Overview of Higher Education Trends: Returns and Financing Highlights from EAG 2014 29 September 2014 Patricia Mangeol OECD Higher Education Programme Directorate for Education and Skills

Key Questions on OECD Trends Higher education attainment and returns What is the relationship between HE and Skills? Is higher education still a strong protection against unemployment? What are some of the non-financial returns? Financing higher education How much do countries spend per student across the OECD and who pays? How have funding models and student aid systems evolved? Impact of the crisis and key challenges: Impact of crisis on returns and financing How to make HE high quality and relevant to the labour market, while maintaining affordability and expanding access?

The Rate of People with HE Still Rises 25-34 and 55-64 year-olds with tertiary education, and percentage-point difference between these groups Ireland: difference between two generation= 24 percentage points, compared to 15 percentage points in OECD average 55-64 year-olds: 25% HE attainment, compared to 24% for OECD average - consistent 25-34: 49% in Ireland, versus 39% in OECD on average

Educational Upward Mobility in Many Countries – With Large Variations Percentage of 25-64 year-old non-students whose educational attainment is higher than (upward mobility) or lower than (downward mobility) Between 20 and 60% of adults are more educated than their parents. It should be noted that this is “absolute mobility” – just whether people have higher attainment. It is not about the likelihood to have more education across the population. In fact, the risk is that those whose parents already have some education – have completed upper sec or PSE non-tertiary gain the most from this mobility – case in France for example. One could think that this progression also depends on the level of education of the older generation – but the previous slide showed very different situations. Some countries like Korea, Poland or Portugal had low tertiary attainment rates among the 55-64 and show a significant progression in their younger generation. Other countries that had relatively low or moderate tertiary attainment did not improve much, like Brazil, Austria or Germany. Some countries whose 55-64 years-old already had high tertiary attainment rate like Canada, the Russian Federation or New Zealand have seen this rate grow even higher in their younger population – this is also the case of Ireland which has both higher than average attainment rate of the younger generation and higher than average mobility. By contrast in some countries with high attainment in the 55-64 year-olds, tertiary attainment has stagnated (US) or even fallen a bit (Israel).

But Mobility Did Not Trickle Down to the Disadvantaged Percentage of 20-34 year-olds in tertiary education, by parental attainment (2012) Parents with tertiary education Based on PIAAC data 2012. In all countries, around 55% of more of 20-34 year-old tertiary students have at least one parent who has completed that level of education. In Canada,, Estonia, Germany, Japan, Norway and Sweden, 65% or more of students do (some caveats for countries, like Sweden where some students (for instance, those from an academic family background) may enrol in longer programmes which may inflate numbers. In all countries with available data, except Spain, the proportion of tertiary students with parents with upper secondary education is larger than the proportion of these students with parents with below secondary education. In Ireland, those without tertiary-educated parents are able to access tertiary education more than on average across OECD – which suggests a relative equity of access, as many people benefited from significant mobility as we saw in previous slide, and not just those with highly-educated parents although these are still the largest beneficiaries. The concept of relative mobility helps assess whether there is equality of access to education, or not. Across countries with available data, the likelihood of a student participating in tertiary education, depending on the level of education attained by his or her parents and compared with the likelihood of those whose parents have attained below upper secondary, is twice as great if at least one parent attained upper secondary education or post-sec non-tertiary and 4.5 times greater if the parents attained tertiary education. Caution – statlink from EAG 2014 sends people to a wrong version of chart (number for below upp sec and upp sec post-sec non-tert are inverted)

HE aND SKILLS

HE and Skills: A Rocky Relationship Mean literacy score, by educational attainment (2012) The mean literacy score of tertiary-educated people in Ireland is lower than on average in OECD: 292 in Ireland, 297 on average. This might, although no direct relationship at all, suggest quality improvements are possible in tertiary (but many other factors: selectivity of HE, etc) Upp sec or post-sec non-tertiary: In Ireland, the mean score is 267, vs. 269 on average – so consistent Below upper secondary: In Ireland, the mean score is 231, lower than the OECD average of 235 – suggesting gaps in basic skills for those with low educational attainment. May be important to focus also on these people given high level of NEETs in Ireland (22% versus 15% in OECD). CHECK MEDIA ARTICLE

