Pick the separating equilibrium

College degrees vary pretty greatly in expected post-tertiary earnings. Some provide a lot of ephemeral benefits, others provide higher earnings. I'm agnostic about what students should pick, though I expect that government funding should be linked to likely positive external benefits from any particular degree rather than to the degree recipient's expected earnings.

Oregon's proposed a solution that's not far from what New Zealand had a few decades ago: free tuition, but high marginal tax rates.

Passed unanimously by the Democrat-controlled state Senate Monday after it had already cleared the also Democrat-controlled House, the bill would create a program called "Pay Forward, Pay Back" by which students wouldn't pay a dime at the time of study at any public institution for higher education in Oregon. Instead, students who qualify as Oregon residents would sign a binding contract that would require they pay a percentage of their post-college income back to the state every year for up to 24 years.

Students have some flexibility in choice of state. It's a bit of a hassle to get yourself registered as a state resident, but it's not crazy hard. I was in-state in Virginia.

If the contract is really binding, I expect that Oregon's Fine Arts and Social Work departments will see a pretty strong increase in student numbers while those wanting a degree in Finance will start heading out of state. Differences in tuition across majors are pretty small compared to differences in lifetime earnings.

When New Zealand ran this policy, they also ran a pretty exclusive university entrance policy: a rather smaller fraction of high school graduates were eligible for university. It will be interesting to see how things play out in Oregon.

More scientists?

I like science. But I'm not convinced that pouring money into producing more scientists is the most effective way of generating the great things that come from science.

Economists typically recommend "keyhole" interventions. If there's some market failure, intervene at the most direct level to fix it. It's plausible that basic scientific discoveries - the kind that aren't really patentable but that can yield all kinds of later commercial applications - are underprovided relative to some ideal. There are then a few policy options:

• Award prizes for those making worthy discoveries.
• But, if the basic research is expensive and if research teams have a hard time getting investor funding for prize-seeking, then this may still underprovide discoveries. Prizes are great when you know what achievement you'd like to fund but you don't know who's best-placed to provide it.
• Award grants to research teams likely to provide discoveries.
• This requires the granting agency to be able to pick winning teams and, in small countries, can yield nasty procedural tradeoffs between nepotism (the awards committee gives money just to their friends or to people doing politically favourable work) and administratively expensive application methods. 
• Be really generous with baseline University funding, then revise slowly over time to focus funding towards institutions that produce a lot of discoveries so that Universities sharpen incentives.
• We've moved toward this in New Zealand with PBRF, but the whole process is ridiculously administratively burdensome, the amount of money at stake is pretty small relative to overall University budgets, and because new and important discoveries are pretty rare, the whole thing seems to reward number of journal articles. If one University produced two field medalists, that would get it a couple of PBRF As, but plenty of other places will get plenty of As without field medals. There's basically a big upperbound truncation problem where truly stellar work - the kind that should wind up getting the really big prizes - is under-rewarded. 
• Encourage lots of kids to take science degrees. Encourage the Universities to expand their science offerings by paying them extra for kids taking science courses and for degree completion in the sciences as compared to arts or commerce. 
• Increasing the supply of scientists could reduce the cost of scientists and thereby increase the supply of discoveries from those places that hire scientists. In a small country, you cannot really have much of an effect on equilibrium wages in science as you'll just induce post-degree out-migration. And to the extent that science grads get hired in applied shops that, while great, largely internalise the benefits of what they're doing, you've not done as much to get the new discoveries.

I expect that optimal policy would involve some combination of the first three mechanisms. Prizes in combination with baseline university research funding would solve some of the problems we'd otherwise have in providing extra rewards for truly top-notch stuff. And grants can help if there are particular things you want done and you think you know who can do it. If those together work to build demand for scientists, then that can automatically start pulling more kids into science when they see rising salaries and better job prospects.

What do we get when we push a lot of kids through general science degrees instead? Andrew Norton at The Gratten Institute has a few numbers for Australia.

The annual Graduate Destination Survey (GDS) of people with recently completed bachelor degrees consistently finds that people with science qualifications have above-average difficulty finding work. The only exception is for people with degrees in the geological sciences.

