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This recent data comes from the U.K.'s Higher Education Statistics Agency (HESA).  It provides a snapshot of what happened in terms of employment to the 2013-2014 cohort of graduates and post-graduates six months after their graduation.  I created this chart for a keynote presentation that I recently gave at an academic conference concerned with issues surrounding post-graduates.  In my experience nearly every student goes to university to improve their chances of employment, even more so as we are still living in The Great Long Depression.  Studying for a Master’s degree works for some students but probably not for the majority of students in todays repressed economy.  At the same time that it has become much harder to get employment, the cost for students attending universities in most of the U.K. has risen dramatically. (Universities in Scotland are the exception.  They don’t charge tuition fees and still award student cost of living grants).  My reason for trawling through the HESA data was to see whether gaining a post-graduate degree significantly increased a student’s chances of getting a job.  In economic terms, is it worth accumulating even more debt to study at post-graduate level?  Based on the aggregate evidence, the answer has to be a resounding no. A one year Master’s course will cost the student between £18,000 to £28,000 based on the U.K. university fees of £6,000 to £16,000, (depending on the university and the course taken), plus the Student's Union average living cost of £12,000 per year.  Those costs have to be weighed against the harsh fact that taking a Master’s degree only increases the chances of employment for a graduate by an average of 3%.  We also have to add the lost “opportunity cost” of the average graduate starting salary of £21,500, which means the real cost of a Master’s degree is somewhere between £39,500 and £49,500.  Spending this amount of money for an already debt-laden graduate may be worthwhile in a few specialist areas, but on aggregate an academic report last year found that: “most employers do not distinguish between first and Master’s degree holders in recruitment or reward arrangements.”  In trying to fill their highly lucrative post-graduate courses nearly every university emphasises the economic benefits of having a Master’s degree, yet the hard evidence clearly shows this is not the reality. Increasingly, British universities have turned from being respected seats of learning into cynical businesses whose operations are focussed on “putting bums on seats.”  Very similar to the marketing operations of airlines.  We don't yet have airline-style VIP Club student refreshment areas, although these may only be a question of time.  What brought about the concentration on the number of students has been the incredible expansion of British universities during a time of comparative economic decline.  This expansion began in 1992 when polytechnics were able to become universities and bestow their own degrees rather than give awards under a national scheme.  Rather fortuitously, this coincided with a perceived dumbing-down of academic entrance requirements - all should have degrees.  At one fell swoop the number of universities doubled from 46 to 84, and since then the expansion has continued at a fierce pace, creating what I refer to as “an educational bubble.”  This economic boil is having just as great an effect as the British “housing bubble” caused by a chronic housing shortage, and quantitative easing which has stoked a steep rise in asset prices. The education bubble has gone largely unnoticed, in part because it doesn't affect everyone, just those families with children in their late teens to early twenties, and partly because the long term effects on the students will only be noticeable in a few years’ time.  With hindsight it is very clear that lowering standards, as well as turning polytechnics into universities, was a very misguided idea although only a few people were against it at the time.  The polytechnics were always much closer to British industry than the universities will ever be, primarily because they were concerned with employment.  The polys developed a wide variety of hands-on, genuinely useful business skills, from accountancy to hairdressing, languages to tailoring, catering to engineering.  These could be full-time, part-time, or evening courses.  The concept was to educate individuals for work, and to widen the opportunities for those in work.  Although the polys actively encouraged some academically-minded students to go on to university, they were always considerably less theoretical than universities.  Continuing and expanding the practical educational aspect of polytechnics would have served British industry far better than the academically focussed universities have done. Germany has kept a strong and thriving polytechnic sector which works closely with business, and this mutually beneficial union makes a significant contribution to Germany's outstanding economic success.  It’s worth remembering that the English word “polytechnic” first came into use during the industrial revolution in the late 18 th  Century, styled after the French “ecole polytechnique,” an engineering school founded in Paris in 1794.  The term means “many” (poly) “arts” (technique) and from the outset these institutions were closely identified with developing the skills needed by industry, a distinctly different but complimentary form of education to the academic and theoretical role played by universities.  As the pace of the industrial revolution accelerated it was the British polytechnics which provided the highly skilled and educated work-force which made it possible. Fast forward to the present and a degree has become a tick box item for employers when recruiting entry level positions.  