Third-Level Fees Needed for Equity and the ‘Smart Economy’

The Higher Education Strategy Review Group, widely reported to favour the reintroduction of third-level fees, is finally due to report shortly. There is no convincing argument against the return of third-level fees. In fact, it is likely that the Irish education as a whole is damaged because of the persistence of ‘free’ third-level education.

The Green Party were granted a stay on the reintroduction of fees as the price of agreeing a revised programme for government last October. The current crisis in third-level sector funding is putting fees back on the agenda. However, even in the absence of a funding crisis in our colleges there are strong arguments in favour of charging individuals for the benefits they accrue from becoming graduates.

While there are positive benefits to society and the economy from greater numbers of graduates, research has shown that the majority of the benefits from having a third-level education accrue to the individual through higher earnings. This suggests that the majority of the cost of third-level education should fall on the student benefitting from it. While there is also a private return to primary and secondary education the social returns are much greater at these levels.

This cost is undoubtedly out of the question for some. This however is not an argument in favour of universal subsidies for students, but rather requires that schemes are devised so that those who wish to attend are not precluded by lack of access to funding. This could be in the form of student loans. Student representatives have railed against saddling graduates with debt as they begin their work lives, though the greater earning potential of graduates is the other side of this coin.

It is difficult to accept that we do not have the wit to devise a system to enable students to fund their degree courses where they cannot access up-front funding. There are several international schemes to which we can look for insight. The difficulties of designing such a system are not sufficient justification for the persistence of paying the way for those students who can pay.

Another argument against the reintroduction of fees which does not stack up is that graduates already ‘repay’ the state’s investment in their education because they pay a greater amount in tax on their higher earnings. Fortunately, tax payers are not able to decide the uses to which their own taxes are put. The logical extension of this argument would be that we give tax rebates to those who remain well and don’t use the health system or we should reduce the tax rate for those who have moved here to work after completing their education in another country.

Would supporters of this argument favour charging a lower tax on individuals who did not attend third level but who are high-income earners through their entrepreneurial ability?

When fees were abolished it was argued that this would increase participation at third-level among those in lower socio-economic groups. This argument ignores the opportunity cost of funding attendance at third level; something which is particularly pointed given our current fiscal difficulties.  In the context of the overall education budget funds used to pay third-level fees are not available for other purposes.

Arguably the most critical barrier to progression to third-level for many is not an inability to create a student loan system but a lack of support structures for children at primary and secondary levels. Students slip through the educational system long before there is a prospect of going on to third-level due to ineffective and inadequately resourced primary and secondary structures. The money that is being invested to generate largely private returns to participation at third-level could more fruitfully be invested in upgrading and updating our schools.

This has implications also for our commitment to engineering a ‘Smart Economy’. The focus of initiatives in this regard are almost completely on increasing research output, providing more postgraduates and spin-offs from our universities and institutes of technology. This makes no sense when we have primary and secondary students without access to basic learning technologies and broadband. Much needed reform of the leaving certificate has also been halted due to a lack of resources.

It’s time the government recognised the opportunity cost of the current model of financing third-level institutes. Charging students for third-level will free resources for primary and secondary levels, which could improve equity in our education system and contribute significantly to generating a ‘smarter economy’.

Posted in Competitiveness, Innovation | Leave a comment

Department of Economics Research Symposium Summer 2010

Department of Economics Research Symposium Summer 2010

Tuesday, June 29, 2010

Room G_05, Brookfield Health Sciences Building, UCC

9.00 – 11.00   Chair: Dr Niall O’Sullivan, Chair – Department of Economics Research Committee

 9.00 – 9.10     Opening Remarks and Welcome

  1.  Aileen Murphy, Andrew Briggs (University of Glasgow) and Elizabeth Fenwick (University of Glasgow) “Cost Effectiveness of Transcatheter Heart Valve Implantation (TAVI) in Scotland”
  2. Edel Walsh “An Analysis of the Relationship between Subjective Well-Being and Employment Status in Ireland”.
  3. Jane Bourke and Stephen Roper (Warwick Business School) “Diffusion of New Prescription Drugs in Irish General Practices”
  4. Brian Turner and Edward Shinnick “Introducing Lifetime Community Rating in the Irish Private Health Insurance Market: What Can We Learn from the Australian Experience?”

