Category: Higher education

How relevant is ‘market failure’ to policy analysis?

~ Andrew Norton ~ 12 Comments

The National Centre for Vocational Education Research this week published a series of papers on competition in the vocational training market, including one by me, and another by Australia Institute boss Richard Denniss.

The Denniss paper questions the role of markets in vocational education because of ‘market failure’ – defined as real-world markets not matching the theoretical perfectly competitive market of economics textbooks.

I would not contest the basic observations on which this claim is made. For example, there is ‘imperfect information’ in education markets (eg it is hard to know which education provider is best). There is scope for ‘inter-temporal mismatch’ (eg students may take courses for which there turns out to be no employer demand when they graduate; providers may offer courses only to find that student demand has changed by the time they start).

But describing issues like these as ‘market failures’ is not a good analytical approach. Rather, these are inherent problems in coordinating the delivery of education, with which any coordinating mechanism, market or state, has to contend.

So the policy question is not whether the education market meets theoretical standards rarely observed in the real world, but whether better long-term results are likely to be achieved through education providers and students interacting through free exchange, or through central direction and control.
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Some strange human capital economics

~ Andrew Norton ~ 18 Comments

Australian governments typically offer human capital or ‘equity’ justifications for public investment in higher education. So what should we make of claims for tuition subsidy that would reduce the value of Australia’s human capital?

In a follow-up Age story to the weekend article about full fees for TAFE students who already have higher qualifications, the paper reports that:

Malcolm King, who directed the program from 2000 to 2004, said most degree-educated students could not afford to pay another $8000 a year to study at TAFE.

Many of the students who enrolled in the creative programs formed part of Melbourne’s “cultural milieu”, fuelling the writing, film, media and advertising industries, he said.

“RMIT is freaky in that it always attracted high-calibre students like ex-doctors and lawyers who produced very fine work and have had a huge impact on cultural life in Melbourne,” Mr King said. [emphasis added]

So what Mr King is arguing is that we should offer public subsidy to divert people from an occupation of serious shortage (doctors) to an occupation (creative writing) in which supply always vastly exceeds demand – in the process wasting the $150K plus that taxpayers will already have spent training a doctor.

King has unwittingly highlighted another argument in favour of the Victorian government’s reforms.

When should education subsidies stop?

~ Andrew Norton ~ 15 Comments

In yesterday’s Age, Sarah Blackman, who already has university degrees in arts and education, is reported as complaining that she will have to pay full fees for an RMIT course on writing and editing (this one, I think). This makes it about ten times more expensive than a subsidised place.

The requirement to pay full fees is, as I understand, part of the Victorian government’s reforms to their vocational education system. They have lifted quantity constraints on places available to students taking initial or upgraded qualifications, but are not subsidising people taking lower qualifications than those they have already.

Higher education also has restraints on subsidies. Sometimes these relate, like Victoria, to the student: limits on the number of years of subsidy. Sometimes it relates to the course, with most postgraduate coursework degrees being offered on a full-fee basis only.

In principle, these seem like fair ways to ration limited resources. In Victoria, the savings from not subsidising a would-be triple-dipper like Ms Blackman are being redirected to people who have had far fewer opportunities. People with postgraduate qualifications have typically already enjoyed significant subsidy and are in a better position to finance further study.
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Are foreign students at high risk of death?

~ Andrew Norton ~ 6 Comments

I’d never seen any data on the deaths of international students while in Australia, so I was interested in this story in The Age this morning reporting 54 deaths in the year to November 2008 (though annoyed at the beat-up elements – claiming the information was ‘suppressed’ by the coroner, when there is no evidence of anything other than reluctance to publish possibly unreliable data).

Obviously 54 deaths is 54 too many, but so far as I can work out this a death rate below that of the general population. Though there are statistical problems in working out the base population for overseas students (because the number of overseas students who will be in Australia at some time during a year will give a too-high number, due to short courses, mid-year starts and finishes etc), my estimate is that this gives a death rate of about .02%.

For a local comparison, I looked at deaths of 20-somethings in Australia. That works out at around .04% of the base population, or around double the death rate of overseas students. On the other hand, perhaps the relevant comparison group is Australian students – if we assume that the local death rate is increased by including the kinds of risk-taking and underlying illness that is under-represented in the student population. (The death rate of Australian students is not ‘suppressed’, it is just not recorded.)

Indians appear to be over-represented among the deaths, so perhaps another comparison point is the death rate of young Indians of similar backgrounds in India. I would have thought that the risk of death from accidents or disease was much lower here.

4 July update: Coroner to improve statistics on international student deaths.

Why so much emphasis on research in universities?

