Tuition fees: an unintended effect?

Could rises in tuition fees have unintended consequences for the labour market? Here’s a theory. Let’s suppose that the graduate premium exists not because universities create more productive workers, but simply because more the sort of people who go to university are more attractive to employers anyway.
If this is the case, then the sort of firms that traditionally hire graduate trainees might want instead to hire 18-year-olds who have been offered university places but who don‘t want to get into debt. Rather than use university degrees as signals of ability, firms and applicants would use offers instead.
This would benefit both parties. Firms would get bright young trainees. And successful applicants would get a good career without getting into debt.
So, why - apart from the usual institutional inertia - might we not see firms setting up post-A level trainee schemes instead of (or alongside) graduate training schemes? There are three possibilities:
1. My premise is wrong. Universities do actually inculcate human capital, so an Oxford graduate is much more than just three years older than a person who’s been offered a place at Oxford. This, though, runs into two difficulties. One is that it’s common for law and accountancy firms to hire people with degrees in all sorts of subjects; how does a classics degree create human capital relevant to accountancy? The other is that US evidence suggests that people who have been offered places at “top” universities but in fact go to lesser institutions actually earn the same as those who take up their places. This suggests that “top” universities don’t impart skills.
2. 18-year-olds are considered too immature to join “respectable” law firms or investment banks. On this view, universities are merely child-minding institutions.
3. Getting into debt is an attractive signal to an employer. It betokens confidence about one’s future income prospects, which might be correlated with actual ability. Or it might be a sign that one comes from a wealthy family and so will “fit in“. Or - less plausibly - perhaps there are some employers who value the intellectual curiosity which graduates are more likely to have than those who shun universities. Whatever, firms would rather hire the indebted graduate than the bright but debt-averse 18-year-old.
I fear that there might be more truth in (3) than we’d like.

Comments

[Limeyankee]

An additional point on (3). Employers might find indebted employees more attractive when they are carrying a reasonable amount of debt, rather than being debt-free, since the former group can much less easily pick up and leave a crappy job.

[Convention Centre]

I don't see any benefits to raising tuition fees, except for the rich and middle classes.

[Martin]

In 1), the evidence you provide suggests that 'top' universities don't inculcate more human capital than *other universities*. Not that going to university per se doesn't inculcate human capital. And that human capital could conceivably include skills valuable in, say, law or accountancy, even if the degree taken wasn't directly relevant to those careers.

[mike j]

Really interesting post, as usual. One quibble, third para; "both parties"? Do universities themselves not represent a third party? And is the outcome for them not far less appealing than for the two parties you identify?

[Michael Fowke]

"Perhaps there are some employers who value the intellectual curiosity which graduates are more likely to have than those who shun universities."

You don't have to be a thicko to shun university, you know.

[Jane]

Oh I don't think at this time companies would ever hire out of high school. The system would need to change first. This is all controlled by the school unions. It is one big self licking ice cream cone.

People are required to get a college degrees for any entry level position paying a decent salary. In many fields a BA degree is now not enough and a masters is required, with of course extra certifications in specialized areas. This keeps more intellectual elites employed at the universities. Once an individual is hired with the appropriate degrees and certifications they are then usually sent back to school for additional certifications to keep or advance in their job.

What you are perhaps advocating (and what I would love to see) is a return of on-the-job-training for certain jobs. Today a high school graduate cannot just slip into any job unless he/she is serving up fries somewhere. If you want to count pills and be a pharmacy tech (something I did while in college and due to o-j-t) you now need to attend a 2 year vocational school for several thousand dollars to be certified and just to make about $8 an hour. A vet tech used to get ojt, now there are programs offered at votec schools. To babysit more than 2 kids at your home you now need to get the proper certification, for a fee of course and with the completion of some horseshit class to prove you are able to provide adequate care. To dog sit, the same thing. A child needs to have a business license to sell lemonade in front of their home or pumpkins from their garden in the fall. It is ridiculous but it is all controlled and supported by the unions. Keep people in school, increase certification and license requirements, require advanced degrees etc. etc.

Meanwhile, professors are getting pay hikes and great pension and retirement benefits and unions are lining their pockets. They keep the professors and teachers happy with their pay and they get to implement all kinds of required educational programs and the average guy gets screwed. Don't get me wrong, I'm not advocating people do not get educated or the training needed to do a good job, but many of it is useless and overkill. For example, why do people need to get college credits in studying Lady Gaga in order to fulfill the needed credits for a degree.

[patrick]

I expect that 2) plays a big part. Certainly, my employer just doesn't hire teenagers any more (we used to take a lot of 16 year old school leavers until about the late 80s). Why? Because by the time kids are 21-22, they've usually grown up a bit and can be relied upon a bit more to do the job properly. (Not to say there aren't 18 year olds, or even 16 year olds, who wouldn't be perfectly capable of doing the job, but the odds aren't as good).