 11.00 – 11.30 Coffee Break

 11.30 – 1.00    Chair: Mr Pat O’Callaghan, Department of Economics Advisory Board

  1.  Justin Doran, Eoin O’Leary and Stephen Roper (Warwick Business School)  “Knowledge Sourcing, Transformation and Exploitation: Evidence from the UK CIS 2002-2004”
  2. Eleanor Doyle, Fergal O’Connor and Adrian Kuah (University of Bradford) “Innovation Capacities in Advanced Economies: Relative Performance of Small Open Economies”
  3. Meadhbh Sherman “An examination of the factors influencing mutual fund performance”

 3.00 – 5.00    Chair: Prof David O Mahony, Emeritus Professor of Economics, UCC 

  1. Robert Butler “More Time Please: Biases in Premier League Additional Time”
  2.  John Considine, Ruth Butler, Jane Power and Sharon Walsh “The Spectator Demand for Senior Inter-County Football and Hurling 2000-2009”  
  3. John Eakins “An Econometric Analysis of the Determinants of Irish Residential Energy Expenditures”
  4. Ella Kavanagh and Don Walshe “Was it a Minsky moment? An evaluation of Minsky’s contribution to our understanding of the 2007-2009 financial crisis.”

 ALL WELCOME

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A challenge to export-oriented policies

An interesting working paper from the Institute for Strategy and Competitiveness at Harvard by Christian Ketels of the World Bank.  The subtle argument being made is that policies which target competitiveness improvements will achieve greater prosperity growth – and will increase exports – more than policies which target export growth directly.

There is actually quite a lot of emerging consensus on the need to look at the fundamental drivers that lead to higher exports rather than targeting exports directly. 

In policy setting there is always a risk of over-emphasis on the variables that can be measured even though these are often at times only intermediate objectives.

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Fair Care – A Fair Reform?

Further revelations about the Irish health care system came to light last week with the unopened letters and un-reviewed x-rays in Tallaght Hospital. Such behaviour fuels views that the health system lacks efficacy and efficiency and intensifies calls for reform of the health system such as the Fair Care proposal by Fine Gael.

At a recent public meeting Enda Kenny and Dr James O’Reilly used examples of tragic patient cases to highlight the flaws in the current Irish system and presented their Fair Care proposal. Throughout the presentation they outlined how, under a Fine Gael Government, Fair Care would be a new health care system. This system would be modelled on the Dutch health care system which has a mandate for all citizens to have private health insurance, but the hospitals would not be privately owned or run – so not really a model of the Dutch system after all where the hospitals are private and employees are hired by private organisations. Promises such as “free GP”; diagnostics tests performed in primary care and national body tests were made.

The presentation did not however clearly address the elephant in the room – how would this be financed? The presenters conveyed a spirit of infinite resources, which any rational person is not true, particularly in the current climate. The current Government are dealing with a budget deficit of 12% of GDP – this won’t disappear over night with the election of a Fine Gael Government.

At individual level too details of how Fair Care would be financed was scant. The presentation suggested that individuals will continue to pay for the running of the public health care system and for transfer payments through the taxation system and in addition would have to pay private health insurance premiums. These transfer payments would no longer include payments for medical card patients instead will cover full private health insurance premiums for 40% of the population and staggered co-payments for a further 30% of the population. Suggesting the public health care bill will increase even more as will individuals’ health care costs.

Aside from the populist proposals the presentation did identify the root cause of the current problems – the organisation of the health care system. A two-tiered health care system does exist in Ireland which is conducive to creating an equitable health care system. Fair Care however seeks to move everyone to the second tier of the system – the private health insurance tier, yet continue to use the public hospitals. This ignores the underlying problems in the organisation of the system. This will not reduce waiting lists as is promised by the proposers, as it will take the same patients and put them through the same hospitals.

Instead the proposal looks at changing how the system is financed. Currently the majority of the health system is financed through general taxation. Fair Care looks at changing this to mandatory private insurance, like that in the US.

International evidence has shown that tax financing is the most resilient funding source, not private health insurance. Private insurance and even social insurance are both vulnerable to recessions, unemployment and general down turns in the economy, so are not sustainable.

So while Fair Care does promise “free” things and to cut waiting lists perhaps the means of getting there need to be re-addressed. Poor organisation does not mean poor financing. The current financing regime through tax revenue is the most suitable and robust. Future proposals need to focus on reforming the parts of the system which are not performing and acknowledge the parts that are.

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Presentation to CSCA

Follow the link below to the slides I used in a presentation last week to the Cork Society of Chartered Accountants Ireland . It was their Annual Practice Day Conference for 2010.

Practice Day Presentation 2010

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HESG Summer 2010 Conference in Cork

The Health Economists´ Study Group  is a UK organisation for people working in Health Economics. However, the group’s summer conference is being hosted here in University College Cork this summer by the Health Economics Group in the Department of Economics.  This will be the first time the conference has been held in Ireland.  The website for the conference is available here.

