Reasons for student employment: Education signaling upside down

1
Reasons for student employment Education
signaling upside down

• Alexander Apokin (EcFor RAS, CMASF, Moscow)
• Maria Yudkevich (SU-HSE, Moscow)
• September 12, 2009

2
Plan

• General idea and motivation
• Previous studies of student employment
• Model
• Results
• Empirical evidence
• Conclusions

3
General idea and motivation

• Considerable growth of student employment in
  European countries and US
• In Russia, trends seem alike (around 50 in
  2006)
• However
• Almost all high-school graduates are enrolled in
  university programs
• Students with better academic achievements start
  to work earlier
• Income is not always the first reason for seeking
  job

4
Research question

• Why in Russia students with better academic
  achievements start to work earlier?
• Why important?
• Around 40 of 3rd year students work
• Around 90 have job at the moment of graduation
• Average workload 22 hours per week
• Data Monitoring of Russian Education (2007)

5
Do classical explanations help?
Education increases productivity
Human Capital Theory
Smart people get more education
Education doesnt affect productivity, works as
signal
Signaling Theory
6
Our intuition

• If
• Educational standards are weak (little effort is
  needed to get a diploma)
• and
• Employers do not trust a formal education and
  believe that real experience is far more
  important than grades
• Then
• Education is not a signal any more
• High-ability students may choose to combine
  studies with work to signal their ability while
  sacrificing the quality of education

7
Studies on student employment main issues

• Reasons for employment
• Financial needs and new instruments of financing
  (Callender and Kempson (1996), Kelly (1996), Ford
  (1995))
• Social factors (Lucas and Lammont (1998)), Curtis
  and Lucas (2001), Hodgson and Spours (2001))
• Impact on academic consequences
• General (Curtis and Shani (2002), Sorensen and
  Winn (1993)
• Academic attainment (Hunt et al (2004), Paul
  (1982), Kalenkovski (1994))
• Drop-out rates (Callender and Kempson (1996),
  Hesketh (1996))
• Working loads and work structure
• UK (Ford et al (1995), Curtis and Lucas (2001)),
  Canada and US (Hakim (1996), Myles at al (1993))
• Future employment prospects and career
• Harvey et al (1998), Hodgson and Spours (2001),
  Ruhm (1997)
• Little attention to school-to-work transition
  (Harkonen (2001), Roshchin (2006))

8
Model

• Dynamic game between students, employers and (in
  extended setup) universities
• Universities costly educational programs
• Students different abilities ?l ?h with probs
  ?1- ?
• Ability is a private information
• Choice between only studies and studies job
• Education is only productive if not combined with
  job
• Work experience reveals ability with certainty
• Employers employment contracts, Bertrand
  competition

9
Timing

1. Agent realizes her type and enters the
   university.
2. The agent decides whether to combine studies with
   job. If she chooses to work, there is no positive
   effect from education in the future (and no
   cost), but the work experience provides a given
   amount of learning-by-doing increase in
   productivity L.
3. If the agent chooses to devote all her efforts to
   studies, a fixed amount of education e is
   obtained at the cost c (e, ?). At the end of the
   period, agent graduates and leaves current job in
   search for a full-time employment.
4. The agent meets new employer and either signals
   her education e or shows the type. Employers
   offer contracts w(s), s belongs to eL.
5. The agent accepts or rejects either contract and
   in the former case produces F(s, ?).

10
Equilibria modified Spence Mirrlees condition
University freshmen compare w(0) w(L) and w(e)
c (e, ?) at stage 2. Let us define c (e, ?l)
c (e, ?h) ??c (e, ?), and F(0,L, ?h) F(0,L,
?l) ?? F(0,L,?). Then
11
Extended setup educational policy

• We interpret as a quality of student
  grading ? an educational policy parameter under
  control of the university
• Better grading ? higher costs of best grade ?
  allow separation of types
• However rigorous grading is costly, as it
  consumes more effort.

12
Extended setup continuous case

• The case of continuous type allows to model
  bizarre equilibria as a generaized case of
  countersignalling problem (Feltovich, Harbaugh
  and To (2002)) contingent on poor student grading
  quality or exceptional return on productivity of
  more able students
• Student strategy choice rule,
• stays the same, while equilibrium conditions
  change. Specifically, the conditions for
  countersignalling arise

13
Extended setup continuous case

• Depicting the choice rule and countersignalling
  equilibrium in a numeric example

14
Extended setup continuous case

• For values of e4,43 and L12 the equilibrium
  will look like this (LHS and RHS refer to the
  choice rule, )

15
Results

• Different equilibria are possible depending on
  university education standards (in regard to
  effort requirements)
• Absence of rigorous education standards and
  substantial cost of creating individual
  reputation ? universities decrease their effort
  requirements for graduation ? education quality
  decreases
• Employers are aware of this and do not trust
  formal education and consider students with no
  working experience during studies as inferior
  ones
• In case of low university requirements bizarre
  equilibria with high-type agents working
  part-time arise

16
Data

• Economics of Education Survey (Higher School of
  Economics in cooperation with Public Opinion
  Foundation and Levada-Center under support of
  Ministry of Education and Science) (since 2002)
• Round 2006-2007
• Students (2092)
• Employers (1035)
• University and college faculty (1374)
• University administration (over 400)

17
Russian evidence
Table 1. Major field of study and employment
during studies
Major field of study Average Working Hours per Week Observations
Social sciences (Economics, law, management, sociology) 22.9 45
Foreign languages 11.3 4
Philosophy, history, philology etc. 22.2 9
Math, programming 17.6 10
Natural sciences (physics, chemistry, biology etc.) 29.4 7
Technical sciences (engineering, construction, technology) 20.1 27
Medicine 27.7 17
Pedagogies 12.0 5
Culturology, Arts, Architecture 12.2 43
18
Russian evidence
Table 2. Employers view on the importance of
applicant perks
Factor Mean Std. Deviation
University reputation/ranking 3.6 1.2
The courses the applicant have taken 2.9 1.3
Grades 2.8 1.3
Recommendations/references 3.9 1.1
Previous work experience by the work-book 4.2 0.9
19
Russian evidence
Table 3. Students preferences and beliefs about
importance of diploma
Status Observations Mean Std. Deviation
Never had an employment 1067 3.6 1.3
Had a previous employment 1019 3.4 1.3
20
Table 4. Workloads and employment-major
relationship
Work is related to the field of studies Overall
Whole sample 18.3 21.2
First three years of study 16.2 17.1
Table 5. Lecture attendance and employment
Non-working students Work is related to the field of studies Overall
Whole sample 28.7 25.3 27.9
First three years of study 28.6 26.2 28.2

Table 6. Regular study efforts and employment
Non-working students Work is related to the field of studies Overall
Whole sample 13.4 13.6 12.8
First three years of study 13.4 14.8 13.2
21
Conclusions and policy implications

• Lack of funding for higher education creates
  incentives for universities to economize on
  education which makes early employment more
  attractive for the sake of signaling.
• Talented students combining job and studies
  support low quality of education hypothesis.
  Employers believe in ability of talented students
  to combine successful studies with job.
• Employers beliefs are more than just an element
  of the equilibrium in the model. In case of
  multiple equilibria a shift in employers beliefs
  can change equilibrium and thus amount of
  education each type will obtain. This suggests
  that employer beliefs are a powerful educational
  policy tool.
• Rigorously enforced educational standards could
  set effort requirement at some minimal level and,
  in perspective, change the equilibrium to set the
  signaling role of the education superior of that
  to job experience.

22
Household expenses on higher education of
children (in rubles)