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.
Mary Anne Winslow is a member of Essay Writing Servicecounselling department team and a dissertation writing consultant. Contact her to get free counselling on custom essay writing.