Is there a higher education ‘market failure’ in engineering?

An article in yesterday’s AFR education supplement (not online, sorry) reported mining industry representatives criticising Labor’s proposed demand-driven higher education system.

Chris Walton of APESMA said

Engineering is the pin-up to demonstrate that a demand-driven system will be a disaster for this country. … It’s the classic example of market failure and the consequences of that market failure for this country are very concerning.

In reality ‘market failure’ – or at least, other than a failure of markets to exist – is not likely to be a major issue here. In a paper I wrote for NCVER a couple of years ago I showed that university applications do respond to labour market shortages. Objective evidence of shortages of engineers emerged over 2003-04, and with a lag of a year demand for engineering courses grew from 2006 (from applications that would mostly have been made in 2005).

Figure: Engineering applications and offers

Source: DEEWR.

This is an occupation with a history of boom and bust; past downturns in mining and/or construction have left engineering graduates with poor prospects. This probably helps explain why analysis of census data on occupations of people with engineering qualifications shows that they have a wide variety of jobs.

I share concerns that with an unreformed price mechanism a demand-driven higher ed system may lead to some perverse consequences. However we should also be sceptical of industry claims of skills shortages caused by too few qualified people. That they don’t offer sufficiently attractive and reliable wages and conditions and graduates go work elsewhere is not a ‘market failure’, it is markets operating normally.

9 thoughts on “Is there a higher education ‘market failure’ in engineering?

  1. I think you’ll find that it’s not just mining engineering — if you listen to various business advocates, many different types of engineers are in short supply (I don’t know what the “real” situation is). Even if this is true, however, it’s not clear to me that it is a failure at the university level — it’s probably more a failure at the high school level, where the number of kids taking prerequisites like advanced mathematics and physics has been declining for donkeys years. When you went to school, for example, you probably thought of business maths as “vegie” maths, and only the really thick kids did it (versus, Maths A, and Maths B if you were smart). I certainly thought this, and I didn’t even go to a good school. Now doing the equivalent is common (I should find the figures — it may be that the majority of kids that take maths now do vegie maths).

    This is of course why you need a skilled immigration program. In places like China, they have the opposite problem, where their universities produce far too many engineers. So it’s one type of professional where you can get them from other places easily and everyone benefits (cf. e.g., doctors, who are in short supply everywhere).

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  2. Conrad – I believe that some firms are having problems recruiting; the issue as you say is how far this reflects a ‘market failure’ of insufficient demand for engineering places.

    In the NCVER paper I point out that in higher education the risk (or reality, in the case of doctors) is government failure. I can’t identify a single case of a labour market shortage that is clearly due to too few applicants being interested in the relevant course. To the extent that education is to blame, the problem has been government constraints on the number of places. The engineers can count themselves lucky that the shortage in their field coincided with a rare time in which the government was both spending big in higher education and was directly targeting areas of skills shortage.

    However with most labour shortages the problem is not that there are too few people in the population with the relevant skills. It is that these people are working in other jobs or out of the labour force, suggesting that employers perhaps need to think more carefully about why they cannot hold their staff, rather than blaming the education system.

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  3. “It is that these people are working in other jobs or out of the labour force, suggesting that employers perhaps need to think more carefully about why they cannot hold their staff, rather than blaming the education system.”
    .
    Or it could be neither of those. If we’re losing huge numbers of women who just finished their degrees for cultural reasons as that recent survey on women and children suggested (I’ll wait for the ABS data personally), then the only real solution is to either change these cultural values (which might be very hard, especially if things like cheap child care didn’t work) or train far too many people for particular areas. The second of these is very problematic in areas where it is hard to ever provide enough training places and areas where the demand might appear to be meeting supply, until you happen to figure in all of these people that drop out of the workforce. This is really worth consideration, because if courses are getting higher ratios of females to males (which is basically all courses) then the number of people that will be available in the workforce will be less — so you will need higher numbers no matter what just to stay in the same position.

