Former Greens higher education adviser Osman Faruqi thinks that it is time to reconsider the demand driven system, in light of the annual ATAR controversy and mediocre employment outcomes. It is the usual story of good intentions turning to not-so-good outcomes:
There was an opportunity for universities to work with policymakers and industry, identify economic trends and skills gaps and use their new-found flexibility to provide students with a rigorous learning environment.
While university managers might have convinced themselves this is what has occurred, the numbers tell a different story. Enrolments shot up across the board — but particularly in relatively profitable courses such as business, commerce and media. As more students with lower ATARs gained entry into university, attrition rates increased alongside them. One in seven students currently drop out by the end of their first year, the highest level in a decade. Graduate unemployment is at its highest level since records began in 1982.
The demand driven review I did with David Kemp is the main analysis of how the system is going, but it is now two years old. It’s worth looking at a few statistics to update trends.
The actual enrolment increases for domestic bachelor degree students are a little different to Osman’s take, and can be used for and against in the debate about different systems. The chart below shows the disciplines with at least 2,000 EFTSL enrolment increases between 2008 and 2014. Law and business are on the list, but not at the top, and below the average in percentage terms.
Consistent with what Kemp and I generally found two years ago, disciplines related to occupations with skills shortages generally responded with increased places under the demand driven system. Two of the top three growth areas were disciplines in skills shortages at the time (although not now except for some specialised areas). This we saw as one of the system’s strengths compared to the previous system, which had no established process for identifying or responding to skills shortages. Before the demand driven system, it was very ad hoc: if employers screamed loudly enough and there was money in the Budget for extra places then the system responded; otherwise not.
Of course, in theory it would be possible for the government to more actively steer the system. But should we trust them to make good judgments? The several science-related disciplines in the top half of the fast-growing discipline list suggests not. That was a response to cutting science and maths student contributions in 2009 and campaigning for STEM, with the former Chief Scientist being a major advocate for study in these fields. It was bad analysis all along, and has predictably led to very poor employment outcomes.
Have our political leaders learned their lesson from this? Labor’s plan to pour even more money down the STEM drain suggests not, and the STEM evangelism of the current government (fortunately without any extra student spending), also suggests not.
While student course choices are structured by their interests and aptitudes, precisely which courses they choose is influenced by what they hear and observe. We can see publicised ups and downs of the labour market flowing through into applications and enrolments ups and downs. But government campaigns also make a difference, and not always for the better.
Yes, demand driven funding is leading to more growth in some disciplines than the labour market warrants. But on the historical evidence, I am not convinced that it is worse than the realistic alternatives. Our much-maligned 18 year olds spot and respond quickly to real skills shortages; the old system did neither in a reliable way. Some young people’s course choices look to be misjudgments, as least if they are looking for work. But on that they have been misled by the actions and words of politicians and officials, the very people who would have to run a non-market system of distributing student places.
The latest graduate employment data supports what ABS data suggested a few weeks ago: that the worst of the graduate employment downturn might be behind us. Early this year, the proportion of new graduates seeking full-time work but without work or only working part-time was fractionally lower than it had been at the same time in 2014. As the chart below shows, though, it is still at historically high levels.
The discipline-level data shows, unsurprisingly, a less tidy picture. There has been a rebound in construction related occupations, and small improvements in outcomes for big fields such as education and commerce. Mining engineering employment, unsurprisingly, is still heading down and there was an on-going decline in nursing and law. All of these declining fields still have above average levels of graduate employment, but negative trends.
I have been pointing out for many years that, contrary to continuing pro-STEM rhetoric, science is not a good employment option. For the second year running, life science graduates are only narrowly avoiding having the worst employment outcomes of any discipline (visual and performing arts graduates reliably come last in looking for jobs). While outcomes this year were slightly better than last year, 51% of life science graduates were still looking for work 4 months after graduation. Maths, chemistry and physics all trended down, although with small numbers of respondents.
Another STEM discipline, computer science, did slightly worse than the overall average, with 33% un- or under-employment. Of the STEM disciplines, only engineering produces employment outcomes that are significantly better than average, with most improving on 2014.
Today’s release of the annual ABS Education and Work publication has some good news on graduate employment. After a couple of years in which the total number of graduates with jobs stagnated, in 2005 compared to 2014 they were up by 7.5%. Growth in the number of graduates with managerial and professional jobs, the jobs the ABS classifies as requiring bachelor degrees or above, was lower at 5.3% – but that was still much better than in the two preceding years.