[charlieman]

Chris Dillow, OP: "One is that it’s common for law and accountancy firms to hire people with degrees in all sorts of subjects; how does a classics degree create human capital relevant to accountancy?"

Many university law departments have a preference for applicants who did not study law at A level. Their argument is that A level law is not a foundation for a law degree (compared to the obvious utility of a maths A level) and may be a distraction.

I'd suggest that a classics degree might suit many employers of accountancy trainees. Any good degree course will have provided an education in communication and logic, without preconceptions of accountancy as a discipline. Employers thus get smart trainees who can be moulded. So it would be interesting to see how employers deal with accountancy graduates.

[Kevin Mitchelson]

You miss one important signaling effect of a completed degree - the fact that it was completed, thus demonstrating an ability to knuckle down and work, to order and prioritise etc, etc.

[Tom Addison]

As someone who has a graduate accountancy trainee job (and therefore a short haircut), I can tell you that it's very common to not have a "related" degree. I have an economics degree, which has proved useful at times, but some people at where I work have completely "unrelated" degrees, and it isn't to their detriment in the slightest.

Within about 2 weeks of starting the job we (by which I mean our year group of new starters) had our first two exams, one of which was simply called "Accountancy". For those that had accountancy based degrees, they had an advantage for about half of the first day of the 5-6 day course. Perhaps this is a criticism of accountancy based degrees?

Regarding age, we also have "scholars" who start at the same time, 18-year olds who have just finished their A levels who work at our place for about 5-6 months before going off to Uni. I'm not embarrassed to admit that some of these were better than me at exams and the job. Of course they're a special case, but you could argue (and I know this may sound big headed) that the new graduate starters are special cases as well (as a sample of all people their age).

It's a difficult balance. I'd definitely be a more prodcutive worker for the economy right now had I not gone to Uni and been able to start this job at 18 and received on-the-job training (were that widely available), but would I have the "thirst for knowledge" and willingness to learn that I do now? Probably not.

The minimum required academic requirements for getting a job at our place are 300 UCAS points at A level (BBB, ABC, AAD) and a 2.1 in any degree. Supposedly the A level requirement is there because there's a strong correlation between A level results and success in the accountancy exams. The degree requirement? Who knows, maybe because it shows you can knuckle down despite all the, *cough*, distractions.

[Alex]

Sorry to be off topic, but @Convention Centre..

"I don't see any benefits to raising tuition fees, except for the rich and middle classes."

Seeing as the rich will pay far more for tuition when all the changes come in, as opposed to poorer gradutes who will pay less, I don't follow your point. Perhaps you don't understand the importance of increasing the repayment threshold and introducing a sliding scale of interest rates on student debt?

This is the first time I can remember that a mainstream political movement has been based on a failure to understand GCSE maths.

[Frank H Little]

Nobody has mentioned the networking benefits of a university education.

[Abdullah]

'If this is the case, then the sort of firms that traditionally hire graduate trainees might want instead to hire 18-year-olds who have been offered university places but who don‘t want to get into debt.'

It used to happen in the past: legal firms would take on school leavers then train them up to solicitors like the poet, novelist and lawyer Roy Fuller. There was also a time when school leavers were taken on as trainees by newspapers. Journalists like Keith Waterhouse and Peter Tinniswood went nowhere near a university. Nor did Kelvin McKenzie. Now it seems a degree is the first requirement for a career in the media. Perhaps one is seen to bestow an extra level of intellectual competence but how then do you explain Giles and Victoria Coren, Lynda and Charlie Lee-Potter, or Claudia Winkleman? (Actually, I do know, my question is a rhetorical one.)

[Radagast Brown]

A very interesting post, but can a shrewd economist/mathematician work out who is worst off?
Clearly graduates who will earn £15-21k pa and never more, will be better off under the new scheme. Graduates earning less than £30k in today's money will never pay off the fees either. Even graduates earning between £30-40k a year may never pay off their full fees+loans - if say their salaries only ever increase in line with inflation.

Perhaps then we can start to investigate the real cost of tertiary education? The full fees+living costs being about £16-18k a year. Not only that but 3 years of not working may mean around £60k of lost income. How much of a premium does a graduate need to earn to make it economically worthwhile?

http://radagast.typepad.com/blog/2010/12/tuition-fees.html

[The upper lower middle]

A graduate tax on employers for each graduate they employ (rather than on the graduate) would be an interesting way of evaluating how useful/essential employers really think a degree is. My guess is that it would lead to very high unemployment among graduates (and would thus be politically untenable), or would lead to graduates being offered less money to do most jobs than non-graduates. But at least it would stop the arms race where ever higher levels of qualification are needed to get any job.

I reckon a tax like that would move my workplace from exclusively graduate to exclusively non-graduate.