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  4. Conrad, your faith in “business advocates” is touching, but they have an agenda. Scares about shortages are designed to keep immigration free from scrutiny, and thus protect business from having to actually compete for the people who did the hardest subjects at school and then uni.

    The points you recount are actually part of a lobbying campaign. Schools are still training lots of smart kids in the advanced maths and physics needed for engineering. A quick check showed concerns about students in the low-end maths subjects, but they’re not the students who do engineering. Also, that problem probably relates to the higher HSC participation rates these days.

    The claim about China graduating more engineers is also part of the lobbying campaign, and it’s wrong. China and India include trades-level courses in their count of engineers, inflating their figures. In any case, this point does not relate to the claim of whether we have market failure here.

    Introducing the female participation rate into this discussion is a bit irrrelevant, given that few women do engineering, especially mining. However it actually bolsters Andrew’s point. If mining companies are so desperate for mining engineers, what are they doing to make their jobs attractive to women?

    See, what’s really happening here is that large employers are actually trying to protect themselves from the market.

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  5. Tony, I don’t have faith in them, which is why I pointed out that it might different to the “real” situation.
    .
    “A quick check showed concerns about students in the low-end maths subjects, but they’re not the students who do engineering.”
    .
    Actually, I think it reduces the entire pool, so it is important. I have found the link (it gets worse further back from 1995), which is here in Appendix 1.
    .
    “The claim about China graduating more engineers is also part of the lobbying campaign, and it’s wrong. China and India include trades-level courses in their count of engineers, inflating their figures”
    .
    Actually, I think you’ll find that it isn’t wrong (at least in China — I don’t know about India) if you look up the stats. Even the Chinese government worries about it as they don’t want to discourage people from education, and it looks bad if you have well qualified engineers that arn’t getting paid much.
    .
    “Introducing the female participation rate into this discussion is a bit irrrelevant, given that few women do engineering”
    .
    I think it’s relevant all round. In addition, even for engineering, given the numbers have been steadily increasing for years, I don’t see why that trend won’t continue. For example, in 2008, women accounted for almost 20% of engineering graduates (of all types).
    .
    “If mining companies are so desperate for mining engineers, what are they doing to make their jobs attractive to women?”
    .
    That might be true, but there are cultural factors that are important also. My bias is cheap childcare (it works in others places I’ve worked), but no doubt other people have other ideas.

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  6. Several points relating to engineering.

    1) There are lots of industries where a large fraction of the engineers are from over-seas. Electricity industry has heaps of Indian, Chinese and South African engineers.

    2) Most engineering courses in Australia are terrible. The stories I hear about the teaching at the elite institutions are generally appalling. Many with engineering degrees from the Elite 8 never do any practical engineering at uni or once they graduate. A reasonable number of those doing engineering are doing it from double degrees and then drop the engineering components or work in the other field. Lots of management consultants and finance guys who have eng degrees.

    2a) A lot of the high end talent goes to the US after undergrad. The lack of innovation and opportunity in Australia is off-putting.

    3) If its about mining then no one wants to live at Mt Isa because its 45 degrees for 9 months of the year.

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  7. The truth your advertise for a programmer you get enough application to use the staircase method of assessment ( throw the applicant down the stars, pick a few steps and interview about 40).

    Advertise for an electrical engineer you get two applicants.

    No it has nothing to do with market failure. To do engineering you need serous maths, I bet it is still a 4 year degree, and no doubt you still have a class load that requires a little work.

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  8. I don’t know if your allowed to say this. If you want to hire an Victorian engineer you go for Swinburn, Ballarat, Deakin, RMIT ect. Monash is still ok. Under no circumstance hire from Melbourne, M’s description is spot on..

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  9. Charles it actually depends what you want the engineer to do. If you want them to do classic engineering then avoid the sandstone’s. IF you want them to manage people/budgets/projects/economics/etc… different story.

    Electrical engineering is from my understanding both quite hard and quite boring. There is a lot of maths involved. There are jobs in only a few industries.

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