My Human Resources (HR) chums tell me that as long as the degree is a 2.1 or above it doesn't really matter where it has been undertaken, unless it was at Harvard, MIT, Oxford or Cambridge, which enhances its value.  Modern students seem to believe that all human knowledge can be found in a university, as this is what universities tell them.  It therefore comes as a great shock when graduates seeking employment discover that most modern companies have fewer than 15% of jobs open to entry level workers which means that a large number of additional skills, never taught at universities, have to be learned during employment.  In reality this shouldn’t be surprising to graduates as they have been taught by academics who have either never been employed outside a university, or for whom decades have passed since they inhabited a workplace. If you thought my use of the term “education bubble” too harsh then consider these figures: in the last 17 years the number of graduates increased in the U.K. by 200%, in Italy by 200%, in Spain by 70% and in France by 60%.  Yet in Germany and the U.S., in the same period, the increase was a more manageable 25%.  The outcome of this educational expansion has been that the wage differential between graduates and non-graduates has declined in the U.K., Italy, Spain and France, yet remained constant in Germany and the U.S.  Where university expansion has been greatest, graduates are forced into jobs that don't require a degree.  As you can see in the chart above, in the U.K. last year, 38% of graduates ended up in jobs designated as non-professional, hence recent newspaper headlines such as this one – A PhD with your coffee? Barista serving your drink may be better educated than you are.  Pity those poor U.K. graduates who fall into that benighted 38% group because, according to figures from the Higher Education Commission (HEC), they are weighed down by an average graduation debt (including living expenses) of £44,035 plus interest, at the same time as facing a narrowing wage differential.  This double whammy of rising debts and falling wages has forced many of them into the so-called sharing economy of zero hour’s contracts with Uber and Hermes and their ilk. The bottom line is that, much like the U.S sub-prime mortgages that contributed to the banking crisis in 2008, the U.K. education bubble is underpinned by unsustainable debt.  Last year in a report, the Higher Education Commission (HEC), concluded that they were: “particularly concerned that middle earners, such as health professionals, teachers or public sector workers (who need a degree to enter their profession) will not be likely to pay back their loan within the repayment period.  The Commission fundamentally questions any system that charges higher education at a rate where the average graduate will not be able to pay it back.”  This is exactly the type of absurdity that prevails at the peak of any economic bubble.  The basic rules apply as equally to the education market as it does to the money markets.  And while we are talking about money markets it’s time to mention the third “whammy” that is already hitting debt-laden graduates and in the future will hit harder: obtaining a mortgage will become extremely difficult if not impossible.  Under new guidelines on lending set by the Financial Conduct Authority (FCA), (post the 2008 banking crisis), student loan debts are included in the affordability calculation for a mortgage.  In 2014 the Mortgage Market Review (MMR) defined new rules, as a Building Societies Association spokesman said: ‘Under the new MMR rules, student loans are certainly considered to be committed expenditure and will be included as part of the affordability assessment.”  So it’s clear that the average student will face increasing difficulty in ever owning their own home and they will be part of “generation rent”, unless they become very successful financially or have rich parents.  This is the realistic picture that universities do not paint – the price of your degree could cost you the chance of getting a mortgage.  That stark choice, if honestly communicated to the vulnerable young, would cut down the number of “bums on seats” needed to prop up the education bubble.  A report this year from Britain's biggest home lender showed that already more than half of the 44,000 young people interviewed found it either very hard, or virtually impossible, to get a mortgage.  This is a sea change in Britain where owning one’s own home is always considered important, because there are no rent controls and there is a chronic shortage of social housing. British universities have bloated costs and their senior management are paid two to three times the annual salary of the prime minister.  Recently they lobbied for a wage increase arguing that they should be paid at similar rates to their colleagues in America.  For an overview of some of the excesses read this Guardian article.  These people's swollen salaries and pensions are funded by students taking on ever increasing debt and is a scandal that shouldn't be allowed to continue.  Last year, the Nobel Laureate, Michael Spence, described the prevailing situation succinctly in understated economic terms: “…forces have upset the long-run equilibrium in advanced economies’ labor markets, with too much education and too many skills invested in an outmoded growth pattern.”  Interestingly, a recent survey asked university Vice Chancellors whether they thought there would be any significant changes in how a baby born today would be educated in 2030.  The result was that 70% thought the existing structure and techniques, i.e. full-time university courses and lectures, wouldn't change.  So we can add to the charge of overpaid fat cats and make that complacent and ignorant, overpaid fat cats. July 2015
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University challenge?