Converted to a percentages of the graduate population the improvement is harder to see. This is because the total number of graduates keeps increasing, up by 287,000 in a year according to this survey (completions according to the Department were 215,000 domestic students and 104,000 internationals – but the total number in the population is affected by migration in and out).
In 2015 the proportion of graduates in work with managerial or professional jobs was about 71%, while the proportion of all graduates with professional or managerial jobs was about 57%. While the time series is complicated by definition changes these are probably the lowest figures yet recorded, as seen in the chart below. However, the numbers are not as bad as recent graduate employment figures might suggest. This is partly because employment numbers improve over time, and partly because it takes time for new cohorts of graduates to significantly influence the total survey. Even with recent big graduating classes, the new entrants to the graduate pool are only about 6% of all graduates.
There has been much comment this year (including from me) on the bad and getting worse employment outcomes for recent graduates. This is based on a four months after completion survey, so some of the result is slower rather than non-transitions into full-time employment.
The latest Beyond Graduation survey looks at graduates three years after completing their degree. It uses a sub-sample of respondents to the original four month out survey three years previously. The sub-sample does have at least one bias, in that its respondents report higher employment rates at four months than did the sample as a whole. But hopefully this does not affect the trend information.
As the chart below shows, full-time employment rates (of all in the sample) seem to have stabilised for the 2010 cohort compared to people who finished the year before. The chart shows that in early 2011 when the 2010 completing cohort was looking for work 55 per cent had a full time job. Three years later in 2014 that had increased to 70 per cent. Not everyone who does not have a full-time job is un- or under-employed, but I report it this way to try to minimise any effects of people who are doing something other than working because they have given up looking for a job.
Conditional on having a full-time job, the rate of professional and managerial employment also seems stable at 84 per cent, which is little-changed over the life of the Beyond Graduation survey.
While the trends in recent graduate employment are concerning, most commentators (including myself) have been cautious about saying that this is necessarily a major long-term problem. It could be, but there is not enough evidence to say that yet. These reasonably good results from the Beyond Graduation Survey support that caution.
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.
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.
At the weekend, Victorian Premier Daniel Andrews pledged equal male-female representation for state government public board and legal appointments. The Liberal Party similarly announced that it would increase female representation among its MPs.
The task of more equal representation in senior jobs has become easier over time as women’s educational levels first matched and then exceeded men’s. Women have made up a majority of university students since 1987, and in the census it is now only in the 60+ age group that men outnumber women as graduates.
Despite this educational success, full-time labour force participation rates differ significantly between men and women, something we have given a lot of attention due to its implications for HELP debt repayment. The chart below shows how female full-time workforce participation declines as women enter their thirties. It goes up again in their forties, but never to their previous levels or men’s rate of full-time work.
People can have successful careers working part-time. But prolonged periods of part-time work inevitably mean significantly less experience. Any many senior jobs just cannot be done on a part-time basis, and indeed cannot be routinely done within ‘normal’ working hours.
This has obvious implications as to how many people with the relevant level of experience are in the pool of potential applicants for senior positions. However, the differences are not quite as dramatic as the slide above might suggest, because more women had the appropriate initial educational qualifications in the first place. The chart below shows absolute numbers of graduates by gender working in full-time managerial or professional positions. Women are around 40% of the pool in the aged 40+ group most likely to get the top jobs.
For judicial appointments, only about a third of full-time legal professionals in their 40s are women, and the share is less than 30 per cent for people over 50 (chart below). Perhaps the very long hours typical in the law make it harder to maintain a pool of highly experienced female lawyers.
In absolute terms, there are enough women to fill the relatively small number of board and judicial appointments. But with an open recruitment approach, there will be many more male than female contenders with the qualifications and experience for senior positions.
Note: The absolute numbers in the census will be too low. It has a problem with people not answering all the questions. Males are less likely than females to respond to other surveys, so there may be an undercount of men.
The experience of graduates from the early 1990s recession suggests that a slow career start isn’t necessarily fatal to long-term prospects. Employers seem willing to consider graduates who haven’t managed to quickly find employment. But this doesn’t rule out more pessimistic interpretations of recent graduate employment surveys.