Three years on from the GDS, the Beyond Graduation Survey shows that the job outlook of science graduates improves with time. After a slow start their employment rate is only slightly below average.

But this is not evidence of strong demand for specific scientific knowledge. Only 57% of science graduates say their qualification is important or a formal requirement for their job. It is the second lowest match between qualification and discipline.

Norton concludes:

Nobody doubts that science and maths skills are important to Australia’s future. In some specialised areas, employers might struggle to find suitable graduates. But no enrolment or employment data suggests that we are headed for general shortages of science and maths graduates.

The science applications boom may turn out to be a higher education bubble waiting to burst. If it does, thousands of intelligent and capable young people may be left with qualifications that hamper their ability to find meaningful and rewarding work.

Note here that the point isn't that "being employed in a directly relevant profession" is an important measure of a degree's fitness - in that case, dentistry would be the best degree ever. Rather, it speaks to whether there's any great shortage. Were there a generalised shortage of scientists, we would expect most graduating scientists to be snapped up by employers desperate for scientists. Instead, if we look at the underlying data, we see that only 63% of those graduating with life sciences degree and 65% of those graduating with a degree in the physical sciences say that their qualification is either a formal requirement or "important" for their job. 24% of those with a life sciences degree and 19% of those graduating in the physical sciences say their degree is not important for their job; the rest say "somewhat important."

I wonder what the NZ numbers would look like.

The running joke on Big Bang Theory is that scientists make little unless they manage to luck into a good job with Pharma. Bernadette waited tables while doing her PhD. Two young physics faculty members share an apartment; their neighbour, a waitress, hasn't got a roommate and consequently has more substantial money problems. Another physicist only has any money because his father sends him remittances from India. A university engineering technician doing NASA-level work lives with his Mom. Closer to real life, Noah Smith explained grad school in the bench sciences.

Want more of the good stuff that comes from basic science? Find better ways of funding basic science.

Where do they all go?

Neal Caren's put together a beautiful little infographic showing the flow of graduates from various US majors into different occupations, using data from the last two waves of the American Community Survey.

So we can see that of the 173,849 graduates in Economics:

• 37,043 became accountants and auditors
• 32,303 became financial managers
• 23,872 became chief executives
• 36,842 became managers 
• 43,789 became lawyers

So just under 14% of the kids graduating in economics became CEOs. Now there were 160,706 people identified as chief executives in the dataset. So 14% of econ grads became just under 15% of all CEOs.  Accountants were also overrepresented among CEOs. General business majors were underrepresented among CEOs; they were more likely to be retail salespersons or first-line supervisors of non-retail sales workers than to hit the head office. 

Alas, the chart isn't great for major-selection purposes. We can't see the proportion from each major reporting unemployment, for example. But it can help with Avenue Q's question. What can you do with a B.A. in English? By plurality: go on to teach at elementary and middle schools. 

HT: Fab Rojas

Signalling and education

U Vic's student magazine asked me for comment on signalling and degree inflation; Wilbur Townsend and Nick Cross's story is now out.

I agree with Nick that there has been degree inflation in New Zealand; most folks around the traps suggest the big push happened in the 1990s. It's largely leveled off since then. Or, at least at Canterbury, I've not seen much evidence of it since I've been here. It could pick up again once the full effects of the various Universities' new taught masters programmes start coming through.

Here they channel Bryan Caplan:

Why would people get a tertiary education if it doesn’t add value? We believe it is about sending a signal to potential employers. The ‘signalling model of education’ holds that the wage premium from having a tertiary degree comes from the signal of a person’s abilities relative to others. It’s based on the observation that most formal tertiary education is taught by professors with little experience outside the ivory tower, and that most courses are concerned with academic theory and not tailored to specific occupations. Why would these be any use in the real world? Research into the ‘transfer of learning’ suggests that education does little to actually improve intelligence or critical-thinking skills in the long run. Consider the way you approach your own education. Most of us spend weeks cramming for our final exams, but aren’t at all worried if we forget much of the material the second the exam is finished. Most of us rejoice when a class is cancelled because it means we have less to learn. But there is no proportionate reduction in fees for the cancelled class—shouldn’t we be outraged? If education is about building human capital, why isn’t our focus on accumulating as much knowledge as possible? If it’s about signalling to employers, we can understand that the most important thing to come out of our education is the piece of paper at the other end.

