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Reasons for student employment: Education signaling upside down Alexander Apokin (EcFor RAS, CMASF, Moscow) Maria Yudkevich (SU-HSE, Moscow) September.

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Presentation on theme: "Reasons for student employment: Education signaling upside down Alexander Apokin (EcFor RAS, CMASF, Moscow) Maria Yudkevich (SU-HSE, Moscow) September."— Presentation transcript:

1 Reasons for student employment: Education signaling upside down Alexander Apokin (EcFor RAS, CMASF, Moscow) Maria Yudkevich (SU-HSE, Moscow) September 12, 2009

2 Plan  General idea and motivation  Previous studies of student employment  Model  Results  Empirical evidence  Conclusions

3 General idea and motivation  Considerable growth of student employment in European countries and US  In Russia, trends seem alike (around 50% in 2006) However:  Almost all high-school graduates are enrolled in university programs  Students with better academic achievements start to work earlier  Income is not always the first reason for seeking job

4 Research question Why in Russia students with better academic achievements start to work earlier? Why important?  Around 40% of 3 rd year students work  Around 90% have job at the moment of graduation  Average workload: 22 hours per week Data: Monitoring of Russian Education (2007)

5 Do classical explanations help? Human Capital Theory Signaling Theory Education increases productivity Education doesn’t affect productivity, works as signal Smart people get more education

6 Our intuition If  Educational standards are weak (little effort is needed to get a diploma) and  Employers’ do not trust a formal education and believe that “real experience is far more important than grades” Then  Education is not a signal any more  High-ability students may choose to combine studies with work to signal their ability while sacrificing the quality of education

7 Studies on student employment: main issues  Reasons for employment  Financial needs and new instruments of financing (Callender and Kempson (1996), Kelly (1996), Ford (1995))  Social factors (Lucas and Lammont (1998)), Curtis and Lucas (2001), Hodgson and Spours (2001))  Impact on academic consequences  General (Curtis and Shani (2002), Sorensen and Winn (1993)  Academic attainment (Hunt et al (2004), Paul (1982), Kalenkovski (1994))  Drop-out rates (Callender and Kempson (1996), Hesketh (1996))  Working loads and work structure  UK (Ford et al (1995), Curtis and Lucas (2001)), Canada and US (Hakim (1996), Myles at al (1993))  Future employment prospects and career  Harvey et al (1998), Hodgson and Spours (2001), Ruhm (1997)  Little attention to school-to-work transition (Harkonen (2001), Roshchin (2006))

8 Model Dynamic game between students, employers and (in extended setup) universities  Universities: costly educational programs  Students: different abilities {θ l ;θ h } with probs {λ;1- λ}  Ability is a private information  Choice between “only studies” and “studies + job”  Education is only productive if not combined with job  Work experience reveals ability with certainty  Employers: employment contracts, Bertrand competition

9 Timing 1. Agent realizes her type and enters the university. 2. The agent decides whether to combine studies with job. If she chooses to work, there is no positive effect from education in the future (and no cost), but the work experience provides a given amount of learning-by-doing increase in productivity L. 3. If the agent chooses to devote all her efforts to studies, a fixed amount of education e is obtained at the cost c (e, θ). At the end of the period, agent graduates and leaves current job in search for a full-time employment. 4. The agent meets new employer and either signals her education e or shows the type. Employers offer contracts w(s), s belongs to { e;L }. 5. The agent accepts or rejects either contract and in the former case produces F(s, θ).

10 Equilibria: modified Spence – Mirrlees condition University freshmen compare w(0) + w(L) and w(e) – c (e, θ) at stage 2. Let us define c (e, θ l ) – c (e, θ h ) = – Δ θ c (e, θ), and F(0,L, θ h ) – F(0,L, θ l ) = Δ θ F(0,L,θ). Then

11 Extended setup: educational policy  We interpret as a quality of student grading ― an educational policy parameter under control of the university  Better grading → higher costs of best grade → allow separation of types  However: rigorous grading is costly, as it consumes more effort.

12 Extended setup: continuous case  The case of continuous type allows to model “bizarre” equilibria as a generaized case of countersignalling problem (Feltovich, Harbaugh and To (2002)) contingent on poor student grading quality or exceptional return on productivity of more able students  Student strategy choice rule, stays the same, while equilibrium conditions change. Specifically, the conditions for countersignalling arise:

13 Extended setup: continuous case  Depicting the choice rule and countersignalling equilibrium in a numeric example:

14 Extended setup: continuous case For values of e=4,43 and L=12 the equilibrium will look like this (LHS and RHS refer to the choice rule, )

15 Results  Different equilibria are possible depending on university education standards (in regard to effort requirements)  Absence of rigorous education standards and substantial cost of creating individual reputation → universities decrease their effort requirements for graduation → education quality decreases  Employers are aware of this and do not “trust” formal education and consider students with no working experience during studies as inferior ones  In case of low university requirements “bizarre” equilibria with high-type agents working part-time arise

16 Data  Economics of Education Survey (Higher School of Economics in cooperation with Public Opinion Foundation and Levada-Center under support of Ministry of Education and Science) (since 2002) Round :  Students (2092)  Employers (1035)  University and college faculty (1374)  University administration (over 400)

17 Russian evidence Table 1. Major field of study and employment during studies Major field of study Average Working Hours per Week Observations Social sciences (Economics, law, management, sociology) Foreign languages11.34 Philosophy, history, philology etc Math, programming Natural sciences (physics, chemistry, biology etc.)29.47 Technical sciences (engineering, construction, technology) Medicine Pedagogies12.05 Culturology, Arts, Architecture12.243

18 Table 2. Employers’ view on the importance of applicant perks FactorMeanStd. Deviation University reputation/ranking The courses the applicant have taken Grades Recommendations/references Previous work experience by the work-book Russian evidence

19 Table 3. Students’ preferences and beliefs about importance of diploma StatusObservationsMeanStd. Deviation Never had an employment Had a previous employment Russian evidence

20 Table 4. Workloads and employment-major relationship Work is related to the field of studiesOverall Whole sample First three years of study Table 5. Lecture attendance and employment Non-working students Work is related to the field of studies Overall Whole sample First three years of study Table 6. Regular study efforts and employment Non-working students Work is related to the field of studies Overall Whole sample First three years of study

21 Conclusions and policy implications  Lack of funding for higher education creates incentives for universities to economize on education which makes early employment more attractive for the sake of signaling.  Talented students combining job and studies support low quality of education hypothesis. Employers believe in ability of talented students to combine successful studies with job.  Employers’ beliefs are more than just an element of the equilibrium in the model. In case of multiple equilibria a shift in employers’ beliefs can change equilibrium and thus amount of education each type will obtain. This suggests that employer beliefs are a powerful educational policy tool.  Rigorously enforced educational standards could set effort requirement at some minimal level and, in perspective, change the equilibrium to set the signaling role of the education superior of that to job experience.

22 Household expenses on higher education of children (in rubles)

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