There are several reasons why this might be the case. There could be some structural changes in the economy that reduce the quantity of or slow growth in professional jobs, to which graduates typically aspire. For example, there could be greater automation of tasks previously done by professionals, or more outsourcing to countries with lower labour costs. Or professional job growth could stay around its long-term trend, but the number of graduates increases more quickly.
The slide below shows the long-term trend in the number of jobs classed as professional. Annual growth is volatile, but I can’t see a structural slowdown. 2013 showed relatively low growth, which might help explain why that was a bad year for graduate outcomes compared to the immediately preceding years. But 2014 was a good mid-range result, with an estimated 85,000 additional professional jobs.
Completion numbers show less volatile growth than job numbers, but multi-year comparisons suggest that they are not (to date) growing at a much stronger rate than professional employment. However, new graduates are not the only flow into the graduate labour market. Existing graduates move in and out of the labour force, and there is migration, both from new migrants and expatriates returning to Australia. Permanent skilled migration in recent times has included 32,000 to 39,000 professionals a year, although there are larger numbers here on temporary visas.
From the ABS Education and Work survey and its predecessors we can construct a time series of graduates in professional and managerial jobs, both as a percentage of all graduates and of graduates with jobs. The slide is below. The trend is affected by occupational definitions, and is most meaningful within the periods in which a reasonably consistent classification system was used. Unfortunately Education and Work 2014 has some results that are hard to believe. I think they have over-sampled people with postgraduate qualifications and under-sampled people with bachelor degrees, and as a result the employment result is biased upwards. But the bias would not be large enough to turn the slight decline in graduate managerial and professional employment shown in the slide into a large decline.
The way Education and Work is conducted means that it would not show any fast consequences of a deteriorating new graduate labour market. The number of new bachelor-degree completions in 2013 was only about 5 per cent of the stock of professional jobs. Also, Education and Work is done as part of the broader labour force survey. Respondents to that survey are on an eight month cycle, with an eighth leaving the survey and being replaced each month. As Education and Work is conducted in May, only some of the people being captured as un- or under-employed in March or April by the Graduate Destination Survey could have been included.
Another issue is whether the Graduate Destination Survey, in investigating the employment situation of graduates so soon after completion, has always painted an overly-pessimistic picture of outcomes. Although many employers have graduate intakes structured around the cycle of university completions, normal economic growth isn’t going to to produce a sudden burst of professional jobs over December to April. It’s more likely that graduates will gradually be absorbed into the workforce.
One way of investigating this is the Beyond Graduation Survey, which looks at graduates three years out. It uses a sub-sample of the original Graduate Destination Survey. The respondents to the Beyond Graduation Survey report better employment outcomes four months out than did the full GDS sample, so the results are likely to biased upwards somewhat. What the slide shows is that full-time employment outcomes are trending downwards three years out for the cohorts that had bad outcomes four months out, for those who were new graduates in early 2009 and early 2010. The drop is about 4.5 percentage points on the peak year, but only 2 percentage points below what new graduates from early 2006 experienced three years out.
The BGS survey also lets us look at job quality. Of those who have full-time jobs, there is only a very small decline in the share of people who have managerial or professional jobs. There is a larger decline in people with full-time managerial or professional jobs as a proportion of all graduates. There has been a shift to full-time study and job searching.
The Beyond Graduation Survey is the clearest evidence of negative trends beyond the short-term employment outcomes, but the fairly small full-time employment declines the BGS finds are not disastrous. Taken in the context of the other ABS employment data reported in this post there is not yet enough evidence to say that there are major structural issues with graduate employment, although the relevant trend data needs to be watched carefully. The slowing growth in domestic undergraduate commencing student numbers is desirable. But it is still possible that the bad initial employment outcomes of recent years will end up being like the bad job figures of the early 1990s: slow career starts, but not career killers.
Graduating into a recession may not affect overall employment levels, but could it affect job quality? The theory here is similar to the employment scarring effect. By graduating into a recession, a proportion of graduates don’t acquire jobs that allow them to maintain or develop their skills. This harms their CV, and employers will continue to overlook them as they age, stalling their careers.
In this analysis, I will take professional and managerial employment as a proxy for a quality job. I realise that this is imperfect. Broad job categories can under- or over-state the skills actually required in particular jobs. Job categories are also known not to always match with subjective perceptions of skills use or job satisfaction. But this is the best I can do with readily available data from the census.
