Monthly Archives: May 2015

The science bubble finally shows signs of deflating

Since 2009, demand for science courses has been growing strongly. This is leading to a serious labour market over-supply, and so I believe there needs to be a correction. Unfortunately the information flows to prospective students for science contain a lot of misleading signals from STEM boosters, who persist in high-profile, but in my view incorrect, claims that this area of education needs encouragement.

The February 2015 applications statistics show some tentative signs that the market is adjusting to science realities. Through the tertiary admissions centres, there has been a 3 per cent decline in science applications. In reality, it is probably a larger drop than this, as I understand that a course reclassification that led to a big drop in environmental studies applications should have boosted science. Against this trend, however, there has been a 5 per cent increase in direct applications for science courses (for non-Year 12 applicants, there is a trend towards applying directly rather than through tertiary admission centres).

Feb demand

The biggest drop in demand if we don’t consider the environmental studies reclassification has been for education courses, down 9 per cent through tertiary admissions centres. This is probably because with a clear occupational outcome in teaching negative labour market information is transmitted much more effectively. Although this is a sensible adjustment, Kim Carr will still be on the warpath about nearly 900 education course offers to applicants with ATARs below 50.

Total applicants (as opposed to applications) are up 1 per on 2014, indicating a market that is essentially stable.

Pure research at universites increasing absolutely, but declining relatively

I have an article in The Conversation this morning arguing that policy over the last quarter century has made public universities more public than they would otherwise have been. Without external pressures, academics and universities would focus on a narrower range of objectives than governments and public opinion would prefer.

In response, Gavin Moodie observes

I am concerned at the diminution in the importance of pure basic research in Australian universities, which is now very much a minority activity. This is particularly worrying since while there are many other bodies established to conduct applied research, there is no other institution to conduct pure basic research.

While the share of all research that is ‘pure’ (definitions here) has gone down (see yesterday’s post), looking at the absolute spending gives a somewhat different picture. Spending on pure research doubled in real terms between 1992 and 2012, but this is a much lower growth rate than for the more applied types of research.

pure research
Source: ABS

Although I don’t think the trend is as negative as Gavin perhaps does, I have some sympathy for his broader point. While public universities can and should do more than academics are inclined to, their comparative advantage compared to other institutions is likely to be at the more pure end of research. If the government wants more applied research, it should probably steer much of that funding to more specialised organisations with clear commercialisation/practical problem solving goals.

Research commercialisation policy déjà vu

Australian is known as a nation that conducts high-quality basic research, and the Government wishes to maintain this reputation. … The Government considers, however, that a greater proportion of such research should be in fields that have the potential to improve the nation’s competitive position. …. We have a poor record in translating the results of basic research into effective application.

– John Dawkins, Higher Education: a policy discussion paper, December 1987

Overall, the Australian research sector is highly productive, internationally connected, and recognised globally for high quality research. … Despite this strong performance in producing excellent research, our ability to translate publicly funded research into commercial outcomes lags behind comparable countries.

– Christopher Pyne and Ian Macfarlane, announcement of a new research commercialisation strategy, May 2015

There are various perpetual critiques of Australian higher education, and the idea that we don’t do very well in commercialising research is one of them. As the ABS figures reported in the chart below show, there has been a significant shift in research towards the applied end of the spectrum. But it remains the case that Australian businesses infrequently report universities as a major direct source of innovation.

Research type

Perhaps some good will come of the latest round of policy initiatives, but I doubt it will be enough to stop similar analyses being offered 25 years from now. Universities just aren’t particularly well suited to producing commercially-oriented research. They attract people whose main interest is curiosity-driven research, not people who want to make money. Academics are much more likely to apply for grants that don’t involve collaboration with industry than those that do, even though industry grants are easier to get. The university status system is oriented around publications in theoretically-inclined high-prestige international journals, not solving the practical problems of Australian industry. While incentives for particular types of research activity matter at the margins, they are unlikely to change university culture.

No need to spend more than $2 billion promoting STEM subjects

Unfortunately Labor’s promise to write-off the HELP debt of 100,000 science, technology, engineering and maths graduates suggests that they have learned little from their previous mistakes in this area. Following a 2007 election promise, to boost science and maths they cut student contributions and introduced a HECS-HELP benefit, under which around $1,700 a year of HELP debt is written off if graduates work in specified occupations related to their degree.

