Due to COVID-19 Australia faces the worst recession in living memory. This post is the first of a series looking at how this might influence demand for higher education. But to pre-empt future posts, applications are just one of several factors affecting how many students end up enrolled. Acceptance rates, deferrals, and attrition rates could all change, affecting student numbers.

I will start with the school leaver market. As I have noted previously, in recent years higher education applicant numbers have softened. For school leavers, demography will continue to cap numbers. But within the constraints of age cohort size, could the recession affect applicant numbers?

Recessions change the economics of choosing between higher education and work. If there are no jobs a university student does not forgo pay and work experience. Higher education’s opportunity cost falls. Further study might be the second-best option, but it is better than unemployment.

Although recessions affect people of all ages, they hit young workers particularly hard.  According to the ABS job mobility survey, twice the proportion of people aged 15-24 years looked for a job in the last year as those aged 35-44 years. But as staff recruitment is the first thing to go when business is slow fewer people looking for a job will find one.

The chart below shows that youth unemployment is always fairly high, but increased significantly in the last major recession in the early 1990s.

Consistent with recessions influencing higher education demand,  applications spiked in the early 1990s, as the chart below shows.  For applicants aged 20 years or less applications increased by more than 20 per cent between 1990 and 1993.

At the price of some untidiness, partly due to historical data not always using the same definitions as now, the chart also lets us explore other demand-side factors.

In the early 1990s, like now,  demography was not driving up demand. The late-teenage population was trending down. But 1980s policies to encourage school retention to Year 12, plus students staying in schools because there were no jobs during the recession, led to 1992 having a then-record high Year 12 retention rate (chart at the end of the post for those interested). This meant that Year 12 student numbers trended upward despite the late-teenage population falling.

A large Year 12 class in turn contributed to growth in applications from people aged 20 years or less, reaching a then-record 177,000 ‘eligible’ applications in 1993 (and the true number was higher, as they did not at the time count ‘ineligible’ applicants with low school marks).

As the recession started to lift both school retention and university applications fell, further supporting the idea that the economy affects education demand.

While theory and the early 1990s evidence suggests that a recession will increase applications for higher education, there are some important differences between then and now for young people.

In 1989 the Year 12 retention rate was 60 per cent, giving it room to shoot up to 77 per cent in 1992. But in 2019 school retention was 84 per cent, realistically leaving much less room for further increases. There are also now more Year 12 options for students not planning on university than there were in the early 1990s. Students who stay at school mainly because there are no jobs are likely to go into the more vocationally-oriented Year 12 options.

It’s also the case that a much-greater proportion of the young people who might consider university enrol now compared to in the early 1990s. In the early 1990s the 19-year-old higher education participation rate was 23-24 per cent. In 2017 it was over 40 per cent.

Universities Admission Centre data for NSW indicates that of Year 12s with an ATAR in 2017 three-quarters applied for university in 2018. Of those who did not, three-quarters (same proportion, coincidence) had an ATAR below 60. Given that group’s risk of not completing, or not getting a good employment outcome if they do complete, we might expect continued caution about going to university from them, especially if governments continue to promote vocational education.

Another factor to consider is that many of the occupations that will be hit hardest by the COVID-19 recession are common sources of student employment. The simultaneous growth of higher education participation and casual jobs in sales, service and hospitality occupations may be more connected than we realise.

Overall, then, I do not expect the same big spike in school leaver applications during the COVID-19 recession as experienced in the early 1990s recession. But that is not quite the same as likely realised demand – the number of applicants who are likely to end up enrolled. That will be the big management challenge for universities, which I will discuss in another post.

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