Title: Tertiary Education Systems and Labour Markets Report prepared for the OECD
1Tertiary Education Systems and Labour
MarketsReport prepared for the OECD
- Stephen Machin and Sandra McNally
- 1 December 2006
- Centre for Economic Performance, LSE
- Department of Economics, UCL
- Centre for Economic Performance, LSE
2Issues
- In the context of rapid expansion of tertiary
education - Is there now over-supply of graduates?
- Is there evidence of over-qualification and
skill mismatch? - Are students studying the right type of
subjects at tertiary level? - In particular, is there a shortage of science and
technology graduates? - Does the type of institution matter for labour
market prospects?
3Context
- Rapid expansion of tertiary education general
phenomenon across OECD countries. Evident for
several decades - Much variation across countries
- Differences in the type of tertiary education.
For example, The EU lags behind the US - mainly
attributable to lack of supply of general and
advanced research programmes (Wasmer et al. 2006)
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5Labour Market Consequences of Increasing Supply
- Depends on the demand for graduates by employers
as well as the supply of graduates from tertiary
institutions. - Increase in supply of graduates leads to fall in
the wage (everything else constant) - Increase in demand for graduates leads to a rise
in the wage (everything else constant).
6Labour Market Consequences of Increasing Supply
(2)
- What is the outcome of changes in demand and
supply? - Compare the wage of tertiary graduates to the
wage of closest substitutes - (upper secondary or post-secondary non-tertiary
graduates). Look at changes over time. - Has the differential fallen over time on account
of the increasing supply of tertiary graduates?
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8Evidence from the literature
- Method regression analysis where human capital
is one of several factors that determine an
individuals wage - (Mincerian wage regressions).
- In general, the wage premium to tertiary
education has increased or remained stable,
despite expansion of tertiary education.
9Role of demand
- Demand has been increasing faster than supply
the only way to rationalise stable or increasing
wage premium to tertiary education - Why has demand been increasing so fast?
- Weight of evidence is behind skill biased
technology change explanation introduction of
new technologies that are biased in favour of
skilled workers.
10What has happened to employment and unemployment?
- Compare employment and unemployment rates of
graduates of tertiary education and those who
achieved upper secondary or post-secondary
non-tertiary education 21 countries 1991-2003 - Tertiary graduates have much higher probability
of being in employment lower probability of
being unemployed - Some evidence of catch-up of less educated
group over time, most clearly for employment
rates (some exceptions e.g. Poland).
11Evidence of over-supply?
- No. Plenty of scope for tertiary education to
keep on expanding. - As more people obtain a tertiary education,
greater variation in the earnings of graduates. - Explanations
- - Variation in personal characteristics of
- graduates
- - Graduates studying wider range of subjects and
attending larger number of institutions.
12Over-education and skill mismatch?
- Can take a long time for (usually less well
performing) graduates to find a job some are not
in jobs that appear to be well matched to
qualifications shortages in certain sectors are
reported - Literature on over-education and
under-education (terms are sometimes misused) - Workers who are over/under educated might
still be well matched to jobs. - Apparent over/ under education might be a
temporary phenomenon.
13Over-education and skill mismatch? (2)
- Wasmer et al. (2006) look at these issues for
several European countries. Find some evidence
that over-education is a transitory phenomenon. - Only small wage penalty associated with
over-qualification. However, skill mismatch
is a more serious issue. - In some countries (like UK) major problems with
vocational system of qualifications.
14What type of education?
- Trade-off between highly specialised education
and more general education programmes. - Some evidence to suggest that the latter makes
workers more adaptable to economic shocks. This
affects their wages and ultimately economic
growth. - Raises a question about whole education system
not just tertiary education. - Is early stratification into a general (academic)
route and a vocational route damaging to young
people and ultimately to economies?
15Who provides education?
- Balance between employer provided training and
publicly provided training. - General skills Vs firm specific skills.
- Bassanini et al (2006) evaluate what is known
about work-based training in Europe. Many
questions of policy relevance cannot yet be
answered (e.g. Is there enough employer based
training? Is it effective in raising
productivity?) - Governments have an important role to play in
improving information about training
opportunities setting appropriate legal
frameworks ensuring portability of skills.
16Are graduates studying the right subjects?
- Few academic studies estimate returns to higher
education by subject of degree, especially if we
want to compare countries and consider changes
over time. - Machin and Puhani (2006) estimate returns by
degree subject in Britain, France, Germany and
the US using a consistent framework
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19Returns by field of study
- In the four countries considered, returns to a
university degree are lowest for Arts subjects
whereas they are higher for other subjects
often highest (at least for men) in
Science/Engineering/Technology - Requires much further research for other
countries especially for making comparisons
over time and across countries.
20Shortage of Science and Technology Graduates?
- High wage return reports of shortages e.g.
Belgium, Australia, New Zealand, UK. - Variation between countries in the proportion of
ST graduates
21Science and Engineering degrees as a of all
first university degrees, 2000
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24Shortage of Science and Technology Graduates?
- Countries differ in relative numbers graduating
with an ST degree working in the labour market
e.g. US and Europe - Research on perceived shortage in the US and
Europe - Explanation related to international mobility of
highly skilled professionals, scientists and
engineers. - Concern about brain drain and implications for
economic growth
25How does type of institution matter?
- Countries differ along a number of dimensions
unitary vs binary systems importance of private
sector extent of decentralisation extent of
change over time. - Graduate outcomes are often correlated with
institutional characteristics - Difficult to separate the effect of institutional
type from the fact that students with very
different characteristics may choose to attend
different types of institution
26How does type of institution matter? (2)
- Has higher numbers going to institutes of
tertiary education led to a decline in the
quality of tertiary education? Are new institutes
providing as good an education as longer
established institutes? - One would expect wage returns to vary by quality
of institute attended to the extent this is
perceived by employers - Little empirical evidence outside the US
27US research on institutional quality
- Difficult issues how to measure quality how to
take account of the other attributes of college
entrants (e.g. ability). - In general, evidence for a positive effect of
measures of college quality on the subsequent
wages of graduates
28Conclusions and implications(1) Further expansion
- Despite very rapid expansion of tertiary
education, no evidence of over-supply the
average wage gap between graduates and
non-graduates remains high. Furthermore, it has
been stable/increasing in most countries in
recent years. - High positive wage returns to tertiary education
and the positive relationship between tertiary
education and economic growth are good reasons
for further expansion.
29Further expansion
- What barriers are there to tertiary education and
what should be the policy response? - Capacity constraints? provide more places.
- Credit constraints? student bursaries
- (especially for those from poor socio-economic
backgrounds) - Is sufficient information available to potential
students?
30Conclusions and implications(2) Field of Study
- Much more evidence needed, especially for
comparisons over time and between countries. - Available evidence suggests great variation in
returns to tertiary education conditional on
field of study. - Policy response provision of good information to
potential students Argument for permitting fees
to vary by subject of degree and/or to provide
bursaries which are differentiated by subject area
31Conclusions and implications(3) Skill shortage
and mismatch
- Problems with graduates not always having the
skills required by employers - Policy response
- - examine the content and accreditation system
of vocational courses. Is it appropriate? - - what is the balance between employer-provided
training and that which is publicly provided? - - In the public system, what is the balance
between general education and vocational
education?
32Conclusions and implications
- Well founded concerns about international
mobility among science and technology graduates
and potential implications for RD and
productivity. How can conditions of employment be
made better? - Quality of tertiary education institutions
little good evidence outside the US for how this
affects labour market outcomes Priority for data
collection and analysis in other countries.