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This recent data comes from the U.K.'s Higher Education Statistics Agency (HESA).  It provides a snapshot of what happened in terms of employment to the 2013-2014 cohort of graduates and post- graduates six months after their graduation.  I created this chart for a keynote presentation that I recently gave at an academic conference concerned with issues surrounding post-graduates.  In my experience nearly every student goes to university to improve their chances of employment, even more so as we are still living in The Great Long Depression.  Studying for a Master’s degree works for some students but probably not for the majority of students in todays repressed economy.  At the same time that it has become much harder to get employment, the cost for students attending universities in most of the U.K. has risen dramatically. (Universities in Scotland are the exception.  They don’t charge tuition fees and still award student cost of living grants).  My reason for trawling through the HESA data was to see whether gaining a post-graduate degree significantly increased a student’s chances of getting a job.  In economic terms, is it worth accumulating even more debt to study at post-graduate level?  Based on the aggregate evidence, the answer has to be a resounding no. A one year Master’s course will cost the student between £18,000 to £28,000 based on the U.K. university fees of £6,000 to £16,000, (depending on the university and the course taken), plus the Student's Union average living cost of £12,000 per year.  Those costs have to be weighed against the harsh fact that taking a Master’s degree only increases the chances of employment for a graduate by an average of 3%.  We also have to add the lost “opportunity cost” of the average graduate starting salary of £21,500, which means the real cost of a Master’s degree is somewhere between £39,500 and £49,500.  Spending this amount of money for an already debt-laden graduate may be worthwhile in a few specialist areas, but on aggregate an academic report last year found that: “most employers do not distinguish between first and Master’s degree holders in recruitment or reward arrangements.”  In trying to fill their highly lucrative post- graduate courses nearly every university emphasises the economic benefits of having a Master’s degree, yet the hard evidence clearly shows this is not the reality. Increasingly, British universities have turned from being respected seats of learning into cynical businesses whose operations are focussed on “putting bums on seats.”  Very similar to the marketing operations of airlines.  We don't yet have airline-style VIP Club student refreshment areas, although these may only be a question of time.  What brought about the concentration on the number of students has been the incredible expansion of British universities during a time of comparative economic decline.  This expansion began in 1992 when polytechnics were able to become universities and bestow their own degrees rather than give awards under a national scheme.  Rather fortuitously, this coincided with a perceived dumbing-down of academic entrance requirements - all should have degrees.  At one fell swoop the number of universities doubled from 46 to 84, and since then the expansion has continued at a fierce pace, creating what I refer to as “an educational bubble.”  This economic boil is having just as great an effect as the British “housing bubble” caused by a chronic housing shortage, and quantitative easing which has stoked a steep rise in asset prices. The education bubble has gone largely unnoticed, in part because it doesn't affect everyone, just those families with children in their late teens to early twenties, and partly because the long term effects on the students will only be noticeable in a few years’ time.  With hindsight it is very clear that lowering standards, as well as turning polytechnics into universities, was a very misguided idea although only a few people were against it at the time.  The polytechnics were always much closer to British industry than the universities will ever be, primarily because they were concerned with employment.  The polys developed a wide variety of hands-on, genuinely useful business skills, from accountancy to hairdressing, languages to tailoring, catering to engineering.  These could be full-time, part-time, or evening courses.  The concept was to educate individuals for work, and to widen the opportunities for those in work.  Although the polys actively encouraged some academically-minded students to go on to university, they were always considerably less theoretical than universities.  Continuing and expanding the practical educational aspect of polytechnics would have served British industry far better than the academically focussed universities have done. Germany has kept a strong and thriving polytechnic sector which works closely with business, and this mutually beneficial union makes a significant contribution to Germany's outstanding economic success.  It’s worth remembering that the English word “polytechnic” first came into use during the industrial revolution in the late 18 th   Century, styled after the French “ecole polytechnique,” an engineering school founded in Paris in 1794.  The term means “many” (poly) “arts” (technique) and from the outset these institutions were closely identified with developing the skills needed by industry, a distinctly different but complimentary form of education to the academic and theoretical role played by universities.  As the pace of the industrial revolution accelerated it was the British polytechnics which provided the highly skilled and educated work-force which made it possible. Fast forward to the present and a degree has become a tick box item for employers when recruiting entry level positions.  