Education Research

According to a recent survey, many sixth-formers could experience money trouble by underestimating the cost of life at university. The survey which interviewed over 500 sixth-formers and 1700 university undergraduates was conducted by Nat West Bank. It found that sixth-formers had no idea about the real costs of college life. The question of whether we should subsidize postgraduate education is a matter of weighing up the costs and benefits. There would be many benefits, but do they outweigh the costs?
One of the first points to make is that this subsidy would lead to a general increase in income larger than the size of the subsidy. This rise would of course mean a rise in income tax revenues. During a recession, the subsidy would help to induce growth by automatically increasing government expenditure. Scotland's economy is blighted by high unemployment and low productivity and many of the policies set up to change this have not worked. An increase in postgraduate educated individuals could reverse this trend through creating new jobs, raising levels of skills and attracting companies from abroad to set-up here.
By increasing investment in Scotland's universities their quality can be raised so that the research that they do is up to world standard. Such a result could have knock on effects to other areas of the country as well as to those receiving the improved education. Those achieving the qualifications would see their potential income increase a lot. Currently, postgraduates can expect around 20% more than simple graduates.
An increase in Scottish postgraduate research should create and attract new cutting edge companies who will employ a higher skilled, better-educated workforce. Scotland has started losing out to less developed countries in terms of low skilled jobs so to reverse this it needs investment that will regenerate its workforce.
The question of how to fund this is clearly a tricky one as there are many other deserving places for government spending like health and primary/secondary education. Making the decision to use government spending would then involve looking at tax rates, which again would not be popular with the general public. Achieving this funding may be better attained from the private sector through incentives such as tax breaks subsidies to the firms themselves. This would ensure that only the most productive courses were invested in. However, the incentives may not be enough to vastly increase postgraduate participation, and employers may continue to simply hire individuals who have paid for their own education. However, the government does not want everyone to be a postgraduate, as the value of each extra postgraduate decreases as participation increases.
One of the main aims of the Scottish parliament is to attract investment from abroad. A well-educated workforce attracts multinational companies, and multinational companies help prevent students educated here from moving abroad.
An increase in home grown hi-tech companies is always an objective. With increased research and better universities this is possible. In fact our universities may lead the way taking advantage of intellectual property rights over more extensive research. The Scottish parliament can promote enterprise in other ways, for example by increasing funds available to start-up companies. However, it is doubtful that this would have the same impact.
Although there are many advantages of the proposed subsidy, with each benefit that a postgraduate education brings there seems to be other ways to achieve the same result. The task for policy makers is to decide the right path to choose. An initiative to subsidize postgraduate education in Scottish universities would involve quite substantial expenditure by the Scottish parliament. However, improving comparative advantage is an important goal. In this essay we present a cost benefit analysis of subsidizing postgraduate education, and look at the long-term implications for Scotland.
One of the initial considerations is that of fiscal stimuli. As with any increase in government spending, there would be a corresponding increase in output. The increase in output would be larger than the initial investment due to the multiplier effect. Output equals income, and thus there would be a general rise in the level of income. This idea is explained in more detail later on. Higher education research also indicates that postgraduates are more socially cohesive and integrate better into society.
A subsidy on postgraduate education would also act as an automatic stabilizer. The reason for this is that when graduates enter the workplace, say during a recession, and find that they can't get a job, they are more likely to consider a postgraduate degree. Firstly to improve their attractiveness to employers, and secondly to use their time more productively than claiming benefit. Furthermore, if postgraduate education were subsidized by the government, workers who were made redundant would use the opportunity for self-improvement.
Subsidizing postgraduate education may also improve the quality of universities in Scotland. Many universities in the U.S.A. use their postgraduates and researchers to innovate, and as a result benefit from the intellectual property rights on these products. High profile universities would attract foreign students who would bring diversity and money. In addition, students often benefit from having studied a variety of subjects at university.
"Senior executives and policy makers themselves often refer to non-technical aspects of their university education as seminal to their own success in the labor market and beyond"
Higher education does not necessarily increase the productivity of graduates, but rather serves as a screening mechanism for private enterprises. The higher productivity of graduates is really attributable to their greater ability. Therefore many argue that the private sector should share the burden in developing postgraduates. Students would get to study for a qualification that will improve their ability to do their job and advance their career prospects and their employer benefits from a better-qualified, more productive and better-motivated employee.
Employers could be encouraged to do this through tax or cash incentives. By producing tax incentives to firms to fund employees on post grad courses, we let the market decide what it finds most important, and at the same time help fund the students that it benefits from. Otherwise the government would be paying to train students that the private sector most gains from. However, there is the free rider problem. Why should a firm pay to educate an employee when they can hire one already educated by the government?
These figures imply that the subsidy would decrease unemployment. Furthermore, if students further themselves and get better jobs this leaves jobs open further down the income scale for those that don't continue their studies. This would have a knock on effect down the job ladder and reduce unemployment nationwide, further increasing income tax revenues.