Proportions of Highly Literate, Tertiary Educated Adults Vary Across Countries Percentage of adults scoring at literacy proficiency Level 4/5 in the Survey of Adult Skills, by educational attainment (2012) What this graph shows is the proportion of people scoring at levels 4 or 5 in literacy according to their level of education. We can see that over 30% of the tertiary-educated score at 4 or 5 in Japan, Finland or the Netherlands, but, at the other hand of the spectrum, that only between 10 and 15% of the tertiary educated perform at that level in Korea, Russian Federation, Spain and Italy. A note on Korea: the high attainment rates in Korea could suggest a more open tertiary system (ASK SHINYOUNG) This chart is consistent with previous one: in Ireland, fewer tertiary-educated people perform at the highest literacy level than on average in the OECD (19% vs. 24%).

And Skill Levels Matter for Earnings, Even Within the Same Education Level Mean monthly earnings, by educational attainment and literacy proficiency level – Average Level 4 or 5 Level 3 Level 2 Level 1 or below Chart A6.4 – EAG 2014

RETURNS TO HIGHER EDUCATION: RECENT FINDINGS

Individuals with HE Have Higher Employment Rates … Overall: Key point: HE is still the best protection against unemployment. Of course, these are averages and there are differences among fields In some countries, differences are much smaller, reflecting greater challenges of HE grads, perhaps revealing issues of relevance of HE programmes, but also higher returns to lower levels of education possibly due to the structure of the economy (e.g. Australia, Brazil, NZ, Spain) In some countries, differences between the tertiary educated and those with less than secondary education are particularly large, including countries in central and eastern Europe like CZ, Hungary, Poland, Slovak Republic. These are countries both hard hit by the crisis but with perhaps smaller shares of highly-educated people who thus captures a greater premium on the labour market. This is also the case of Ireland to some extent, where those with below secondary education are hard hit. However, employment rates remain lower than average across all categories in Ireland, suggesting the impact of the crisis is lingering. Also note that tertiary-educated workers are more likely to be employed full-time: across OECD countries 70% of earners at all education levels work full-time. Among employed adults, 71% of those with upper secondary education work full-time, compared with 74% of those with a tertiary degree. 64% of those with below upper secondary education are employed full time. Chart A5.1 – EAG 2014

... And Higher Earnings Relative earnings, by educational attainment and gender (2012); upper secondary education = 100 Adults with a tertiary degree will earn 75% more than those with only upper secondary education while, at the same time, those who have less than an upper secondary education will earn around 22% less than those with upper secondary education High qualifications are correlated with higher wages, and so is the skill level of individuals. The Irish case is interesting here for two reasons: the tertiary educated enjoy a large earning premium, which may reflect both labour market demand for highly-educated workers and a flexible labour market with relatively wide wage dispersion. This suggests that there is likely more room for tertiary-educated workers although again we have to remember these data are average and do not distinguish between fields of study and work. Second, like in 13 other OECD countries, tertiary-educated women get higher earnings compared to those without HE than men with HE compared to men without HE. ADD gender analysis if available.

Individuals with HE Have Better Social Outcomes/ Enjoy Better Quality of Life Proportion of adults reporting that they believe they have a say in government Proportion of adults reporting that they are in good health Proportion of adults reporting that they volunteer at least once a month Proportion of adults reporting that they can trust others Chart A8.1 – EAG 2014