My Human Resources (HR) chums tell me that as long as the degree is a 2.1 or above it doesn't really matter where it has been undertaken, unless it was at Harvard, MIT, Oxford or Cambridge, which enhances its value.  Modern students seem to believe that all human knowledge can be found in a university, as this is what universities tell them.  It therefore comes as a great shock when graduates seeking employment discover that most modern companies have fewer than 15% of jobs open to entry level workers which means that a large number of additional skills, never taught at universities, have to be learned during employment.  In reality this shouldn’t be surprising to graduates as they have been taught by academics who have either never been employed outside a university, or for whom decades have passed since they inhabited a workplace. If you thought my use of the term “education bubble” too harsh then consider these figures: in the last 17 years the number of graduates increased in the U.K. by 200%, in Italy by 200%, in Spain by 70% and in France by 60%.  Yet in Germany and the U.S., in the same period, the increase was a more manageable 25%.  The outcome of this educational expansion has been that the wage differential between graduates and non-graduates has declined in the U.K., Italy, Spain and France, yet remained constant in Germany and the U.S.  Where university expansion has been greatest, graduates are forced into jobs that don't require a degree.  As you can see in the chart above, in the U.K. last year, 38% of graduates ended up in jobs designated as non- professional, hence recent newspaper headlines such as this one – A PhD with your coffee? Barista serving your drink may be better educated than you are.  Pity those poor U.K. graduates who fall into that benighted 38% group because, according to figures from the Higher Education Commission (HEC), they are weighed down by an average graduation debt (including living expenses) of £44,035 plus interest, at the same time as facing a narrowing wage differential.  This double whammy of rising debts and falling wages has forced many of them into the so-called sharing economy of zero hour’s contracts with Uber and Hermes and their ilk. The bottom line is that, much like the U.S sub-prime mortgages that contributed to the banking crisis in 2008, the U.K. education bubble is underpinned by unsustainable debt.  Last year in a report, the Higher Education Commission (HEC), concluded that they were: “particularly concerned that middle earners, such as health professionals, teachers or public sector workers (who need a degree to enter their profession) will not be likely to pay back their loan within the repayment period.  The Commission fundamentally questions any system that charges higher education at a rate where the average graduate will not be able to pay it back.”  This is exactly the type of absurdity that prevails at the peak of any economic bubble.  The basic rules apply as equally to the education market as it does to the money markets.  And while we are talking about money markets it’s time to mention the third “whammy” that is already hitting debt-laden graduates and in the future will hit harder: obtaining a mortgage will become extremely difficult if not impossible.  Under new guidelines on lending set by the Financial Conduct Authority (FCA), (post the 2008 banking crisis), student loan debts are included in the affordability calculation for a mortgage.  In 2014 the Mortgage Market Review (MMR) defined new rules, as a Building Societies Association spokesman said: ‘Under the new MMR rules, student loans are certainly considered to be committed expenditure and will be included as part of the affordability assessment.”  So it’s clear that the average student will face increasing difficulty in ever owning their own home and they will be part of “generation rent”, unless they become very successful financially or have rich parents.  This is the realistic picture that universities do not paint – the price of your degree could cost you the chance of getting a mortgage.  That stark choice, if honestly communicated to the vulnerable young, would cut down the number of “bums on seats” needed to prop up the education bubble.  A report this year from Britain's biggest home lender showed that already more than half of the 44,000 young people interviewed found it either very hard, or virtually impossible, to get a mortgage.  This is a sea change in Britain where owning one’s own home is always considered important, because there are no rent controls and there is a chronic shortage of social housing. British universities have bloated costs and their senior management are paid two to three times the annual salary of the prime minister.  Recently they lobbied for a wage increase arguing that they should be paid at similar rates to their colleagues in America.  For an overview of some of the excesses read this Guardian article.  These people's swollen salaries and pensions are funded by students taking on ever increasing debt and is a scandal that shouldn't be allowed to continue.  Last year, the Nobel Laureate, Michael Spence, described the prevailing situation succinctly in understated economic terms: “…forces have upset the long-run equilibrium in advanced economies’ labor markets, with too much education and too many skills invested in an outmoded growth pattern.”  Interestingly, a recent survey asked university Vice Chancellors whether they thought there would be any significant changes in how a baby born today would be educated in 2030.  The result was that 70% thought the existing structure and techniques, i.e. full-time university courses and lectures, wouldn't change.  So we can add to the charge of overpaid fat cats and make that complacent and ignorant, overpaid fat cats. July 2015

University challenge?

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