Can business students do their sums?, #2

Last year, after the federal government let universities increase annual student contribution amounts for commerce and economics students by $1,200, I predicted:

Applications for business degrees will not move outside the normal +/- <1% market share we see for most disciplines each year.

The basis of my prediction was that applications are primarily driven by interests, and that while financial factors can influence course choices within the range of a person’s interests, these financial factors will not just include course costs, but the anticipated long-term costs and benefits of a particular course choice. Business and economics students, even more than other students, are likely to be able to do their sums and realise that $3,600 in additional course costs is trivial compared to the long-term earnings gains they can reasonably expect.

Damien Eldridge wasn’t so keen on my analysis, pointing out (correctly) that what mattered here was the marginal economics and commerce student, and that a shift in relative prices could see some move to other disciplines that interest them. He suggested that they might go to geography or sociology.

The applications data for 2008 was released today, which shows that my prediction was correct but also reports numbers consistent with Damien’s analysis. Management and commerce did lose market share, by 0.31% of all applications. As usual, no discipline gained or lost by more than 1% market share, demonstrating the high year-to-year stability observed in this data, despite occasional shifts in relative prices. The broad discipline cluster that includes geography and sociology gained 0.43%. Engineering draws on similar quantitative skills to commerce, and many engineers end up as managers, so I think this would be another (and perhaps more likely) alternative course, and it gained 0.53% of market share.

On the other hand, management and commerce has lost market share every year since 2002 (and possibly earlier, but there was a change in classifications in 2001). The loss between 2007 and 2008 was less than between 2006 and 2007, when there was no relative price change.

In a quasi-socialist system supply will not necessarily respond to demand. In this case, however, the market share of management and commerce offers dropped 0.3% in line with demand. However management and commerce’s share of acceptances was nearly identical in 2008 and 2007, dropping only 0.03%.

The question this leaves is whether a market share shift – regardless of cause – is ‘sub-optimal’? Based on graduate employment data, there are tight labour markets (unemployment less than 5%) for 5 of 9 engineering specialities, though things are also good for economics graduates (3.8% unemployment), and ‘business studies’ and accounting, both 5.9% unemployment. In the social sciences, graduate unemployment is 7.5%. A shift to engineering probably is ‘optimal’, though not to the social sciences. But we cannot easily tell whether policy has anything to do with observed changes in applications, offers and acceptances.

5 thoughts on “Can business students do their sums?, #2

  1. “Can business students do their sums?”

    Only if they have been taught by Sinclair at that august institution of the higher learning, RMITU.


  2. That’s very kind of you Spiros. Even within Business students there is a huge variation in maths ability. Some management students (and marketing students) are totally maths illiterate, while some economics and finance students complain if the maths content of a subject is too low. A few years ago I was told my subject wasn’t ‘practical’ when I decreased the maths and got the students to read the Fin Review.


  3. I don’t quite understand why an increase in HECS student contribution amounts – which are deferred, not up-front payments – would have any significant impact on demand for a course, unless the increase was substantial. A mere $1200 is not ‘substantial’.

    CSP place students have a reduced incentive to look at prices because:

    1. Since it’s a deferred interest-free loan, if they were really diligent they could work part-time through their studies and pay back a lot of the loan.

    2. They don’t start paying back until their salary reaches a certain threshold income which essentially means the government is saying to the students who live at home rent-free: “If you don’t get a job, you get a free degree (plus the pleasant social experiences at uni) and welfare payments.” The offer is too good to refuse, unless you’re Bill Gates and would make more money by dropping out of university.

    3. They know that they can get a little experience in Australia and move overseas to avoid paying back the rest of their debt. Labour mobility has increased these days so getting a subsidised degree from the poor suckers (Australian taxpayers) and then moving overseas is not a bad option. Asian countries are increasingly deregulating so there are quite a lot of good jobs elsewhere where you don’t have to pay so much tax.


  4. Sukrit – On my reading of the inwards and outwards movement of young Australians, the main problem here is not people avoiding paying completely (though there is some of that) but the delay in repaying, because the lack of a real interest rate means that there is an implicit interest subsidy.


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