~ Andrew Norton ~ 9 Comments

One of the great assets of the United States is its hugely diverse higher education system. While all Australia’s public universities are (at least in theory) large and comprehensive research universities, their US equivalents enrol only 25-30% of American higher education students. But increasingly US institutions with little research history are starting to become research active, and this NBER paper seeks to explain why. As summarised by Inside Higher Education these are the possible reasons (more detail in the link):

* Students gravitate toward research orientations.
* Research makes professors better teachers.
* Research-oriented professors help sort students by being poor teachers.
* Research quality has become a proxy for teaching quality.
* Altruism. “Knowledge is a classic public good”
* Faculty members like to do research.
* Envy and prestige.

I hadn’t heard of the very cynical third suggestion before – that poor teaching by researchers confuses weaker students and causes them to fail or drop out, helping the ‘screening’ effect of higher education, in which what is learnt is not actually of any great value but an ability to get through university signals to employers that graduates have desirable attributes of intelligence, persistence, etc. While this may be an effect of increased research orientation, I very much doubt it is an explanation for it, and the NBER paper offers no evidence for it.
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Assorted links

~ Andrew Norton ~ 12 Comments

1. This week is the 100th anniversary of the ‘fusion’ of the Protectionists and Free Traders, establishing a forerunner of the Liberal Party and the party system we still have today. It was effectively the end of economic liberalism for 60 years. Charles Richardson has a very good account of what happened in the current issue of Policy.

2. A SMH opinion piece by former WA Premier Geoff Gallop on the merits of federalism. Against the centralisers, he says

Political philosophy and a serious discussion of checks and balances, creativity and innovation and accountability and control are sacrificed on the altar of “efficiency” and “uniformity”.

In well-timed evidence of the merits of federalism, Tasmania’s parliament is going to debate euthanasia legalisation.

3. For Sydney readers not already bored of my views on higher education, I will be giving a seminar on the Gillard reforms at the CIS on 4 June.

The economics of graduate-entry courses

~ Andrew Norton ~ 9 Comments

Last week the SMH reported that the University of Sydney was abolishing its undergraduate radiation therapy course in favour of a graduate course. The University’s explanation is that ‘the change was in line with a move towards graduate entry for many of its professional degrees.’

Since graduate-entry but initial professional entry degrees are relatively new in Australia we don’t have any strong evidence on their human capital economics. From a theoretical perspective, however, I would have thought there could be potential human capital benefits for occupations likely to benefit from study in more than one field (eg managers, public servants and other policymakers, lawyers, teachers, academics), and possible financial reward for having broader knowledge and skills. In any case, at least at the upper levels of most of those occupations have high earnings, and so additional degrees for general interest and enjoyment are affordable.

However financial rewards from added degrees are less likely for occupations which require highly-specialised technical knowledge but little else in the way of university-level education. All the health professions except perhaps those related to mental health would seem to fit into this category. And except for medical practitioners and dentists, the health professions generally pay salaries that could easily represent low rates of returns on investment if initial education cost significantly more.
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Do Australians move to study?

~ Andrew Norton ~ 6 Comments

One characteristic of Australians is that in general they don’t like moving. In the UK hardly anyone studies in their hometown, they go somewhere else (as long as they can afford it). In the US the same thing happens, people who can afford college often go somewhere interstate or at least in a different city.

– commenter ‘M’ during the week.

Overall, Australians do move quite frequently. According to the census, nearly 40% had moved in the previous five years. According a recent ABS publication, half of Victorian 18-34 year olds have moved in the previous three years.

So is it true that Australians don’t move to study? Comparing enrolment figures for 18 and 19 year olds with census data on the same age groups of students living with their parents it suggests that 42% of teenage students are not living at home. Many of these moves are likely to be lifecycle or lifestyle moves, rather than moving to study at a particular university. But the overall figure is higher than the Australians-stay-at-home-to-study thesis would suggest.

DEST commencing student data suggests that those moving interstate might also be more numerous than commonly thought. Accross the country, 11% of 2007 commencing students were enrolled outside their state of permanent home residence (a trend too; it was 9% in 1997).
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The tyranny of the TER?

~ Andrew Norton ~ 14 Comments

In the SMH this morning, people were lining up to proclaim the end of Year 12 results as the dominant method of selecting university students.

The University of Western Sydney vice-chancellor, Professor Janice Reid, said the UAI obsession needed to end. “The UAI is a great mass sorting system,” she said. “It isn’t, however, really a good predictor of a person’s capacity to study or complete a degree.”

This is an old complaint. Many years ago – at least as long ago as 1997, when she was dumped as education minister – Amanda Vanstone gave a speech called the ‘tryanny of the TER’. Yet as with many ideas for improving access to higher education, we have reason to be sceptical, because virtually all of them have long been common practice in the higher education sector. Few people realise that less than half of all commencing bachelor degree students are admitted based on their Year 12 results. Even if we pull out of the population those admitted based on prior higher education results – as I have in the chart below – only 56% arrive at university on the strength of their school results.

image0024
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