It's also been fun seeing a bit of evidence of degree inflation in the data. In the main US work on political knowledge, income matters far less than education in predicting political knowledge. But, here in New Zealand, they both seem to matter. A lot of very successful people here got their start when all you needed was a high school degree, and so household income is the better proxy for intelligence for that cohort. The main bout of degree inflation in America happened decades earlier.

Here's what I sent Nick, which he of course needed to truncate to leave room for others:

“Degree inflation is real, but signalling isn’t everything that’s going on in education. The signalling model says that the value of education mostly comes from the little piece of paper certifying not that the graduate has learned anything but rather that the graduate is the kind of person who is able to put up with a few years of grinding pointless work without quitting, can complete assignments on time, and is smart enough to have made it through. While it would be easy to provide cheaper signals of intelligence, there isn’t a lower-cost way of signalling the ability to put up with years of grind-your-way-through assignments. So it isn’t implausible that much of what goes on at University is providing that signal. But that can hardly be everything: there are wide differences in salary for graduates with different degrees, and at least some of that is due to the specific things taught in those degrees.” 

“At least at Canterbury in Economics over the last decade, I have not seen great evidence of degree inflation. In a degree-inflation model, we would have a higher proportion of students progressing from the Bachelors to the Honours degree, and then more moving on from the Honours degree to a Masters, but little change in where the graduates wound up. But about the same proportion of our majoring students go on to pursue an Honours degree now as was the case a decade ago, we haven’t really changed the standards for entering Honours, and our Honours students place as well at Treasury, the Reserve Bank, the bureaus, and the trading banks as they ever have. I expect that this will have changed in a decade’s time: a lot of places are repackaging Honours degrees as Masters. If employers only pierce the credentialing veil imperfectly, then we could wind up with Masters being the new Honours. While we have substantial degree inflation in the overall population as compared to, say, fifty years ago, I don’t think there’s been much change over the last decade. When I got here, it took an Honours degree to land a decent entry position at Treasury; that’s still the case now.” 

“The problem with the signalling equilibrium is that anyone not pursuing a University degree is lumped in with everyone who would not be able to complete one if they tried. And so employers infer something about an applicant’s likely abilities from that he hasn’t gone to University. The only real way of solving the problem would be to reduce the number of funded places at University while providing ample scholarships to students of very high ability but limited means, but it’s not immediately clear that this is better than what we currently have. It’s not crazy to think that New Zealand could be better off if, say, a quarter of the students currently coming to University for business degrees went instead to the polytechs for vocational training. I’ve not seen any conclusive case for or against it, but it’s not immediately implausible.”

The introduction forms a bit of a depressing assessment of New Zealand's intellectual environment.

Canterbury University economist Eric Crampton is the closest thing New Zealand has to a ‘public intellectual’. He blogs at offsettingbehaviour.blogspot.com, and regularly appears in New Zealand media to bring an economic perspective to issues such as alcohol regulation, breakfast in schools and the Christchurch earthquake recovery.

I'm not sure that's entirely accurate. Or, rather, the NZ Herald last year reckoned there were at least a couple dozen of us. 

The provocative conclusion, for a student magazine, I'm sure will draw interesting letters to the editor.

Information mismatch

Matt Yglesias points to a small bit of low-hanging fruit: solving the information problem that keeps smart low-income kids from low academic social capital suburbs and rural areas out of great universities and colleges.

Smart lower income kids that live near the home catchments of decent universities are targeted for scholarships by those schools: a substitute for the social capital that would otherwise provide them with a university-admissions strategy. As for the rest...

Low-income students are very different. Fully 53 percent of them apply to zero schools whose median SAT or ACT scores are similar to their own. Many of these smart, poor kids apply only to a single unselective school. Only a very small percentage of these kids—8 percent of them, the authors estimate—act the same as high-achievement kids from prosperous families by applying to selective schools, including some reaches and safeties.

