Sunday, 31 July 2016

All profits go to rent, part the manieth

From the BBC:

Politicians should stop using a "carrot of higher graduate earnings" to justify raising student fees or freezing repayment thresholds, say campaigners.

Those who do "should be charged with gross mis-selling", says Angus Hanton, co-founder of the Intergenerational Foundation (IF) lobby group. Having to pay back student debts will wipe out any graduate premium for most professions, claims the IF in a report...

The report focuses on tuition fee rises in England - currently capped at £9,000 a year - pointing out how successive governments have used the graduate "pay premium" to justify them. The premium is the amount of extra money it is estimated a degree can help graduates to earn over the course of a lifetime. The report says that in 2002, ministers put it at £400,000, but recent estimates have been more modest at about £100,000.

"The increasing number of graduates... is further undermining the value of a degree," it adds, with some previously low-to-median paid posts now requiring degrees. "Our research proves that the current £100,000 graduate earnings premium so often touted equates to an 'annual bonus' of just £2,222 over 45 years of work and is wiped out once National Insurance and income tax [and student loan repayments] are taken into account."

"The current system is fuelling a self-perpetuating debt-generating machine which short-changes young people," argues Mr Hanton.

We've done this topic often enough, there's a supply-demand erosion of the 'premium' and it is difficult to compare like-with-like. The premium for people who end up in protected professions - medicine law, accountancy, civil service - and/or who can piggy back their peer network - Oxbridge students - is as robust as ever; but the overall average premium is diluted down by people doing irrelevant degrees.

But the point stands; if having a degree at a cost of £x makes you £y better, more people will study until either £y is eroded down to £x or the universities increase their fees/rent £x up to whatever £y happens to perceived to be, until ultimately, half of people who did a degree end up worse off than if they hadn't.

The producer surplus remains intact, but the consumer surplus is eroded to zero. It is quite unlike normal goods and services where there is a producer surplus and a consumer surplus.


Mark In Mayenne said...

But degree candidates are selected on intelligence. You can't conjour up smart people, so the premium will remain?

Mark Wadsworth said...

MIM, there is that point as well. The sort of people who would get into Uni tend to do better. So even it all Uni's were shut down, those people who would have got in will continue to do better.

There's a chapter in Freakonomics showing a very similar effect with people who applied to go to a better High School - even those who got turned down (there were long lists) tended to do "better" (I can't remember how he showed this but he did).

Pablo said...

I remember reading, some time ago, that there is v. little corelation between intelligence (if by intelligence is meant IQ) and exam success.

Dinero said...

As previous comments , Correlation is not causation, you cant use statistics alone to show the higher wage are the result of the contents of the degree course, ambitious people go to University and they also earn more, and employers of higher paying jobs may be using degree holding to pre sort candidates applications.

Bayard said...

The IFS reckon that the average student debt is now £44,000. I am amazed that students are prepared to spend that sort of money without making more than the most cursory checks that they will actually get something for it in the way of enhanced pay prospects. If they were spending £44,000 on a car, wouldn't most people at least want a year's MOT, a full service history and an HPI check?

Ben Jamin' said...

@ MW

I know we've mentioned it before, but simply adding an extra year to the date when State pension can be claimed, for every year in higher education, would be a good policy. So, everyone can claim £7K from the State towards their education.

Then just leave it up to the individual student to make an informed choice as regards to subject/university, then top up the rest by loan, job, charity or scholarship.

Any objections?