HESA

Higher Education Strategy Associates

August 06

Correlation and Causation in Technical Education

Stop me if you’ve heard this one before:

“In many Northern and Central European countries, including Switzerland and Germany, there are robust apprenticeship programs. In both of those countries, youth unemployment is very low compared to Canada and the U.S.”

Or this:

“As the economy changes, however, it is increasingly clear that this is the polytechnic moment… in the recent recession, youth unemployment was lower in countries with strong vocational training programs.”

There are three propositions here.  One is that Canada’s apprenticeship/vocational training/polytechnics systems are weaker than those in what for the sake of brevity I will call Germanic Central Europe (GCE).  Another is that unemployment is lower in GCE than it is in Canada.  Finally, it is heavily implied that there is some sort of causal relationship at work here; that GCEs have lower unemployment rates because of their educational systems.

Let’s take those three in turn.    It is certainly true that GCE countries have more apprentices than we do. But the term “apprenticeship” means something different over there.  As I pointed out back here, the reason places like Germany have more apprentices is because their set of apprenticeable trades is much wider than ours.  If you limit the analysis to just skilled trades, Canada’s apprentice numbers actually look about the same as Germany’s (our completion rates are much lower – but that’s a less sexy story).

As for “vocational education” and “polytechnics” (terms that are not synonyms): Canada already has the largest non-university tertiary system on the planet.   True, we don’t have a lot of “polytechnics”, but the recent trend in GCE has been to turn these institutions into degree-granting “Universities of Applied Science” with professional rather than vocational orientations.  So yes, GCEs’ technical education systems are different from ours.  But their sources of strength aren’t necessarily in “vocational” training the way we define it.

With respect to unemployment rates, it’s quite true that unemployment among 15-24 year-olds in places like Germany (8.1%), Austria (8.7%) and Switzerland (2.8%) are lower than in Canada (13.6%).  But youth unemployment can’t be examined in isolation: it is a function of overall economic conditionsThe ratios of youth unemployment to overall unemployment tell a different story: Canada’s rate is 1.92, Austria’s 1.85, Germany’s 1.53 and Switzerland’s a freakish 1.04.  Austria’s purported advantage, at least, disappears completely on this more sensible comparison

Finally, the issue of causation.  Dial things back about twelve years; Germany had the same “dual” system of apprenticeships, but unemployment rates were twice what they are now.  If apprenticeships “cause” low unemployment now, did they also “cause” high unemployment twelve years ago?  Obviously not.  Claiming causation in one period but not another looks like cherry-picking.

In short, it’s good to invest in top-notch technical education, but be wary of over-ambitious claims made about its impacts.

July 29

Looking Forward to 2017-18

Last week we looked at likely paths for government funding in the big four provinces.  Today, I want to look at how that might translate into actual changes at institutions.

The outlook for government funding, if you’ll recall, looks like this:

Figure 1 – Nominal Non-Health Dollars Available by Province, indexed to 2013.

 

But governments only account for about 54% of total revenue.  Students make up 39% and “other” makes up about 8%, so to look forward, one needs to look at these other two sources as well.

It’s hard to discern a historical pattern for “other revenue” (mostly because endowment income rises and falls like a yo-yo), so let’s just assume for the sake of argument that it will grow at 4% for the next few years.  Tuition is more predictable:  Ontario has locked in 3% annual increases for the foreseeable future, while Quebec’s tuition will be linked to inflation (roughly 2%).  Western provinces are more volatile on policy, but a reasonable guess is that BC’s path will be similar to Quebec’s while Alberta, being more populist and with cash to spare, will average something just below inflation (say, 1% p.a).  Of course, aggregate tuition dollars have very little to do with average tuition limits, but for the moment let’s assume no increase in student numbers.

So, add all those dollars together and what do we get? 

Figure 2: Net Income Projections for Post-Secondary Education, by province, to 2017-2018

 

That’s a little better, no?  See what a little tuition can do?

