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a blog from young economists at Nova SBE

Supply of public superior education:


The increasing unemployment among graduates (seen in the graphic below) raises the question of how to offer an efficient supply of public superior education. Assuming, for a question of simplification, that we are dealing with a closed economy, what should be the number of superior courses provided/supported by the public sector? Makes sense that the state only provides the number of superior education degrees correspondent to the number of graduated workers needed by the country. Knowing that there is a need for both skilled and unskilled work in each country; is it not an inefficient cost to have all workers being educated to the point of superior education?

It can be argued that education is not only a matter of increasing production but also a matter of increasing well-fare. Nevertheless we are not discussing basic nor even secondary education. Does it really increase well-fare to study such a number of years to then end up working an unskilled, badly paid job?

The number of openings for each area in public superior education should then be the result of an approximated estimative (leaving a margin of error: some extra students) of the number of workers that will be needed in that area by the time the course ends. This could reduce (increase in some cases) the costs of the state with superior education to a more efficient value.

It could be argued that having the number of skilled workers leaving college matching the number needed by the market could give the workers too much bargaining power over their salaries. But private education could balance this, without overloading the state with this cost. Moreover, private education means that people could still educate themselves to the point they wish.

If people are selected to go to college based on high school classifications and exams, then the more talented candidates would get in, enhancing the possibility of using the course as a signal. This system would also mean extra effort from high-school students and would allow the universities to raise the level of difficulty of their courses, also contributing to the use of this degree as a signal to the work marketplace.

What about with open economies such as ours? Even with open economies, people with superior education that cannot find a suitable job can emigrate. Still, it is not cost efficient to provide superior education at a reduced cost, for people that will end up not working inside the country. Although, in this case, having superior education available for everyone assures better quality of life for everyone. This results in a discussion between equity and efficiency.


Source: OECD Indicators Education at a Glance, 2011.


Author: studentnovasbe

Master student in Nova Sbe

2 thoughts on “Supply of public superior education:

  1. Comment to the blog „Supply of public superior education”

    The issue that is picked up in this blog seems to be one of the central questions in a country with respect to education: Is the supply of public superior education efficient?
    The main argument is an increasing unemployment of graduates and whether the investment in this part of education foster production and welfare of a country. Further it is asked whether it is useful to have such a high level of education in a society where well and less-well educated people are asked by economy. A suggestion that is made is that the supply of superior education should match the need for it.
    In our European industrial countries we are competitive because of our human capital. To keep this technological advantage we have to be innovative with a high level of education. Although in Germany – for example – the half of graduates start to study, the OECD criticize that these are too less. Also, well-educated are more able to develop new ideas which could create new jobs and increase the competitiveness of the whole economy in the globalized environment.
    The high unemployment rate which is claimed in the blog origins from the year 2011. Especially high rates could be observed in the countries which suffer most from the economic crisis. This raise the question how the unemployment in lower educated population looks like. Maybe the complete education expenditure should be reduced because of less demand in economy.
    If in fact the government would reduce the supply of superior education, it reminds at the story of the “Pig-Market”. There the farmers (government) start to produce many pigs (superior education) when the price is high (high demand of economy) and the opposite if the price is low (high unemployment of graduates). The effect is that most of the time there is either a lack of pigs (graduate students) or there are too much. What I want to tell with the story is that it is not easy to regulate the supply of public education because of the unknown consequences in the future. It could be dangerous to end in situation with a low stock of human capital and a less competitive economy.
    The government should cooperate with the private sector and enable the industry to support the education which they need. That could be scholarships or a dual study where students work and study at the same time. This would be a big step to guarantee efficiency and reduce costs for the government.

  2. Hello!
    Clear discussion and a good point made!
    I clearly agree with your objective: Reducing the youth unemployment, with more incidence in unemployment among graduates, since they spent more time and money in education. (And trying to reduce public expenditure, or at least making it more efficient in the meantime).
    However, I tend to disagree with the method you presented. I think it goes in the opposite direction of the right track.
    The unemployment of graduates tends to happen for basically 2 reasons: Inflexibility of Labor market, which creates barriers to firms to contract new employees; Mismatch between the demand of professions in the market, and the supply of professions that graduate.
    Let us focus on the second reason, which is more related do Education Policy: What happens is that either people are graduating too much in jobs that markets require less, or there are not enough graduates from the professions that the markets more demand. This mismatch not only creates youth unemployment, in the first case, but creates a lot of inefficiency in both of them.
    Nevertheless I think that what you propose is implementing more rules in the education system, and what should be done is to relax some rules.
    I don’t think we can rely on the public sector to elaborate some estimates of how many Economists, Managers and Engineers are going to be needed in Portugal in 3 years or how many Doctors in 6. How can we take into account on the decision of doing a masters degree or not? How can we know how many people are going to work outside the country? This can change dramatically in 4 years. The state doesn’t have the tools nor the know-how to estimate this, with such a dynamic national and international Labor Market.
    Moreover I think this forgets a very important thing. Studying is not only aimed to the labor market. People enjoy a big personal development by studying in higher education, and we cannot forget that. Where is space for people that want to study after they retired? For people that want to get another degree in other area of studies? How can we measure the “need” for researchers, since it is not a market force driving it? And how can we compute the utility that someone gets by being able to study what she likes? Where does Academia stay in the strictly Labor Market-focused view?
    I think that there is a need to make education more flexible, and let the market adjust itself to the labor force, and shape the labor force throughout market mechanisms (namely, wage). We need people to graduate in some area, and be ready to work in other areas, if it is needed. We need more interdisciplinarity in degrees and probably more freedom for students to shape their own route with different courses. On another controversial note about flexibility, I think that the end of numerus clausus should be on the top of the agenda of Education Policy, something that has been done in some European countries.
    In summary, I think that the right way to go is to flexibilize the education curriculum, and to put the prediction of the needs on the supply side, not the demand one, because the supply side has more incentives, tools, know-how, and information to predict how will the market be in 3, 4 or 5 years.

    Sérgio Rocheteau #620