occupational groups, only professionals are truly dominated by graduates. As I noted in my paper on this issue last year (pdf), only about 20% of associate professionals have degrees. Indeed, the category has now been abolished by the ABS and the occupations that it used to cover distributed to other broad groups. Some of them have gone to ‘professionals’ and ‘managers’, but most went to occupations that do not normally require degrees.

Similarly, ABS Education and Work 2007 shows that less than a third of managers have degrees. Presumably many of them are in small businesses. Perhaps they would be better managers if they had degrees. But we cannot assume that a growth in managerial positions will require an equivalent number of graduates. Even among professionals, 30% don’t have degrees.

According to Birrell’s numbers, between 1996 and 2006 managerial jobs increased by 131,882, professional jobs increased by 438,840, and associate professional jobs increased by 228,811. So if we assumed that all drew on the graduate population we would need 799,533 more graduates. But if we discounted growth by the non-graduate proportion of the workforce in those occupations we would need 393,841 more graduates. The real need is somewhere in between those numbers.

For reasons I have never understood, Birrell’s work in this area always focuses on commencing students as a guide to graduate supply. First years are shop assistants and waiters, not managers and professionals. It is the completions data that is of most interest, because it can be more easily compared with the jobs data Birrell has taken from the census.

According to DEEWR, there were 1,083,835 Australian bachelor degree completions between 1996 and 2006. Of course we need to produce more graduates than the workforce expansion of ‘graduate’ jobs, since they have to replace people leaving the Australian workforce as well as fill new jobs. And some of those completions will be the same person completing twice. Nevertheless, we have a buffer of more than a quarter of a million completions above the highest possible estimate of demand for graduate labour. But the cumulative effect of supply of graduates (including migration) outstripping demand over long periods of time is that more than 640,000 graduates are in jobs that are not classified as managerial or professional.

What we have here is not an overall shortage of graduates, but shortages in particular occupations. Those shortages can be met by improving our system of allocating places between disciplines. I prefer a market system, but even our clunky old centrally controlled system has woken up to how badly they handled the health professions in particular, the areas of most serious shortages. As Birrell’s numbers show, commencements in health disciplines shot up 27% between 2002 and 2006. Completions are of course a lagging indicator, but they too are increasing. Given the inherent unpredictability of the labour market, graduate supply and demand will never match perfectly. But simply churning out more graduates is not the way to match them more effectively than we have in the past.

Published by Andrew Norton

20 thoughts on “Do we have too few graduates?”

  1. Hey Andrew,

    You seems to be focused on undergrad, how does postgrad work fit into all this? Perhaps a more expansive, US style postgrad program is needed to bring students with more specialised skills? Postgrad also tends to be less political so you can use government incentives to match economic trends, and encouraging employers to invest into postgrad degrees for its workers could shelter the cost.

    What say you?

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  2. Colin – Postgrad degrees that are really entry-level qualifications are one way around dysfunctional regulation of undergraduate places. Apart from medical specialists (controlled by the colleges) I have never heard of significant shortages of workers with postgrad qualifications. This market has been almost fully deregulated since the Keating government, and seems to be functioning well without any of the government incentives you mention.

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  3. 1) Actually, there was a really interesting talk where I work by a guy from the US labor department, and he was saying that for the US at least, there was a huge shortage of people with good but non-specific verbal skills (apparently we have a enough people with good mathematical skills). They get this data from very intricate surveys from employers. I’ll try and find the article.

    2) This makes me believe your argument about graduates not in graduate jobs reflecting too many degrees less and less. It ignores the fact that you can get a degree these days and learn essentially nothing (of course you can learn a lot too, but some people don’t). This might be because you are too lazy to learn anything, or it might simply be because people are passed through degrees these days, even if they do not really have the aptitude to work in the field.