Still, this is only income. We still need to look at expenses.  Here, let’s assume that universities are able to keep their operating budget increases to 3% per annum (tight but do-able).  In that case, assuming no enrolment growth, institutions in Alberta should have a very small surplus in 2017, while Ontario institutions will face a collective deficit equal to 11% of expenditures, or around $950 million.

Figure 3: Budget Gap Projections, to 2017-18

Now, clearly, that Ontario scenario can’t actually happen; long before institutions get to that point, they will cut spending and find more revenue.  What figure 3 really represents is the size of the fiscal gap institutions will need to close over the next few years.

There are many ways to fill such a gap, but the main ones are wage freezes, hiring freezes and increased international enrollments.    But $950 million is a big gap to fill.  By my back-of-the-envelope reckoning, it’s equivalent (roughly) to a combination of a 4-year pay freeze and a 50% increase in international students.  Do-able but painful.

There is of course a very simple way to make most of these problems go away: just give institutions a little more room on domestic tuition. Unfortunately, that’s probably too sensible a solution for our times.

July 23

Go West

The key to understanding what post-secondary education is going to look like a few years down the road – say, 2017 – is to look at what is likely to happen to government funding.   We can’t know exactly what governments will spend on PSE, but we can know  how much money they are going to have available to spend simply by working out how much money each will likely have once health expenditures (which make up just 40% of the budget in most provinces) are accounted for.  Today, I’ll be doing this for the country’s 4 largest provinces, which make up 88% of the country’s population

With the exception of Ontario, most provinces’ governments move more or less in step with GDP growth.  Quebec and British Columbia keep their expenditures steady at around 20% and 15 of the economy, respectively.  Alberta’s fluctuate somewhat, usually in line with changes in hydrocarbon prices.  Since the Liberals took office in 2003, Ontario has been increasing the size of its government quite steadily from 13 to 18% of GDP.

 Figure 1 – Provincial Budgets as a Percentage of GDP, 2000-2013

 

Given this, it seems unrealistic to expect any of these governments to increase overall expenditures much faster than GDP growth.  Alberta and BC could conceivably inch up a bit after 2014 since their spending is currently slightly below the long term average.  For simplicity’s sake, though, let’s assume that growth in those two provinces will be restricted to growth in nominal GDP, which in both provinces is expected to average 4.5-5% for the foreseeable future.

Quebec and Ontario, meanwhile, can’t grow expenditures anywhere near that much because of their abysmal finances.  Quebec’s budget currently projects spending growth to be around GDP growth minus 1% out to 2017; in Ontario, program spending is frozen in nominal dollars through to 2017.

Now, the amount of money available for PSE (and other types of government spending) is limited by what happens to the health budget.  With the overall size of government more or less steady as a percentage of the economy, every time the health budget increases more quickly than GDP, the pool of money available for every other piece of spending – including PSE – must decline. In Quebec and British Columbia, the health budget has been growing at 5-6% annually for the past decade.  In Ontario, the figure is 7% and in Alberta it is a (frankly) ludicrous 9%. 

So, let’s assume that everyone can keep health care increases to just fractionally above expected GDP growth levels (say, 5% per year). Here’s what will happen to the pool of non-health dollars available in each province: 

 Figure 2 – Nominal Non-Health Dollars Available by Province, indexed to 2013.

 

Your eyes do not deceive you: that is indeed a 41% funding gap opening up between Alberta and Ontario over the next four years.  Given the assumptions above, non-health spending in Alberta can grow by 20% by 2017 and BC looks set for an increase as well.  Quebec should hold just about steady; Ontario, thanks to its need to get rid of its deficit without raising revenues, is going to see a fall of a little over 15%.

To be clear: I am not saying that PSE budgets will increase or decrease by these amounts.  What I am saying is that this is a good approximation of how the amount of funds available to PSE will evolve in each province over the next four years and that if historical funding patterns hold up, these kinds of changes in nominal funding are about what we can expect.  But politics still matter, and universities and colleges could still see increases to their budgets relative to the amount of available funding if they are smart in their lobbying (or cuts if they are not).  