The cut in student contributions was strongly promoted, and there has been on-going advocacy for STEM disciplines from the Chief Scientist, Professor Ian Chubb. There has been a big increase in science demand and domestic undergraduate enrolments – up 35 per cent between 2008 and 2013, or more than 21,000 full-time equivalent places. By far the largest increase has been in the biological sciences, which made up nearly 40 per cent of the total. Engineering, which did not have a cut in student contributions, increased by 32 per cent over the same period, with more than 8,000 additional full-time equivalent places. Science demand kept growing in 2013 and 2014, despite student contributions being put back up again.

As I have long argued, there has never been any evidence that we need a significant boost in bachelor-level science graduates. The latest employment data confirms that the surge of completions in science is only leading to serious un- and under-employment among science graduates, who have been hit especially hard in the general graduate employment downturn. So it is hard to argue that there is any general problem to solve in the first place.

sci take 3

Possibly there are still some niche employment issues in say secondary maths and science teachers – although they have fallen off the skills shortage list. But a promise to write off a few tens of thousands of dollars in student debt is unlikely to change how many people see a teaching career. Even for financially motivated students, the cost of university is not high relative to career earnings for full-time professionals. Perhaps the main thing that will drive graduates to teaching is that they may have few other options, thanks to the over-supply of graduates.

Course and career choices are primarily about interests and aptitudes, with long-term earnings a factor. These can be influenced – people have multiple interests and are not necessarily aware of all the suitable course and career opportunities. But this influence can be achieved without writing off more than $2 billion in student debt (we get similar numbers to the government). A few million dollars in marketing expenditure would probably have the same effect, if this was a desirable outcome – which it is not. Labor’s latest policy is, unfortunately, only likely to to encourage people to make choices that put them at high employment risk.

The Budget significantly understates likely student-driven higher education spending

Compared to last year, for higher education the 2015-16 Budget is uneventful. But the problem with the Budget papers is that they assume that several things that are unlikely to occur will happen. In particular, they assume that Commonwealth contributions will be cut, domestic undergraduate student fees will be deregulated, and that students at private universities and non-university higher education providers will enter the publicly-funded system. While I think only fee deregulation is completely impossible with the current Senate, on the government’s current legislative strategy it is not clear how any of these proposals will become law.

The government’s reform package not passing the Senate will have both positive and negative effects on the Budget forward estimates. The reform package had two significant costs: added subsidies from more students becoming eligible for Commonwealth-supported places, and added doubtful HELP debt from fee deregulation. From this perspective, the Budget is over-stating likely higher education spending.

However, the Budget is also assuming that per student subsidies will be lower than in fact they will be, as the government is still pursuing per student funding cuts averaging 20 per cent. It is also, I think, assuming an efficiency dividend (I can’t see it mentioned but I have not seen an announcement that it is no longer being pursued), and a change to the grant indexation system (although this change would not deliver any significant short term savings). From this perspective, the Budget is under-stating likely higher education spending.

Calculating the net effects of these changes is difficult on the information presented in the Budget. We have used varying scenarios about public university-only student numbers, indexation and the efficiency dividend. Based on these scenarios, the forward estimates understate likely government spending on the Commonwealth Grant Scheme by between $2.5 billion and $3.7 billion. In other words, universities will receive between $2.5 billion and $3.7 billion more than the Budget papers suggest.

On currently available information, we cannot provide a sensible revision to projected HELP costs. Compared to information on HELP published late last year, HELP’s costs have been revised down. The 2015-16 Budget papers suggest that VET FEE-HELP borrowers will shrink from 225,500 to 128,000 between 2014-15 and 2015-16. If so, that is a remarkable response to current efforts to clean up the vocational education industry. They are also predicting fewer HECS-HELP and FEE-HELP borrowers.

The ‘performance indicator’ for the proportion of new HELP loans that are expected not to be repaid has been reduced by two percentage points across the comparable forward estimates years, so that by 2017-18 it is anticipated to be 21 per cent instead of 23 per cent. While an improvement would flow from fewer VET FEE-HELP borrowers, these proportions still look to be on the optimistic side.