Hoxby and Avery label the 53 percent “income-typical” and the 8 percent “achievement-typical.” They find that that small minority of students who exhibit achievement-typical application behavior do just as well as higher-income students at actually enrolling in and graduating from college. When poor kids apply to good schools, in other words, they’re just as likely to get in as more affluent ones are. The selective colleges deliver enough financial aid to make it possible for achievement-typical kids to attend, and they’re able to do the work and graduate.

But income-typical and achievement-typical students seem to come from very different places. Statistically speaking, the achievement-typical are more likely to live in core municipalities than suburbs or rural areas. They’re more likely to come from larger metro areas than smaller ones. Income-typical students’ schools are smaller and are less likely to feature any teachers who’ve attended selective colleges or have other students who attended such colleges recently.

The mismatch, in other words, is double-sided. Selective schools looking to recruit low-income students with strong test scores are looking at a few hot spots with unusually high densities of such kids and ignoring the long tail of smart kids in smaller cities, in rural areas, and outside magnet programs.

I was a bit surprised about this; I'd always assumed that American kids scoring in the top percentiles of the SAT were given an information pack telling them what they should be doing. They didn't do it in Canada, but we also didn't have an SAT that would allow universities to compare applicants across schools or that would let smart kids from small rural schools know how they'd rate in a broader sample.*

If colleges start to realize how many high-achieving low-income students they’re missing, they might send their recruiting staff further afield. What’s more, written communications can easily target students regardless of location. The key is that written outreach needs to be specially tailored to the circumstances of low-income students whose personal networks don’t include graduates of selective schools. That means emphasizing the real cost of attendance rather than headline tuition, and the fact that there are gradations of school quality beyond Harvard vs. Other. And success could build on itself. If selective schools did a better job of reaching out to lower-income students, they’d build more diverse alumni networks.

State governments (or Washington, D.C.) could also play a role, committing to targeting top-performing students in low-income districts. Either way, compared with the other dilemmas involved in improving the education system, tackling undermatching seems relatively straightforward. The main barrier is that most people have no idea how widespread it is. Each year, 10,000 or 20,000 of America’s brightest high-school graduates don’t go to a great college not because they can’t afford one but because they don’t realize they should apply. [emphasis added]

Indeed. With a centralised, standard exam like the SAT or ACT, how hard would it be to send a basic information package out to kids likely to be in this situation?

* If you graduate top of eighteen in a small rural school, you have no way of knowing whether you're in the top 6%, the top 1%, or the top 0.1% if there's no SAT. If nobody in a thirty-mile radius has any experience of anything beyond the big local university, and nobody really knows of anybody who's gone elsewhere, and the careers' counselor is useless, and most people who don't go into farming go for their teaching degree....

Currency risk

Radio New Zealand reports international student visa numbers are down; they blame the high dollar.

The real cost of tertiary education in New Zealand can vary substantially with exchange rates. There isn't much that any University can do about levels, but we could perhaps be doing more to reduce uncertainty.

Who is better placed to mitigate the risk of currency fluctuations: a family sending their kid abroad for study, or large enterprises with budgets in the hundreds of millions and with finance departments?

A first step in mitigating that risk would be exchange-rate-sensitive international student fees. We could offer tuition packages allowing international students a few ways of offloading currency risk:

• Pre-paying multiyear tuition to lock in current exchange rates, with guaranteed refund in home-currency dollars if the student drops out [the University then forward contracts or buys options to limit its exposure, enjoys earning interest on the pre-paid fees];
• Tuition guarantees: for an up-front fee, guarantee that the per-course tuition fee as measured in the student's home-currency will not vary upwards by more than some amount. Set the up-front fee so that it's enough to buy options to lay off the risk. So long as the University can buy those option contracts more cheaply and with fewer hassles than can a student, this should be a worthwhile proposition;
• Exchange rate insurance: the University sells to incoming students contracts that give them a cash bonus if their home currency drops by a set amount. Tuition is maybe a third to a half of an international student's total cost of study. If the home currency tanks or the NZD jumps, living here gets a whole lot more expensive. Universities can use the up-front fees to buy option contracts on foreign currency that would let them pay out the students in case of dramatic currency fluctuation. Again, so long as large institutions have cheaper access to these kinds of contracts, this should work.