A couple of years ago I said that differential patterns of higher education investment meant that the country’s intellectual centre of gravity was moving west rather quickly.  Notwithstanding recent cuts in Alberta and British Columbia, it seems to me that this trend can only pick up steam in the next few years.  

July 15

More Money Than You Think

If there’s one thing everyone knows, it’s that Canadian universities have had a hard time of it during the recession during the last few years, yes?  Absolutely starved for income because of government cutbacks, etc etc.

Not so fast.  Check out this data on university operating budgets from the CAUBO/StatsCan financial survey:

Figure 1: Indexed growth in University Operating Budgets 2007-08 to 2011-12

That’s right – across the country, university budgets went up by 28% between 2007-08 and 2011-12.  That’s more than twice the rate of inflation.  (Note: if you’re wondering why Alberta skews high, its because MacEwan and MRU were re-classified as universities in 2009 – take them out and Alberta basically looks like BC).

How is this possible, you ask?  Haven’t governments been cutting back?  Well, the last two years haven’t been very good, but let’s not project that too far backwards.  In fact, during the heart of the recession years, the worst any major province fared (Ontario – big surprise) was to keep pace with inflation.  Across the four big provinces which make up 90% of our national system, spending was actually up nearly 20%.

Figure 2: Indexed Growth in Government Contributions to Operating Grants, 2007-08 to 2011-12

Those of you with heads for numbers may now be scratching your heads.  Government grants are a little over half of all institutional income.  So if overall income is up 28%, and this half of it is only up 20%, that means the other half – the student half  must be up by…

 Figure 3: Indexed Growth in Tuition Income, 2007-08 to 2011-12

Yeah, that’s right: tuition income is up 40%.  Four.  Zero.  How is this possible when Statscan says tuition fee increases are only about a third of that?  Because this is aggregate tuition and Statscan looks at average tuition.  One is larger than the other partly because of increases in domestic enrolments, but more importantly because of spectacularly increased international enrolments, which also carry much higher tuition fees.

Obviously, with extra students come extra costs, which is why it doesn’t necessarily feel like there’s 28% more money floating around these days.  Between enrolment increases and cost increases (mostly labour costs, including rise through the ranks (Link to: http://higheredstrategy.com/rise-through-the-ranks-rtr/)), Ontario is still slightly down on the deal in per-student terms, while other provinces are up, but only slightly. 

“Cutbacks” aside, governments are still spending far more than they were on PSE six years ago (even in Alberta) and institutions have been absolutely raking in cash from tuition.  We don’t have the 2012-13 numbers yet, but they’ll likely be in the 8-9% range everywhere except Quebec.  That means operating budgets overall likely expanded by about 3-4% last year, even as governments reduced funding.

Two final thoughts: One, if institutions still feel squeezed when income is rising twice as fast as inflation, it means there are some serious issues to work out on the cost side.  And two, God help us if those international students stop coming.

 

 

July 08

The Size and Purpose of Government

Ever wonder why it seems like higher education is always in a financial trouble?  One big reason can be found in Agatha Christie’s autobiography.  Reflecting on her station in life as a young woman early last century, she noted in her memoirs how she never thought she would ever be wealthy enough to own a car – nor ever so poor that she wouldn’t have servants. 

In today’s world, of course, this makes no sense at all, since almost everyone has a car and almost no one has servants.  But 100 years ago the relative price of labour was such that it made perfect sense.   The lesson here is that over time, labour tends to rise in price relative to machines. 

Continually improving production efficiency is absolutely fabulous when it comes to consumer durables.  It means that cars are  a fraction of their former cost, while being faster, safer, and more reliable.  It means that for a couple of hundred bucks, anyone in the world can have more computing power in their cellphone that existed in the entire world in 1970. 