Returns to HE: Is the Investment Worth It? Man with HE, compared with returns from upp sec or post-sec. non-tertiary Here Ireland’s situation is particularly interesting: due to the combination of a high earning premium and low costs for individuals, the net return for men is the highest across the OECD. Interestingly, the public net return is also very high – CHECK TAX SYSTEM if possible Beyond employment rates, it is important to understand the multi-facted returns to HE. Although hard to calculate, EAG provides estimates of the net present value of HE. The private net present value of higher education is an estimate of the net economic benefits to an individual who completes higher education, over his or her working life, expressed in the value of money today. It is calculated by estimating the economic benefits that an individual with higher education receives compared to a person with an upper secondary or post-secondary non-tertiary education only, and then subtracting the costs to that individual that are associated with having a tertiary degree. [PRIVATE RETURNS] Benefits include increased earnings that people with higher education typically enjoy, compared to a person with an upper secondary education; the smaller likelihood of being unemployed, expressed in monetary terms (the “unemployment effect”); and the grants that individuals often receive from governments to help pay for higher education. The costs include the direct costs for education (e.g. tuition fees and related expenses), earnings foregone by the individual while in higher education; and the increased income taxes, transfers, and social welfare contributions that individuals with higher levels of education typically pay to the government. The OECD average private net return to tertiary education, compared to returns of upper sec or post-sec non-tertiary, exceeds 185,000 USD for a man, and the public net return is about 105,000 USD. These are substantially higher than the returns to upper sec. or post-sec. non-tertiary compared to below upper secondary: for a man, the private return for this level of education is 100,000 USD but with great variations. In Ireland, them Slovak Republic and the United States, this level of education generates USD 160 000 or more over a man’s working life. The public return is 38,000 USD. The net private returns related to attaining a tertiary education exceed those related to attaining upper secondary or post-secondary non-tertiary education. Only in Norway and Sweden does upper secondary or post-secondary non-tertiary education bring higher returns to men. Note that private returns are higher for men than women. Chart A7.1 – EAG 2014

Returns to HE: What to Keep in Mind Net public and private returns increase with the level of education, both for individuals and the public “Net present value”: complex calculation and caution needed Social outcomes are not included – hard to measure but important No distinction along key aspects like field of study Contextual factors have an impact (local employment regulations, tax systems, etc) But useful to have a broad picture and take into account both the direct and indirect costs and benefits of HE E.g. foregone earnings, foregone tax revenues for government, but also lesser social transfers The question of a potential “oversupply” of HE educated people on returns – no clear answer Check the returns for Ireland over time Based on EAG data, Dirk Van Damme (Head of CERI) has sought to correlate the proportion of HE-educated people with the wage premiums for HE education compared to upper secondary or lower secondary. Four groups of countries: Those with high attainment and high premiums – often in open liberalised labour markets – includes Ireland and the US, UK and Luxembour Those with high attainment and lower premiums – many countries in that group including Nordics, Netherlands and Belgium but also NZ, Australia, Canada – while this is the group where the risk of overschooling is strongest, many of these countries have a more compressed wage distribution due to welfare-state models that can account for this Those with low attainment and relatively low premiums: few countries, including Greece, Spain and France – countries with economic troubles where relative scarcity of highly-educated workers may not lead to better pay – doesn’t mean that economy doesn’t need these workers over the longer-run Those with low attainment and high premiums like Germany or Slovenia: may face undersupply Overall: an increasing supply may lead to lower wages for younger tertiary-educated workers but the relationship is not strong. No clear answer regarding whether to focus on “just in time” production of skills for the LM or longer-term skills that are flexible for a changing economy

HE FINANCING TRENDS

State of HE Funding: Per Student Expenditures Annual expenditure per student by educational institutions for all services, tertiary education (2011) Chart B1.2a– EAG 2014

State of HE Funding: Cumulative Expenditures (Over Duration of Studies) Cumulative expenditure per student by educational institutions over the average duration of tertiary studies (2011) This chart represents the annual expenditure per student by educational institutions multiplied by the average duration of tertiary studies, in equivalent USD converted using PPPs Chart B1.4– EAG 2014

Annual Spending Per Student and Rate of Change Between 2005 and 2011 Add EAG analysis p.213 In Ireland, the annual expenditure per student and the rate of change of these expenditures are both increasing. Chart B1.5– EAG 2014