Location: Jurys Cork Hotel, Cork, Ireland
Dates: 23rd-25th June 2010
Deadline for Abstract Submission: 9th April 2010
Deadline for Early Registration: 11th May 2010

Please send a title and abstract of up to 250 words of the proposed content by 9th April 2010 5pm if you wish to have a paper considered. Please submit abstracts by e-mail, with a subject header HESG ABSTRACT and include the abstract in the BODY of the message to: hesg2010@ucc.ie. Other queries can also be sent to this General Enquiries address.

The HESG meeting will follow its standard format with papers submitted in advance, introduced and reviewed by a discussant other than the author.

www.ucc.ie/en/economics/HESG2010

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A personal take on grade inflation

The Irish Times carries another front page report on grade inflation in the Irish education sector, citing an unpublished internal TCD study. The statistics presented do seem to indicate a remarkable rise in the percentages of higher grades at third level. This is taken as evidence of grade inflation (I hate the phrase ‘dumbing down’). It is worrying that the Minister seems to be narrowing the focus of his investigation on the rate of increase in higher grades when the underlying causes may be more revealing if he is really committed to reform in the education sector.

In relation to second level the Times cites the report as saying:

The report will also point to grade inflation in Leaving Cert grades between 1992 and 2004, but it concludes the problem has stabilised since then. The Trinity study concludes that the proportion of Leaving Cert students achieving 500-plus points has increased by 124 per cent in the period 1995 to 2009. But the increase since 2005 is a more modest 6.25 per cent. The proportion of students achieving points in the 400-499 range increased from 15.5 per cent in 1995 to 21.5 per cent in 2009, representing an increase of over 38 per cent.

Students seem better at getting higher grades in a state examination. Why? Could it be that students are getting better at the exam game? The leaving certificate, despite some marginal changes, is by and large an exercise in remembering facts or remembering answers to questions and producing them on the day. This is a function of the type of exam it is where standardisation across the country is required.

So how does this relate to third level? Shouldn’t third level education focus on transferable skills, critical thinking, originality, problem-solving etc? Yes, of course it should. Let’s consider something though – leaving certificate students study in class sizes of about 30. My first year economics module last year had 240 students. It is unusual for classes at third level to be smaller than those at second level – usually they are multiples. And this is getting worse as there is a greater enrollment at third level. So the exams must take a similar form as the large terminal exams at third level. And we have already seen how good students have got at that. This is not a justification – but perhaps some element of explanation. 

In the same article Brendan Guilfoyle of IT Tralee is quoted “There are clear parallels here to the banking crisis where the supposed regulators went missing”. This seems to suggest that there should be a standards-based approach to third level grading. But haven’t we seen how a standards-based approach (the leaving certificate) leads to one-size fits all national curricula and does not prevent rises in grade levels.

The argument that the value of a university of degree has diminished (inflation) but this is because of greater numbers of graduates rather than necessarily higher grades. Over recent decades employers have incrementally sought a leaving certificate, then a degree, then a masters and so on. As more candidates in a jobs market hold degrees the value of those degrees must go down. Is anybody seriously suggesting we should reduce the number of graduates?

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Grade inflation

The Irish Times reports a worried Minister for Education is going to investigate the possibility of grade inflation in Irish education.  One wonders if the Minister is drawing on the same number of conversations (2) that he did when suggesting lecturers teach too few hours.

The article states

It is widely expected that the reviews now under way will find clear evidence of grade inflation. Previous studies show the percentage of first class honours degrees awarded in Irish universities has almost trebled since the mid-1990s. The number of students securing the perfect Leaving Cert is up 500 per cent.

I’m not sure how a five fold improvement in the Leaving Cert and a three fold improvement at the top in third level is evidence of grade inflation- well, at third level anyway. If anything it suggests that the third institutes are getting tougher since better ‘raw material’ is not translating into a corresponding improvement in firsts.

Perhaps this will now be evidence of the poor performance of third level academics.

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Tax Revenue for 2010 will fall below €30 billion

As of today I predict that Exchequer tax revenues for 2010 will be less than €30 billion for the first time since 2002 (€29.3 billion).  This was fine to fund 2002 expenditure but not for the 2010 expenditure which is nearly twice as big.  The Department of Finance still believe the figure will be above €31 billion but are getting closer to the truth.

A week before December’s Budget the Department released the Book of Estimates for 2010. In this short document the Department give their forecasts for the coming year under the prevailing policies.  On page 5 the prediction for tax revenue for 2010 is given as €31.9 billion – a drop of just 4.5% on the 2009 outturn.

At this point it may be worth noting the uselessness of Department of Finance predictions. 
Read More »

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