But the effect in labour-intensive industries is just the opposite: relative to other sectors, prices rise continually.  If everything were purchased privately, this would be no big deal – people would just adjust their budgets to spend the savings they make in one area (durable, machine-produced goods) and spend it on the other (labour-intensive goods). 

But here’s the problem: a few decades ago, society decided that most of the important labour-intensive industries – mainly health and education – needed to be in the public sector.  This limits the ability of individuals to shift consumption from one sector to the other because we constrain the ability of individuals to spend on their own education and health-care.  So the only way large-scale shifting between labour-intensive and capital-intensive goods can happen is through taxation.  For obvious reasons this complicates things.

So here’s the deal. The cost of providing a given standard of health and education will go up and up and up, no matter what anyone does.   We can either pay for that by taxing a heck of a lot more to fund those services (and hey, why not?  With cheaper consumer durables we require fewer post-tax dollars to keep ourselves clothed, sheltered and fed), or we can ask/allow citizens to pay for a greater part of the services they receive, or some mix of the two.  Those are the only choices.  Despite this, what governments across Canada are doing right now is the exact opposite of this.  They are freezing taxes while preventing these services from raising money themselves through new fees.   

As a long-term strategy, this is leading nowhere but failure and mediocrity.  We need to stop pretending we can avoid hard decisions on this.

July 05

Today’s Statscan Youth Jobs Report

Hi there.  Just a slight deviation from the summer publication schedule to bring you some perspective on the youth employment numbers coming out of StatsCan today.

Unless something has gone seriously gaga in the youth labour market in the past few weeks, today’s Labour Force Survey release will say that slightly over 70% of students aged 20-24 are employed and that unemployment among these students is in the 7-9% range. That sounds pretty good; the problem is that StatsCan’s definition of unemployment doesn’t even vaguely correspond to how students see the issue.

The basic problem is that StatsCan defines someone as being “out of the labour force” if they are in full-time studies; as a result, students taking summer courses are excluded from the calculation.  But in fact, as our own 2012 survey of summer employment showed, over 70% of summer students are also either working or looking for a job; among this group, unemployment typically runs at between 20 and 30% (last year, the figure was 29%; this year, it is 23%).  Indeed, one reason many students take summer courses in the first place is precisely because their jobs search was unsuccessful!  

Although our full annual employment report won’t be out for a bit, I want to provide you with some statistics on one other labour issue currently generating a lot of attention: unpaid internships.  Our preliminary examination of the data suggests that 5.4% of students are in some kind of internship or practicum this summer.  Of these, roughly half are educationally-related (e.g. mandated practicums in teaching or social work), meaning that about 2.7% of all students (or about 27,000 across the country) are in unpaid internships this summer.  That’s a long way below the 100-300K estimates one sees in the press these days, but it’s not inconsistent with those numbers since a) those larger figures represent internship positions across an entire year rather than positions at any one time, and b) our survey looks only at current university students and does not include either college students or recent graduates. 

Lastly, a key point about these unpaid internships: they’re mostly part-time affairs.  The median unpaid internship is just a 14 hours per week commitment; as a result, fully half of the students with unpaid internships are able to gain an income by working either full- or part-time. 

Have a good weekend, and be wary of overly rosy LFS statistics.

July 02

One Thought to Start Your 147th Year, Canada

Some of you have noted that I am a little hard on this country of ours and its higher education system(s).  That’s a fair comment: the sense of complacency around our education system and its alleged virtues does indeed drive me absolutely mental most days and I have no qualms venting about it. 

(Note to our international readers: the most important thing to know about Canada is that our national dress is fleece.  Because comfort trumps pretty much everything else.  Canadian policy-making is much easier to understand once you grasp this element of our psyche.)