As best I'm aware, no university in New Zealand offers these kinds of currency deals; I've never heard of their being offered in other countries either. The odds that I'm missing something big and important seem larger than that it's just the usual non-profit inertia - it's unlikely that everybody would be missing this trick if it really were a twenty dollar bill on the sidewalk. Then again, as Tyler Cowen put it:

I work in what is perhaps the most competitive and successful sector in the most competitive and successful economy of all time.

And yet what I see around me is a total, total mess.  And I believe my school to be considerably above average in terms of how well it is run.

If somebody can tell me what I'm missing, I'd appreciate it. 

Another option that could help, and as suggested previously, the government could guarantee that international students completing a degree at one of our better tertiary institutions would be given permanent residence on degree completion, subject to the usual criminal background and health checks. The path from student visa to work visa and residence is pretty easy, but it adds uncertainty for students who don't know that it's likely to work out. Making the default be permanent residence on completion unless you screw something up badly, rather than having to go back home unless you get everything right, could make the degree more attractive even when the dollar is higher for a longer period. Added benefit: foreign students currently cross-subsidise domestic students. Increasing the ratio of foreign to domestic students would effectively increase tertiary funding without it having to hit the government's books.

Update: Luis suggests some reasons:

@ericcrampton Management costs per student? Risk of screwing uphedging (e.g. ft.com/cms/s/0/adc3b9…)? Ratio private/gov funded students?

— Luis A. Apiolaza (@zentree) March 12, 2013

Management costs per student shouldn't be that high - when the student purchases the contract, you buy the option contracts, then forget about it until you need to execute. Risks of screwing it up are large though if universities are incompetent at this kind of thing. The link Luis provides points to the temptation to overmanage and earn on the hedge rather than just keep it as insurance. I doubt that any university's portfolio of international students includes enough home-government funded students to make the packages not worth offering, but it could be true in some places.

Unintended consequences?

Richard Thaler points to a lovely piece of university regulation. We cannot afford such a regulation at the post-earthquake University of Canterbury, but it is beautiful.

Don't get Euro rule that bonus<salary. Won't it just raise salaries? Once worked at U that had rule alcohol<food at dinners-> more desserts!
— Richard H Thaler (@R_Thaler) March 6, 2013

Lots of universities get tetchy about alcohol being on dinner bills where staff are taking distinguished guests and speakers to dinner after an event. Some of it is puritanism, some of it is worries about how it looks, and some of it is pure misanthropy from university regulatory czars.

This rule consequently is a beautiful thing. It has all the appearance of working to constrain alcohol spending. But it encourages a move to a far better equilibrium: dinner with dessert and with wine, while still prohibiting really outrageous wine expenditures. If this were an intended consequence with a deliberately opaque regulation, would that academia had more administrators of this sort.

A bit of hope

The MOOCs are coming, the MOOCs are coming... batten the hatches and fire half the staff!

Well, maybe not. Or at least not yet.

Recall that, from the student's perspective, universities deliver a complicated mix of learnings, discipline, socialisation, enculturation, and perhaps the chance to find a suitable mate. It's not hard to see online education being able to provide some of the straight information-delivery part, but that's only part of the bundle offered by traditional institutions.

James Zuccollo at TVHE helpfully points to some recent work putting numbers on it. Universities compete for students on quality of its academic staff, quality of teaching, and a big pile of student amenities. And, students have heterogeneous preferences. They find:

• Students saying they value campus social life are attracted by more spending on student services but repelled by spending on academics; those who care about academics prefer universities that weight spending towards academics relative to student services. 
• Students planning on living at home while at university are less sensitive to university spending on consumption amenities than those living on their own.
• Spending on student services correlates with student evaluations of campus life and also improves student assessment of the academic environment; spending on instruction improves measures of the academic environment but not measures of subjective quality of life.

They conclude:

More generally, our results suggest that colleges compete for students on many dimensions –  price, distance, consumption amenities, academics  –  and that different students respond differently to these attributes because preferences are so heterogeneous. The importance of  market pressure  to the behavior of higher education institutions has not been thoroughly examined and the slim prior literature on the topic has focused exclusively on the role of academic quality and cost, ignoring other dimensions on which colleges compete. One important implication of our analysis is that for many institutions, demand-side market pressure may not compel investment in academic quality, but rather in  consumption  amenities. This is an important finding given that quality assurance is primarily provided by demand-side pressure: the fear of losing students is believed to compel colleges to provide high levels of academic quality. Our findings call this accountability mechanism into question. However, our findings do not speak to the normative issue of whether consumption amenities are good or bad for students and taxpayers.

