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.
Eighteen months ago I was much less full of praise than others for Graham Tuckwell’s $50 million scholarship donation to the ANU. I said:
Like many scholarship schemes, the Tuckwell scholarship will go to people who already have plenty of potential that is unlikely to go to waste. They will go to university anyway, find mentors anyway (one of the claimed benefits of the scheme), and make something of their lives. They are not the people who need help.
Instead, these scholarships are used for essentially wasteful positional competition between universities. The ANU will use the Tuckwell’s scholarships and the associated publicity to try to take top students away from Sydney, Melbourne and other universities that buy talented students .
The announcement today of the 2015 scholarship winners highlights my point. The schools represented from my home state of Victoria (below) hardly suggest that the scholarships are opening up opportunities for the under-privileged. Instead, they are the ANU poaching students from the University of Melbourne.
Melbourne Grammar School, Westbourne Grammar School, Geelong Grammar School, Melbourne High School, Geelong Grammar School, Ballarat Grammar School St Kevin’s College, Presbyterian Ladies’ College
As I said last year, there are much worse ways a rich man could spend his money. But there are also much better ways.
Update: A reader who likes empirical data has sent me the socioeconomic background data of the successful schools. Three of the students are from schools that have more than 25% of their students from low SES backgrounds. But that isn’t enough to change the overall picture of massive over-representation of the top quartile.
Today the Liberals introduced legislation for Labor’s conversion of the Student Start-up Scholarship into a new income-contingent loan, the Student Start-up Loan.
Overall, its design is closely linked to the Higher Education Loan Program (HELP). However, people who take out SSLs will not have to start repaying until after they have repaid their HELP debt. Potentially, that is not for a very long time.
Experience with the former Student Financial Supplement Scheme, under which students could trade in $1 of income support for a $2 loan, suggest that there is significant adverse selection with income support loans.
From figures given during discussion of closing the SFSS down in 2003, I estimate that about $2.7 billion was lent between 1993 and 2003. The Department’s annual report for 2012-13 says that $1.8 billion is still owed, of which they class 63% as doubtful debt. Doubtful debt for HELP is estimated at 23%.
Presumably this is from a mix of people taking out loans they never expected to repay and income support entitlement being a proxy for other characteristics that put people at above-average risk of being bad debtors.
In this case, the Commonwealth can’t be financially worse off. This is a loan replacing a grant, so long as repayments exceed administration costs they will come out ahead.
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Last Friday the ABS put out their latest report on household wealth and wealth distribution. This includes average ‘study loan’ debt, though there is nothing in the ‘assets’ section on the value of human capital. This is not a criticism of the ABS; human capital is not a directly tradeable asset and there are substantial methodological issues in valuing it.
Nevertheless, for most younger people their human capital is their most important asset. If what we are hoping to measure is capacity to command resources over the longer term (superannuation is included), then excluding human capital gives a fundamentally misleading idea of how wealth is distributed.
Combining numbers from two tables gives us an idea of what impact this has. The highest average HECS debt is in the households with the lowest net worth. Unfair! Students impoverished by debt! But looking at average HECS debts by gross household income quintiles things are reversed – the highest average HECS debt is in the top income quintiles. Equity! The rich being forced to pay their way!
What I suspect is happening here is that the net worth numbers are picking up many new households, graduates starting to earn good salaries but still renting and with little superannuation. But the household income numbers are picking up graduates living together; since they tend to overtake the incomes of non-graduates early in their careers putting two or more graduates together in a household gives them high collective earnings.
Because there are very large life cycle effects in wealth distribution, it will always be far more equal over a lifetime than at any one time. HECS/HELP will make it mildly more progressive.