It being our national holiday and all, I thought perhaps it would behoove me to be a bit more charitable.  So here goes:

Canada has one of the best systems of higher education in the world.  We don’t waste money on having tons of tiny little schools.  We have a fairly sensible balance between colleges and universities.  We have a relatively open access policy that gives people plenty of second and third chances.  And our scientific output is respectable if not world-beating.  Pick whatever indicator you want – access, retention, scientific output – we’re never at the very top, but we’re usually somewhere in the top third or so among all OECD countries, and that’s pretty good. 

There are really only a handful of other peoples whose systems you’d realistically want to trade places with.  The Dutch, maybe.  The Finns.  The Norwegians.  That’s about it.  Oh sure, there are some features of other countries’ systems we might like to cherry pick.  It’d be great to have the odd Ivy League school, or European-style apprenticeship system, as long as you didn’t have to take all the other baggage that goes with it (hundreds of overpriced, financially precarious liberal arts colleges and a socially-exclusionary secondary school streaming policy).

Ok, that’s my two paragraphs of charity.  Before we get too excited about these achievements, we should probably be honest about how we got here.  If we’re honest, it’s not because of any native genius or careful planning; rather, it’s because we spend a lot on higher education.  As a percentage of GDP, there are only a couple of other countries in the world (basically the US and Korea) who spend as much as we do, and the main reason we come out ahead of those two is that unlike them we’ve managed to keep pretty much all our money – public and private – inside the framework of public institutions.  Indeed, the surprise would be if we didn’t achieve all that given how much we collectively pay for it.

The problem is, the money isn’t there any more.  For reasons I’ll explore over the coming weeks, apart from BC and Alberta, our higher education system is almost certainly going to be dealing with declining income for the next few years.  We won’t be able to get by on dollars alone.  And that means that in order to continue our high level of performance, we really will need to start thinking a lot harder about efficiency and productivity in higher education. 

Culturally, this will require a major shift in Canadian higher education management.  How big?  Heck. we might even have to stop wearing fleece.

 

June 24

The THE’s Top 100 under 50

So, last week the Times Higher put out one of its two subsidiary sets of rankings called the Top 100 under 50 – that is, the best “young” (under 50 years old) universities in the world.  The premise of these rankings is that young universities don’t really get a fair shake in regular rankings, where the top universities, almost all from before World War I, dominate based on prestige scores alone.  That the THE would admit this is both excellent and baffling.  Excellent because it’s quite true that age and prestige seem to be correlated and any attempt to get rid of bias can only be a Good Thing.  Baffling, because once you admit your main annual rankings exercise is strongly affected by a factor like age which an institution can do nothing about – well, what’s the point?  At least with the Under-50s a good score probably tells us something about how well-managed an institution is; what the main rankings tell us is more of a mystery.

These rankings  interesting because they highlight a relatively homogeneous group of institutions.  Few of these are North American because most of our institutions were built before 1963 (from Canada, only Calgary, SFU and Vic make this list  and they’ll all be too old in a couple of years).  They’re an intriguing look into the world’s up-and-coming universities: they’re mostly European (and exactly none of them are from the People’s Republic of China).

But there is some serious wonkiness in the statistics behind this year’s rankings which bear some scrutiny.  Oddly enough, they don’t come from the reputational survey, which is the most obvious source of data wonkiness.  Twenty-two percent of institutional scores in this ranking come from the reputational ranking; and yet in the THE’s reputation rankings (which uses the same data) not a single one of the universities listed here had a reputational score high enough that the THE felt comfortable releasing the data.  To put this another way: the THE seemingly does not believe that the differences in institutional scores among the Under-50 crowd are actually meaningful.  Hmmm.

No, the real weirdness in this year’s rankings comes in citations, the one category which should be invulnerable to institutional gaming.  These scores are based on field-normalized, 5-year citation averages; the resulting institutional scores are then themselves standardized (technically, they are what are known as z-scores).   By design, they just shouldn’t move that much in a single year.  So what to make of the fact that the University of Warwick’s citation score jumped 31% in a single year, Nanyang Polytechnic’s by 58%, or UT Dallas’ by a frankly insane 93%?  For that last one to be true, Dallas would have needed to have had 5 times as many citations in 2011 as it did in 2005.  I haven’t checked or anything, but unless the whole faculty is on stims, that probably didn’t happen.  So there’s something funny going on here.