James concluded:

As summarised by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether,as a society, we want to heavily subsidise most students on an extended holiday?

I conclude that MOOCs aren't likely to eat a substantial part of our academic lunch barring substantial changes in tertiary funding, or unless parents start balking at the large cost differential between online and on-campus options.

But I do worry about a model that could blend consumption amenities and lower cost structures: replacing a lot of standard university courses with MOOC equivalents, with local tutorial support. Core papers in a lot of disciplines follow an international standard curriculum. Were those moved to MOOCs with local tutorials, and locally based academics teaching the electives that have more local application, universities could move to a lower cost curve without as much harm to the other parts of the bundle.

Choosing your degree

Students choosing majors may well worry about employment options after graduation. The NZ Ministry of Education has released some data on post-study outcomes by major. Read the whole thing here; I've copied a few relevant bits below. Earnings aren't everything, but they ought to count for something.

I tend to advise students considering Economics at Canterbury to do it as an Arts degree with a minor in something demonstrating strong literacy skills, like politics, philosophy, or history, or in a discipline that offers complementary skills, like a minor in geography with an emphasis on Geographic Information Systems. Or, if they want to double with Finance, or if they want to add in a lot of math for a technically focused degree, a B.Sc in Economics works well. Students taking Economics as part of a Commerce degree must complete the Commerce Core, which prescribes a very large proportion of the student's first year. The Commerce prescribed core is fine for those students who want that particular mix of courses, or who know at the outset that they want to do a double major between Economics and either Management or Accounting, but if you want to choose your own mix, the Arts or Science degrees provide more freedom. Unfortunately, incoming students have to make this choice before they start their first year.

I've turned the PDF into a Google spreadsheet.

Students graduating in Economics and Econometrics earned $57,785 five years after graduation. 74% of them were in employment at that point; 15% in further study; 2% on the dole and 10% in other activities. Accountants earn $60,473, 80% are employed, 8% in further study, 0% on the dole and 11% doing other things. Lawyers earn $56,894, 74% are in employment, 15% in further study, 1% on the dole and 9% in other activities. Other management areas like "Business and Management", "Sales and Marketing" and "Tourism" don't do quite as well. Only 63% of those in Political Science and Policy Studies are in employment 5 years after graduation.

Perhaps it's self-serving bias, but I still think our recommendations to students aren't all bad. If you want to take a degree in Politics or Philosophy, combining it with minor in Economics will likely improve your employment chances. While Law looks like a more sure-thing employment option, the data shows little difference between Law and Economics - earnings and employment are very similar. A third of those choosing natural and physical sciences are in further study five years after undergraduate graduation. If you've a passion for chemistry or biology, expect reasonable odds that you'll need to go on to post-graduate study.

The government has been encouraging Universities to offer more places for students in engineering relative to things like the creative arts. It's then interesting to compare the percentage of students on a benefit five years after graduation. Six percent of graduates in "Mechanical and Industrial Engineering and Technology" are on the dole five years after graduation - the highest of any subject. Five percent of graduates in "Manufacturing, Engineering and Technology" are on the dole - the same proportion as for subjects like "Performing Arts" and "Visual Arts and Crafts", and worse than the three percent of graduates on the dole after graduating from Philosophy, languages, or graphic design.

The most depressing bit: graduates in public health earn more than graduates in economics.

Programme closures

The AAUP has updated its general procedural guidelines for universities in financial distress. Here is what they recommend for universities contemplating programme closures due to finances:

First, as to governance and consultation, this report insists that faculty members must be involved in consultation and deliberation at every stage of the process, beginning with a determination that a state of financial exigency exists. We offer specific recommendations for such faculty involvement:

1. Before any proposals for program discontinuance on financial grounds are made or entertained, the faculty should have the opportunity to render an assessment in writing on the institution’s financial condition.

