Vocational education can solve oversupply of graduates


In many wealthy countries, including my own of Australia, 40% of young adults are likely to achieve a bachelor degree or above. But policy-makers and others wonder whether we might have too much of a good thing.

‘Overqualification’ is observed in labour markets around the world. While people with any qualification can be classed as such in jobs that don’t require it, graduates working in lower-skill jobs attract the most attention. They have all spent years studying, at considerable public and often private cost.

Overqualification frequently co-exists with skills shortages. And often, as a recent House of Lords report in the United Kingdom noted, the shortages are in jobs requiring vocational rather than higher education. This is the case in Australia also.

Potentially, both problems could be alleviated if more students pursued vocational instead of higher education. But that is likely to require cultural and policy change. Any promotion of vocational education must deal with perceptions established well before a post-school choice needs to be made.

School student surveys in Australia show a preference for higher education and negative perceptions of vocational education.

Bias against vocational education

One issue may be that young people overestimate the chances of a positive outcome from higher education and underestimate the benefits of vocational education.

In Australia, letting universities enrol an unlimited number of bachelor-degree students, known locally as demand-driven funding, led to an increasing share of enrolments with mid-range school results. These students are less likely than their peers with strong school results to finish their course.

For students who do finish, the OECD found that graduates in jobs below their formal skill level have lower numeracy ability than graduates in jobs that match their qualification. Both findings suggest that higher education is less likely to pay off for students who are not at the top of their school cohort.

An elevated risk of no or low benefit from higher education does not necessarily mean that vocational education would be better, but some evidence supports the theory that vocational education would be a lower-risk, higher-reward alternative for some current university students.

One Australian data source shows that people who dropped out of university but hold a vocational qualification earn considerably more than people with the same qualification who never went to university. Possibly the ability needed for university admission translates into above-average earnings in vocational education occupations.

But this conclusion needs to be heavily qualified by the repeated finding that women holding upper-level vocational education qualifications have similar earnings to women who finished school but did no further study. It is not vocational education in general that offers the prospect of increased income, but specific courses leading to occupations favoured by men.

Any move to promote vocational education would have to deal with the policy bias against it.

Demand-driven funding

Vocational education is often less well supported by government than higher education, and this is certainly true in Australia. It has never been as well funded, and in recent years, vocational education has lost more public funding than higher education.

For most Australian higher education students, the income-contingent HELP loan scheme can cover all their tuition fee costs. Its vocational education equivalent only includes courses specifically chosen by the government and does not necessarily cover all tuition costs.

Many vocational education students are not eligible for student income support, and eligible students receive less money than their contemporaries at university.

Historical reasons explain these biases against vocational education, but they need fixing. A good vocational education funding system is an essential complement to a good higher education funding system.

Demand-driven funding of undergraduates, which was suspended in December 2017, was successful in steering enrolments to areas of skills shortage and focusing universities on graduate employment. The number of skills shortages in occupations served by higher education has dropped dramatically since 2008.

From this perspective, demand-driven funding should be restored. The downside of demand-driven university funding without a strong vocational alternative is that excessive higher education enrolment growth can exacerbate the overqualification problem, which has increased in Australia in recent years.

The demand-driven system did at least partly self-correct – new domestic enrolment growth has been subdued since 2015 and applications were down this year – but the original boom was bigger than it might have been with better vocational options.

Avoiding oversupply of graduates

The policy challenge is to devise a tertiary education policy that avoids formal caps on enrolments without creating incentives for oversupply.

The opposition Labor Party, which is ahead in opinion polls for a national election due by May 2019, is promising a review of post-secondary education. The Australian division of policy responsibility between national and state governments, and the legacy of sharp divisions in entitlements, will make the politics difficult. But a coherent blueprint for tertiary education policy is the place to start.

Andrew Norton is higher education programme director at the Grattan Institute, Australia.



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