A final point: the geographical distribution of top schools will surprise many.  Twelve schools from the PIGS (Portugal, Ireland, Greece, Spain) made the list, but only one school (State University Campinas) from the BRIC countries did.  That tells us that good young universities are probably a seriously lagging indicator of economic growth – not a category to which many aspire.

June 17

A Dreadful Argument About Tuition Fees

I see that the Canadian Centre for Policy Alternatives has just released a new paper by Hugh MacKenzie called The Impact of Taxation on the Higher Education Debates. It’s worth a read because it sets out the argument against higher fees in the most respectable terms possible – certainly more respectable that anything student groups themselves have come up with.

It is still, however, a pretty crap argument.

The spiel runs like this: the lazy talking point about how higher education subsidies mean that “the poor pay for the education of the rich” isn’t actually true. Our system of income taxes is quite progressive; the top income quartile pays about 69% of all taxes and the bottom quartile pays for just one percent. As a result, on a net basis, the bottom income quartile gains from the current system because they make up more than 1% of all university students.

MacKenzie is dead on about this. It’s where he goes from there which is problematic. He continues by arguing that its OK that subsidies for education, on aggregate, end up disproportionately with the children of wealthy families, because on average, the wealthy pay most of the taxes. Effectively, he argues that as long as the top income quartile doesn’t claim more than 69% of the expenditures of any program, and as long as the lowest income quartile gets more than 1% of the expenditures, the program is ipso facto progressive. And since higher education meets that test, it’s OK to spend more money on it.

This, to put it mildly, is an interesting definition of the term “progressive”. Education Savings Grants, which mostly go to the rich, would be considered progressive according to this definition. So, too, would the Bush Tax cuts (h/t Stephen Gordon).

Surely the relevant issue isn’t whether public subsidies can pass an unbelievably weak test such as this. The issue is how to ensure that subsidies are directed to those who need them most. This of course is what most people who argue for subsidy reform argue; higher fees for the rich, lower net fees for the poor through increased grants. For McKenzie this option is never considered; whether through ignorance or deliberate omission, he never mentions the billion or so in student grants which permit this kind of pro-poor price-discrimination.

MacKenzie self-righteously claims that anyone who disagrees with his views on progressiveness is just “appropriat(ing) the language of fairness” while “arguing against public policies whose goals include equalization of opportunity”. So be it. If arguing against providing rich families with bigger subsidies because they pay more taxes makes me anti-progressive, I’ll wear that label with pride.

The question is – why wouldn’t CCPA do the same?

June 14

Summer Break

Hi all.

It’s time for me to step back from the blogging for a few weeks.  As of Monday, we’ll be switching to a “One Thought to Start Your Week” until the middle of August; that will let me catch up a bit on things and get prepped for the fall.

I want to say thanks to all of you for reading and commenting.  I learn a lot from your feedback and I’m very grateful for all of it, even when you’re (sometime correctly) chewing me out.  The thousands-strong readership is a really interesting cross-section of academia, and includes hundreds of people from outside Canada as well (what, I always wonder, do they make of it? Are they here for the solid policy analysis or just the Glen Murray jokes?  Mysteries abound.)

But I would like, if I may, to make one tiny request before leaving you  alone (mostly) for the summer: if it’s not too much trouble, could you take a minute to tell me what you like and don’t like?  What should I be writing about more?  What should I be writing about less?  I kind of get the impression that most of you enjoy it when I stick it to the “MOOC fetishists” and do my myth-busting thing about labour-market outcomes – but what else do you like?  I’d really love to know.

In any event – have a great summer and get some rest.  I have a feeling next year’s going to be a big one.

Ciao,

Alex

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