State of Financing: Private Expenditures Represent a Larger Share… Share of private expenditure on tertiary educational institutions (2000, 2008 and 2011) The share of private expenditure on tertiary institutions increased from 25% in 2000 to 31% in 2011 Chart B3.3 – EAG 2014

… But With Large Differences in Recent Patterns Across Countries Change (in percentage points) in the proportion of private expenditure between 2000 and 2011 Ireland is among the minority of countries (5 out of 26 with comparable data) where the share of private funding has decreased in percentage points over 2000-2011. However, like Spain and the US, while this share has decreased between 2000 and 2008, it has increased although not as much between 2008-2011. Chart B3.3 – EAG 2014

Fees and Student Aid – Select OECD Countries Relationship between: average tuition fees charged by public institutions and proportion of students who benefit from public institutions and proportion of students who benefit from public loans and/or scholarships/grants in tertiary-type A education (2011) For full-time national students, in USD converted using PPPs for GDP, academic year 2010/11 The arrows show how the average tuition fees and the proportion of students who benefit from public support have changed since 1995, following reforms. A number of countries have chosen to move forward with higher tuition fees and have increased financial aid. On this chart we see that this is the case for anglosaxon countries like the US, Australia and Nez Zealand, but also Japan or European countries like the Netherlands and Switzerland. And of course, although recent and not reflected here, the UK is a prime example of a strong shift towards a high tuition-fee, large student aid approach – the impact of which is not shown yet in our data which has a 2-year lag. There are different ways of differentiating tuition fees, one main approach is that of charging more non-national students (even Nordic countries like Sweden have recently moved towards this). For national students, some countries differentiate fees for primary- or second-degree programmes, although EAG data doesn’t show a lot of differences generally. Second-degree programmes tend to be similar or slightly more expensive than first-degrees in countries with available data, with the exception of countries like Australia which has fees that are 55% higher for second-degree (although it is a bit lower in private institutions). Australia, Chile and the UK also differentiate fees according to the field of study, raising questions about whether fee levels should potentially have linkages with the labour outcomes in certain fields, in addition to considerations like the cost structure of particular programmes (e.g. medicine or other requiring more equipment). Chart B5.1– EAG 2014

Financing Models and Access in Select OECD Countries: What Interactions?   Model 1 Model 2 Model 3 Model 4 Tuition fees No/low High (> 1500 USD) (>4500 USD) Low (<1300 USD) Student support systems Well-developed (> 55% of students receive aid) Well-developed (>75% of students receive aid) Less developed (<40% students receive aid) Countries Denmark, Finland, Iceland, Norway, Sweden Australia, Canada, Netherlands, New Zealand, United Kingdom, United States Chile, Japan, Korea Austria, Belgium, Czech Republic, France, Italy, Mexico, Poland, Portugal, Switzerland, Spain Entry Rates in Tertiary Type A compared to OECD average (59%) Above average: 74% Above average: ranging from 64% in the UK to 96% in Australia (due in part to high number of internat. students) Below average in Chile (45%) and Japan (52%), but significantly above average in Korea (69%) Below average: 56% (In Belgium, relatively low rate counterbalanced by high entry rate in tertiary type 5B) Recent changes Introducing tuition fees for international students (Denmark and Sweden, 2011) The Netherlands and the UK moved from model 4 to model 2 since approx. 1995 and with recent fee hikes in UK Reforms to enhance student support systems in Japan and Korea, in addition to existing fee reductions/ exemptions for top students with financial barriers Since 1995, reforms to increase tuition fees in public institutions (in particular in Austria and Italy)

Issues for Ireland Ireland is not easy to fit into the four models: tuition fees were abolished but the “student charge” represents an increasing cost to the individual Any increase in student charge / tuition fees should be accompanied by the development of robust student aid systems

RECENT TRENDS AND IMPACT OF THE CRISIS

People Without an Upper Secondary Education Face A Rising Unemployment Risk Unemployment rates 25-64 year-olds, by educational attainment – below upper secondary education % OECD average unemployment rate for below upp secondary: 10.7% in 2005, 12.5% in 2010, 13.6% in 2012