    3) An extreme example of this are PhDs in science. Only a small percentage of these people will make top scientists and there is not much of an over-supply of these (that’s just the way science works — there are huge differences in creativity and productivity between individuals). However, it is never clear from the beginning who they are likely to be (and more cynically, many people need others to do their work). Thus, if you want enough top scientists, you need to produce far too many of them. This means many people end up with PhDs in science that don’t use them. This means there is a surplus of people working in fields with PhDs that don’t need them, but there isn’t a surplus of top scientists. I don’t see why many areas of the labour market are like that, especially areas that require at least low levels of creative thinking, which many people don’t have.

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  4. Conrad – I agree (as my original post said) that the required number of persons with degrees exceeds the number of positions for which degrees are necessary or preferable. And I agree that there are many non-credentialed attributes that affect what kinds of jobs people can do (or do well). This is an orthodox view that I see no grounds for dissenting from. But in practical terms Birrell’s argument is that we need to university educate more of the weaker school leavers, since university attendance is already very high among the brightest kids. For some of these people, further study will pay off. Many others will be the people you complain about who don’t learn much. There is little case for spending additional money adding to their formal credentials.

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  5. I think the low and high achievers get different benefits (often at the expense of each other) — even most low achievers can be brought up to a level where they have at least functional literacy and perhaps some level of numeracy, which I imagine is a basic prerequisite for many non-degree jobs. The problem is that (1) universities are not an efficient place to do this and so we don’t actually do this much (I might note that many of the US universities with low staff/student ratios still do this — but there is no equivalent in Australia — so it isn’t clear where this could be done at present); (2) most people in the low category don’t believe they are there for the reasons that they are, so they still want to go; (3) we are not allowed to correct for things like “went to an extremely rich private school, and hence got good marks despite being thick”, so our entry sample in the middle of the distribution is not strongly affected by ability as predicted by Year 12 scores. I might note that at least for (3), simple entry tests such as those done for graduate selection in the public service might provide a better guide than Year 12 scores, but whenever universities suggest students go and do them, there seems to a public backlash (although medical schools seem to get away with it).

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  6. “medical schools seem to get away with it”

    As do business schools. All MBA students have to sit the GMAT, for what it’s worth (which may be not much.)

    Why is a science PhD for someone who won’t become a top scientist a wasted degree? Most people who work for the CSIRO have a PhD in science. Very few of them are “top scientists” but most would be doing useful work, and for the most part they wouldn’t be able to it if they didn’t have the research skills that it takes to get a PhD. Ditto the Defence Materiel Organisation, mathematicians in investment banks etc.

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  7. Indeed, I’d argue that the mere process of completing a PhD is unlikely to be a completely wasted experience. If you’re the sort of person who’s not likely to benefit from it, you’re not very likely to complete it anyway.
    I agree with Andrew that Bob Birrel’s argument isn’t particularly satisfactory on its own, but it could be integrated into a more general argument that Australia would benefit overall from having more university-level educated citizens. And while there are certainly are careers that basically necessitate quite specific tertiary-level courses, I’d suggest that most careers that involve any sort of mental acumen are likely to benefit from some form of tertiary education.

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  9. “Why is a science PhD for someone who won’t become a top scientist a wasted degree”

    I’m sure CSIRO is choosing the smart ones — I think they have lots of top scientists actually (my criterion obviously isn’t as high as yours, which I think makes the problem worse). The ones I am thinking of are all those floating around the world on permanent low paying post-docs or those that don’t end up working in their area even if they want to (its a big problem in the US, and since Aus PhDs are considered down the food chain from them, its even harder). Luckily at least for that particular example, the situation is changing in Australia – you can read the complaints in The Australian education section that turn up from time to time from academics (like the VC of UWA) not able to get slave-docs or slave-PhDs as people are evidentally wising up to it. However, it still occurs in many areas.

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  10. Sure, Andrew, but I look at the countries with generally higher levels of education than Australia (e.g. Finland or Switzerland), and can’t see how Australia could possibly suffer from raising its average education level.

    At any rate, isn’t saying there are “psychological costs to being over-educated” just another way of saying “ignorance is bliss”?

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  11. NPOV – According to the OECD, a higher proportion of Australians aged 25-64 (23%) have uni-level qualifications than Finland (18%) or Switzerland (19%). For any tertiary it is Australia 32%, Finland 35%, Switzerland 29%. For the younger age group of 25-34 Australia and Finland are both 38%, and Switzerland 31%. Their schools may be better, but their post-school education is not greater.

