Education is valuable – Shock!

An enterprising Paul Williams from the New South Wales Department of Education and Training sent me a study the Department had commissioned on the economic value of TAFE in NSW. Easily flattered on Club Troppo’s behalf – I’ve not been courted as a media outlet before – I thought I’d better get this news up on Troppo ASAP.

It will not surprise you to hear that the economic value – as calculated by Allen Consulting – is large compared with the costs. So we should at the very least keep doing what we’re doing and if Economics 101 is any guide, as marginal benefits still way exceed marginal costs, we should do more.

I expect there are ways we could not just do more of it, but also do it better in various ways, but, at least judging from the executive summary not much attention went to this subject. Maybe there could be a follow up report from Lateral Economics. :)

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Tony Harris
Tony Harris(@tony-harris)
15 years ago

What do we want? More free public education.
When do we want it? Now.

Paul Williams
15 years ago

Thanks for the commentary Nicholas. The value of this report from TAFE NSW perspective is that it differentiates the kinds of benefits enjoyed by different stakeholders (and of course we like the numbers). This provides very meaningful information to assist strategy and investment decisions.

Chris Lloyd
Chris Lloyd
15 years ago

Andrew Norton posted last month on calculations suggesting that the marginal value of a commerce degree was about k$500 over a lifetime. I reckon a doctor’s MR would be way higher and way higher again than the cost of the degree. It is always difficult to measure the value of education. Just looking at the outcomes of those with a degree and comparing them with those who do not have the degree is biased, even if you control for demographic and ability indicators. Because the mere act of taking a degree means you are a different and perhaps more dynamic person than the person who doesn’t. I am not sure there is anyway to adjust for this. So estimates of marginal value of education are probably always over-estimates.

But let’s take the estimates as roughly correct. When higher education places are limited by limited government support, it is no surprise that marginal benefits will exceed marginal cost is it? And making it free would make no difference.

But there may also be demand anomalies. In subjects where demand is low so that the supply limit is not active, I reckon MR would still exceed MC. Behavioural economics in action. Higher education already has a high opportunity cost which (irrationally it seems) deters many who would benefit. HECS only adds to this irrational deterrence. If these degrees were free then we would presumably move closer to the optimum higher level.

But the main take away from all these discussions is SURELY that the government needs to be creating more places (regardless of who ends up paying for them). Private sector universities have not filled the gap.

Damien Eldridge
15 years ago

Hi Nick et al,

Just a quick note on Chris’ point about the estimates of the value of a degree always being over estimates because of selection bias. That may well be true, at least to the extent that the estimates are based on the present value of differences in lifetime income streams between people who take degrees and people who don’t take degreees. However, there is another sense in which this approach leads to an understatement of the benefits of an education. Such studies probably assume that education is undertaken purely for the purpose of getting a higher paying job. However, I suspect that there also other benefits associated with education for many people. These benefits would take the form of the enjoyment that these people get from learning about an area that interests them!!! Thus the net effect is ambiguous.



Andrew Leigh
15 years ago

Nicholas, this is a truly terrible report. Indeed, it’s perhaps the worst document on returns to education that I’ve read in my life. It elides over the hardest issue (how do we separate selection effects from true economic return?), and spends all its time multiplying bad estimates by big numbers.

The economic return to vocational education is probably positive, but knowing how it compares with the return to high school and university is the key policy question. It’s pretty evident from this document that you won’t find that answer by asking management consultants.