As can be seen from the slide below, with dots in the line for the group of most interest, it is hard to see evidence of a scarring effect. It looks like the early 1990s recession cohort are continuing their career climb – not shown, but there is a shift from jobs classified as ‘professional’ to those classified as ‘managerial’, as people move into more senior jobs.
Another test of graduate outcomes is income. Unfortunately the census uses a category of $2,000 a week or more for all higher income earners. But taking this cut-off again we see little evidence (dotted part of the line) that our assumed recession graduates are significantly off-course in their careers. However, by dividing the group into undergraduate degree only and postgraduate we can see one reason why postgraduate study has boomed in recent years.
Of course, we can’t rule out that there is some salary penalty hidden in the broad $2,000 a week or more category. But it is hard to argue based on this evidence that there is a significant cohort from the early 1990s who are still doing it tough in 2011.
None of the data sources I have been able to use in analysing this issue are fully adequate. But overall the results I have incline me against the scarring hypothesis. Based on this 1990s recession evidence, employers typically don’t write prospective employees off just because their careers get off to a slow start.
Poor recent graduate employment outcomes inevitably raise questions about whether this shows just a slow period of labour market adjustment, or whether it is a sign of something more serious. One theory is that early periods of unemployment or low-skill employment have a scarring effect on future employment. The basic theory is that during unemployment existing skills deteriorate and new skills that come with work experience are not developed. Either or both of these things happening or employers assuming from CVs that they may have happened compound the original employment problem. What could be a temporary setback is turned into a long-term disadvantage.
For graduates, the early 1990s recession provides an opportunity to look at potential scarring effects. There were three years of more than 25 per cent un- or under-employment from 1992-94, and 20 per cent plus for 1991 and 1995.
The ABS Learning and Work survey* has a question on when the respondent graduated. On a question asking what impact their qualification had in their working life in their first six months, those completing between 1990 and 1994 had the highest rate of saying ‘no impact’, 26 per cent. The next worst result was 23 per cent for those completed between 2000 and 2004. Unfortunately, the labour force results are hard to interpret due to sample size issues. The ABS says the margins of error are too high on all the unemployment results for them to be reliable. The not in the labour force results are higher for 1990-94 graduates than either 1985-1989 or 1995-99 graduates. However this is almost certainly due to women absent from the workforce for family reasons (if I break the results into male and female I get the expected outcome, but with the ABS again warning that the margins of error are too high).
Another option is to use the census, which has problems with people not answering all the questions but still has many respondents. While the census has no question on exactly when degrees were completed, as most students start bachelor degrees in their late teens we should be able to see any obvious scarring effects. My theory here is that people aged 39 to 41 years at the time of the 2011 census were likely to have graduated into the early 1990s recession. If there is a scarring effect, they should have worse outcomes than people who are a little younger or older. The slide below shows the results for being in work, for male bachelor degree holders only, as the female not in labour force results are too ambiguous.
What surprised me about this is how employment drops for men in their forties. While there is a slight increase in unemployment for the target 39-41 years group compared to younger men this looks like a life cycle effect. The same phenomenon is evident in the 2006 census. So overall I would say there is no strong evidence of a scarring effect on overall employment levels of graduating into the early 1990s recession.
Update 9 January: After yesterday’s post seemed more interesting for the activities of men in their forties than for employment scarring, I wondered if the issue might at least partly be residualisation of the bachelor-degree group. In other words, the more successful men go on to postgraduate study leaving the men with bachelor degrees who have given up looking for work as a larger share of the remaining people who say a bachelor degree is their highest qualification. As men get older, they do become slightly more likely to give a postgraduate qualification as their highest qualification (slide below).
However, this is only a partial explanation. When I separate the analysis into education levels, men with postgraduate qualifications also start leaving the labour force in their 40s, although at a lower rate (slide below).
I’ve had a quick look at some of the other characteristics of men with bachelor degrees who are not in the labour force. The affluent retired hypothesis has some truth but far from explains it. About 10 per cent of this group report a personal income of $1,500 a week or more, compared to more than 60 per cent of all men at this age and education level.
About 40 per cent report doing childcare, although this does not mean that they are the principal carers for their children. About a third have no live-in partner, so they are not obviously relying on someone else to pay the household bills.
Around 10 per cent of male bachelor degree holders who are not in the workforce report a ‘need for assistance with core activities’ compared to 0.2 per cent for those working full time. The cumulative effects of accidents and ill health are starting to show in this demographic.
* The results reported here are not available for free on the ABS website.