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Stimulus U

Why increasing participation rates might not lead to economic growth


If there is one thing that higher education advocates agree on is that without an ever increasing infusion of public money, Canada is destined to become some backwards failed state. The notion that increasing participation rates will confer untold riches is so widely accepted that the 2009 edition of the Millennium Scholarship Foundation’s The Price of Knowledge stated, “that it seems unnecessary to review it again.”

That’s right, reviewing evidence to support a conclusion is “unnecessary.” The trouble with the argument that participation rates need to rise to ensure a sound economic future is that such analysis often ignores the individual characteristics of people who pursue education. Take one of the the latest sops to the education-equals-growth-thesis, coming  from the Ontario Undergraduate Students’ Alliance in a report titled Ontario’s Knowledge Economy: The Economic Impact of Post Secondary Education. Among other things, the report recommends that Ontario focus on “increasing participation” in higher education.

Nowhere does OUSA consider the individual characteristics of students, or, the question of whether people who pursue an education possess certain traits like intelligence and motivation that would compel them to be productive citizens regardless of what bits of paper they have acquired. Instead the report makes the same tired old claims:

Higher education has been described variously as the “silver bullet”, “keystone” or a “gateway”, but more than anything else, it is simply the only way to ensure a bright future for the people of Ontario.

The evidence?

In 2004, TD Bank Group published a report demonstrating that a university or college diploma would lead to a 12-28% return on investment for the student. The report further showed that a university educated worker’s weekly earnings are on average sixty-one percent higher than their counterparts with only a high school education. The Canada Millennium Scholarship Foundation (CMSF) recently completed a thorough investigation of the benefits of higher education and found that, over 40 years, a bachelor’s degree holder in Ontario will earn $769,720 more than someone with only a high school education

The conclusions drawn from analysts such as Roger Martin or James Milway of the Ontario Institute for Competitiveness and Prosperity, is that the larger rate of return enjoyed by university graduates is because higher education simply makes workers more productive. Consequently, we can measure the economic impact of education simply by looking at wages. To reap these rewards, we just have to buck up and send everyone to university or college.

This of course requires we ignore anything we might learn from the supply and demand of labour. The fact that pipefitters earn more than biology graduates might mean that pipefitters are more productive. But, it seems much more credible to suggest that pipefitters have a specialized skill that is in short supply. Or as it was put in the 2007 Maclean’s rankings issue: “Our society has a bias against working with your hands, and increasingly pushes everyone to go to university, looking down on those who choose other routes.”

Alison Wolf, of King’s College, is one of the few skeptics of the education equals economic growth thesis. She summed up her argument in a short essay over the summer, itself a shorter version of the argument she detailed in her fine book, Does Education Matter? In her essay, she writes:

A detailed rate-of-return analysis, looking at which sorts of degree pay most, suggests that the fastest way to boost growth and end the recession is to turn every faculty into a law school. That seems implausible, even if we don’t want to go as far as the rebels in Shakespeare’s Henry VI (they had a simple political program: “The first thing we do, let’s kill all the lawyers” [Henry VI (1) Act IV sc. 2]). Yet if you are going to argue that “education generates growth” because of the salaries that educated people earn, then you have to believe that the market pays what people are worth—and that lawyers are worth a lot more than teachers.

Few would deny the economic benefits of having a minimally educated population, or of having a certain percentage of very highly educated citizens. But whether this holds true for sending an ever larger number of people to higher education institutions, as seems to be advocated over and over, is questionable.

When we were sending far fewer people to university, employers had no choice but to recognize that many people without degrees had desirable qualities such as motivation and creativity. Today, university plays a greater role in sorting these people, thus making it easier for employers to choose who they want to hire for well-paid positions. Does this mean the university educated are more productive? Maybe. But it might simply mean that productive people are today more likely to be university educated.


Stimulus U

  1. An interesting argument, but ultimately unconvincing.

    Maybe, as suggested, university is more of a selection system than a provider of productive qualities, the effect, rather than the cause of good students. Still, the point remains that the labour market is using the presence of a university degree to hire high-level employees, as the rate of return data indicates. Therefore in order to properly work as a selection system for the best, brightest, and most productive individuals, university access needs to be widened by eliminating accessibility barriers to the system (social, geographic, financial). There are certainly productive individuals who cannot currently access a university education. In this sense, accessibility (and as a consequence, participation) is linked to productivity through a more accurate selection system. This is true whether university is inherently a provider of productive skills or not.

    While expanding access is necessary, it appears that the university system is working fairly well as a selection system. Employers are allowed to use other selection methods if they feel that the university system is not a good indicator of productivity. Routinely however, a university degree and grades received are used as indicators of productivity as they have been tested and true for countless employers. We can almost certainly conclude that were the university system a dupe, aspiring new businesses would use other selection mechanisms to test job applicants and gain a competitive advantage. Reforming practice to a gain a competitive edge is one thing the market system does quite well.

    Yet there are many reasons why we might think that universities, by placing topic experts, motivated minds, and challenging academic exercises in a classroom might lead to positive results and productivity gains. These gains could result from beneficial peer effects at the individual level and economies of scale in the public education sense at the societal level. Additionally, at a casual glance the steady rise in the participation rate over the past decades is at least correlated with strong economic growth. To discern any university productivity affects studies of student skills before and after university would prove illuminating. Unfortunately, no such studies were alluded to in this article, and the economic case against university participation rates remains lackluster.

  2. @Griffin Carpenter,

    Thanks for the comment. With respect to discerning “student skills before and after university,” Wolf cites two major studies, one in Britain, and one in the U.S.

    The British study is much more comprehensive. What the researchers did was test the math and writing skills of people from all different occupations and educational backgrounds, at different points in their life.

    Bankers were compared with bankers, accountants with accountants, and so on. What they found was that those who displayed a solid grasp of math had a higher earning potential than their professional counterparts with a less solid grasping.

    The key point, as Wolf highlights, is that the math skills were A-level, or university entrance math. Regardless of whether people went to university, or not, and regardless of what they took, the study was consistent that those with A-level math skills, skills learned before university, were the ones with a higher earning potential.

    Their employers deemed them to be more productive than others working in similar jobs, which is correlated with abilities they had before they ever entered a university classroom, if they did at all.

    Wolf’s book, Does Education Matter? is a little older (2002) but is well worth reading.