What about Scotland specifically? Scotland's economic growth is consistently below that of the UK. In order to make Scotland more competitive we must focus on technology, innovation and productivity improvements and the need to transfer knowledge from the science and engineering base into the market place. This subsidy might shift the bias of postgraduates from foreigners to Scottish people. By creating a large and more productive labor force, Scotland can make it very attractive for technology and science based firms to locate here. Also if postgraduate students are attracted from abroad, and decide to stay, then this could help with our aging population problem.
But what are the costs, and would this initiative be worthwhile? First we must consider the number of different ways in which we could subsidize postgraduate education. The most obvious is for parliament to pay the fees for any one who wishes to study a postgraduate degree. Alternatively, the government can offer the private sector tax or cash incentives to fund postgraduate courses for employees. Either way, the parliament would have to find the money by either redistributing from other areas, or borrowing more, or an increase in taxes. It is important to note here that the Scottish executive does not have the power to borrow privately and so would have to either lobby Westminster for more funding or redistribute its budget. It can only raise income tax by 3 pence.
However, what if the supply of postgraduate places is inelastic. For example, it may take large increases in wages to entice more professors into the industry. Then the price of each place could soar and the Government would find it hard to meet its commitments.
Many economists see human and physical capital accumulation along with technological progress as the key to economic growth. However, if the subsidy were effective in attracting more postgraduates, Scotland would experience diminishing marginal productivity of the investment. In other words, for each additional postgraduate the marginal returns decrease. This is represented in the graph below. In terms of the individual the comparative advantage of an individual postgraduate over the rest of the workforce will not be as much as before. Postgraduates would not be as exclusive anymore. In the long run, a post grad could become as necessary as a degree is today.
The impact of educating the population has been studied by Barro and Lee. They found a positive relationship between education and per capita GDP and confirmed that there is diminishing marginal productivity throughout the education system.
One reason is that postgraduate education is more expensive per capita than secondary education. This is backed up by Psacharopoulos. Primary education results in the biggest returns with a world average of 18.4%, whereas secondary education give 13.1% and higher education only returns 10.9%. We therefore assume that postgraduate education is likely to give even smaller returns on investment, especially in Britain, where there is such a large difference between the cost of a degree and a post grad.
The production function explains that output is a function of capital and labor. We can apply this idea to this Scottish economy. By increasing the amount of educated labor (postgraduate subsidy) we can increase output, but only to a certain point. There is diminishing marginal productivity, unless, we increase the amount of capital as well. The way to do that is attract FDI and encourage enterprise in the domestic economy. By doing this we can maximize the gains from the subsidy in postgraduates.
Diminishing marginal productivity might affect whether the government goes ahead with this investment because it might not have the desired results for Scottish productivity. Of course the government will also have to take into account the social and private gains from the research that is done by postgraduates, such as intellectual property rights as we mentioned earlier. This is a key aspect of the cost benefit analysis because not only do postgraduate courses improve the labor force, but also their work is often directly related to improvements in the industry.
Thirlwall (add date) states "Education is one of the most important inputs into R&D and for attracting FDI". There are a lot of other factors that will influence whether subsidizing postgraduate education has the effect of increasing FDI. Scotland currently enjoys favorable conditions for FDI such as low corporate taxes and English as a first language.
Scotland's brain drain problem is not a new one. Educated Scots are lured south and abroad by higher wages and more opportunities. So subsidizing postgraduate education may not produce the desired increase in educated labor. A policy of tax incentives or subsidies to attract FDI in conjunction with the postgraduate scheme would help keep Scottish students home and attract others from abroad. However, the two at the same time may be a little too much for the Scottish parliament to fund long term.
If the price of postgraduate courses goes down then there will be an increase in demand. In the long run this should result in an increase in capacity, as long as the government maintains its level of per student funding. An equal increase in supply and demand would mean the costs of postgraduate education would remain relatively stable. However, an inelastic supply of professors or even facilities would see costs rise.
In the short-run the potential 20% increase in earnings for men and 34% increase in earnings for women should increase demand for post grad courses. In the long run, however, it is unclear whether this will benefit Scotland's productivity or not. A general rise in income could mean the loss of a comparative advantage in the price of labor. However it is likely that Scotland would find itself with a better-educated population and comparative advantages in new areas.
There may be better ways to improve education like spending more on schools, increasing the quality of secondary education so that when people reach university level they have covered more material. Following that, the degree programmes could be improved. This would also have a positive impact on productivity without forcing more students into costly postgraduate degrees. Perhaps the money would be better spent on improving vocational training in colleges.
In conclusion, the subsidy would induce a general rise in income. Extra funding for universities would improve Scotland's most valuable asset, and help them create a world class labor force. Unemployment has been the bain of Scottish society for 30 years and this policy would go a long way to addressing that problem.
However, there are some practical issues of funding. Without other departments suffering it could prove difficult to give the policy the full backing that it deserves. In addition, we can find more value for money in improving primary or secondary education. So while the idea of improving productivity makes sense, we conclude that this may be better achieved either through partnership with the private sector or improving other areas of the education system. It is for policy makers to decide which one to choose.
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