Those with an Upper Secondary Education Are Not Immune to Unemployment Unemployment rates 25-64 year-olds, by educational attainment – upper secondary education or post-secondary non-tertiary education For upp sec, post-sec non-tertiary: 6.2% in 2005, 7.6% in 2010, 7.8% in 2012

While People with Tertiary Education Still Have a Low Risk of Being Unemployed Unemployment rates 25-64 year-olds, by educational attainment – tertiary education For tertiary: 3.9% in 2005, 4.7% in 2010, 5% in 2012 HE-educated individuals have lower unemployment rates throughout the period In some countries, especially Southern and Eastern Europe, tertiary-educated people have been hit hard – but UR have increased across all education levels Factors leading to unemployment of HE-educated people are complex Supply side: potential oversupply in some fields, relevance of degrees to labour market, variations in skill level But also demand side: economic restructuring and destruction of jobs, features of national labour market (e.g. minimum wage, hiring/firing rules, etc)

Impact of Crisis on Unemployment Rates – Cont’d HE-educated individuals have lower unemployment rates throughout the period In some countries, including Ireland and Southern and Eastern Europe, tertiary-educated people have been hit hard – but UR have increased across all education levels Factors leading to unemployment of HE-educated people are complex Supply side: potential oversupply in some fields, relevance of degrees to labour market, variations in skill level But also demand side: economic restructuring and destruction of jobs, features of national labour market (e.g. minimum wage, hiring/firing rules, etc)

Evolution of Earnings – Widening Gap Trends in relative earnings of workers, by educational attainment, in 2005 and 2012 25-64 year-olds with income from employment; upper secondary education = 100 Below Upper Secondary Tertiary 2005 2012 Australia 81 83 134 Austria 74 70 158 171 Denmark 82 125 128 Germany 89 84 159 174 Hungary 78 229 208 Israel 79 71 151 152 Korea 68 149 147 New Zealand 123 Sweden 88 130 Switzerland 76 77 157 Turkey 69 63 191 United Kingdom 156 United States 186 Table A6.2a EAG 2014

Moderate Cuts in Educational Funding So Far Despite GDP Declining Impact of the economic crisis on public expenditure on education 2008-2011 Only 6 countries cut funding on educational institutional, even though 15 saw their GDP decline over the period. Two countries cut funding while their GDP remained stable (US and Russian Federation). Ireland is among the countries that saw a sharp GDP decline but actually increased spending on education institutions (all levels). Chart B2.3 – EAG 2014

But in Some Countries Funding Per Student in HE Has Not Kept Pace with Enrolments Change in expenditure per student by educational institutions, tertiary education (2008, 2011) However, at the tertiary level, the number of students in Ireland has increased more than funding, resulting in the second more severe decrease in per student funding after Iceland – this can create risk for quality and poses the question of sustainability in a context of growing HE + continued labour market demand for highly educated workers in Ireland. BUT this is also to put in the context that Ireland has higher-than average per student expenditures in tertiary education (slide 17). Chart B1.6 – EAG 2014

The Crisis Has Revealed Some Weaknesses of HE High employment rates and earnings signal a strong need for highly-qualified people – and a highly qualified population is important for long- term growth But in some countries the unemployment rate for tertiary-educated people has increased substantially HE needs to meet the needs of the labour market and be responsive to structural economic shifts  e.g., need for HE to prepare for 21st century skills, new forms of work like entrepreneurship, etc.

Implications for HEIs Traditional funding schemes are under pressure – need for more effective business models. Clarify and enhance value proposition of HEIs in a globally competitive environment Identify cost-reducing/ cost-stabilising strategies where possible Seek alternative revenues – while recognising limitations of those relying mostly on cost-sharing Promote quality in a constrained environment Range of methods to promote quality teaching and learning – outcomes of IMHE teaching quality reviews 2012 Funding research excellence: combining funding approaches to promote competitiveness while maintaining diversity

Thank you www.oecd.org/edu/imhe Patricia.Mangeol@oecd.org