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  12. “At any rate, isn’t saying there are “psychological costs to being over-educated” just another way of saying “ignorance is bliss”?”

    No, it is a case of saying that when reality does not meet aspirations people tend to be discontented.

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  13. Andrew, thanks for that – strange then why both Swizterland and Finland have a reputation for having a well-educated citizenry. Maybe it is, as you say, more in the quality of the education (and particularly secondary education).

    If the problem with over-education is mainly one of unrealistic expectations, then perhaps that’s more of an issue with the way education is sold these days. I know I didn’t do my two degrees for the express purpose of working in fancier jobs (in fact I had the option of going directly into well-paid employment before even completing my degrees).

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  14. Conrad wrote: “This means many people end up with PhDs in science that don’t use them. This means there is a surplus of people working in fields with PhDs that don’t need them, but there isn’t a surplus of top scientists.”

    Two things:
    1. there are small numbers of jobs in some areas of science – in some you may have more “top scientists” if there were more jobs
    2. people can also use the skills they developed in their PhD studies in other kinds of work

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  15. I agree with you Sacha, however, even if (1) is true in some areas, it doesn’t mean that there are many people with PhDs in those fields that are not going to be good enough to make it. I imagine your area is an exception, since there a few people with PhDs in maths and I imagine to get one you really have to know your stuff. Compare that to some areas of biology and psychology (and all the disciplines that have big labs that need lots labour), and what you’ll find is that many people get their PhDs by basically being smarter than average lab slaves. At the end of this process, what you find is that lots of people do not have the aptitude to be anything more, but its never clear who will be in this category when they enter their PhDs. Hence the only way to get enough of them is to produce too many of them.
    Incidentally, rather than use that example, perhaps a better example is from the government — this is exactly the tactic the government uses to keep some areas like teaching and nursing going, except that instead of needing a specifically smart group, you just need enough. In this case, what you see in these areas is a high attrition rate due to the shitty conditions. To counter this, the government simply increases the number of graduates, so even though lots go through attrition, there are still enough left. The main difference with this example versus the last is that in one case, you need people who are smart enough, whereas in this case, you just need enough people who are simple willing to do it. This means all the people who end up doing some other job with a teaching/nursing degree look as though they are over educated, but you still don’t have enough teachers or nurses. What’s unknown are the numbers you really need to fill the positions due to the attrition, and the numbers that are really over-educated.

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  16. Hi Conrad, oh I understand your example with teachers. In the maths world quite a few people stay in academia doing multiple postdocs (each for a few years) trying to land a more ongoing maths job. The pay of these postdocs isn’t great and job security is, well, time-limited (plus there’s a good chance you need to uproot your family every few years).

    A lot of people go into jobs in which they would only indirectly use their knowledge and more directly use their analytical skills (I’m one of these). A lot or most of these people could probably be quite good as researchers in the academic world (at the least) if the jobs were there, as the bar is quite high.

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  17. Re: Switzerland, on a little further reading, it almost appears as if Switzerland’s reputation for high levels of education comes largely from the number of highly educated foreigners who work and study there.
    However what might also be interesting is a comparison of tertiary-education levels between major cities e.g. Zurich/Geneva/Basel vs Sydney/Melbourne/Canberra.

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  18. No you are wrong i am a swiss living in australia. I did a year of schooling in switzerland, high school equivilent state schooling as most do except the extreemly religious. Firstly i was in a class of around 20, i can honestly say no or very little antiscoial behaviour wasn’t present, wagging school didn’t happen, there were no uniforms, school was free and all books and note books were provided free. If your comparing how many people attend uni your missing the point, architects don’t go to uni in switerland they go to technical college and the majority of them have a trade initially, trades people in switzerland are highly skilled and valued as much as the intillectual community, the majority of thoes not going to uni will have done a trade at leaving high school which is also and extension of tertiary education, this is where Australia is miles behind, that is educating the rest of australia that doesn’t attend university.

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