2. Faculty bodies participating in the process may be drawn from the faculty senate or elected as ad hoc committees by the faculty; they should not be appointed by the administration.

3. The faculty should have access to, at minimum, five years of audited financial statements, current and following-year budgets, and detailed cash-flow estimates for future years.

4. In order to make informed proposals about the financial impact of program closures, the faculty needs access to detailed program, department, and administrative-unit budgets.

5. The faculty should determine whether “all feasible alternatives to termination of appointments have been pursued,” including expenditure of one-time money or reserves as bridge funding, furloughs, pay cuts, deferred-compensation plans, early-retirement packages, deferral of nonessential capital expenditures, and cuts to noneducational programs and services, including expenses for administration.

6. Faculty members in a program being considered for discontinuance because of financial exigency should be informed in writing that it is being so considered and given at least thirty days in which to respond. Both tenured and nontenured faculty members should be involved.

They suggest that most programme closures fail to meet these kinds of procedural standards.

I joined Academic Board at Canterbury after the last round of programme closures and so have little to say about our own performance. But I will be thinking about the report should programme closures again loom.

Hat Tip: Inside Higher Ed. The full AAUP report is here.

Choosing a major

Some assistance for those NCEA graduates considering their majors for their first year at Canterbury for next year:

Alas, I think you have to go to Lincoln if you want to major in Classical Vintning. 

If you're not reading Wondermark, you should be....

Let Them Come

Adam Ozimek challenged econ-bloggers to spend more time writing about immigration.

I'd previously suggested a small move that New Zealand could make that would increase immigration at relatively low political cost: automatically grant permanent residence to international students completing a serious degree at one of our better universities. Adam argues for giving more international student visas for study in the U.S. It's already pretty easy to get a student visa to study here in New Zealand; our problem is that, as second or third country-of-choice behind the US for many international students, demand for our product seems pretty elastic to exchange rates.* One way of differentiating the New Zealand tertiary degree would be to bundle it with permanent residence.

International students graduating from tertiary institutions currently qualify for the Graduate Job Search Visa which gives them a year to find a job on graduation. On receiving a qualifying job offer in a field relevant to their qualification, the graduate can then apply for the Graduate Work Experience Visa, or try directly for immigration as a skilled migrant. Striking out as an entrepreneur would be tough to square with the immigration requirements. The working graduate can then move to residence. Each of those steps involves risk, and especially from the perspective of prospective students. Sure, NZ Immigration is likely to count your job offer in computer programming as relevant to your degree in engineering, but you can't really bank on it if you're weighing up your options from abroad. And the sure thing can be awfully attractive when you're already taking on a fair bit of risk by looking abroad in the first place.

On the downside, current University incentives to retain international students by chiselling on quality would have greater real-world effect; TEC would have to watch for the usual forms of gaming.

So:

• Advantages:
• More high-skilled immigrants for New Zealand in a world that's becoming more competitive in attracting skilled migrants;
• Wellington is severely constrained in offering greater tertiary funding, in part because of the costs of the zero percent student loan programme. Increasing demand for New Zealand tertiary education among foreign students would allow greater cross-subsidy of domestic students, mostly through higher programme quality, so long as the gains weren't extracted by the university bureaucracies. 
• Disadvantages:
• NZ students would face more competition in the labour market after graduation. That's offset by benefits to employers;
• Increased demand for housing to the extent that overall migration flows are substantially affected - we need to fix the supply side of housing anyway.
• Red Herrings:
• Eligibility for aid (DPB, unemployment benefit, sickness benefit) requires having been in New Zealand for two years after becoming a permanent resident; residence would only be granted on graduation. It's rather unlikely that anybody's grand scheme would be to slog through a university degree, hang around for two years, then live on the benefit;
• The government can withdraw permanent residence from those convicted of serious offences within ten years of being granted their first residence permit - deportation remains a real option.

So, why not encourage more international students to choose New Zealand by bundling permanent residence with our degrees?

* There are creative ways around this that I've not yet seen anybody try. Foreign students pay more than their marginal cost - that's how the whole NZ tertiary system is able to stay afloat. But it means that slightly reducing the cost to foreign students isn't always the end of the world. I've wondered why no New Zealand university has yet tried the trick of taking on exchange rate risk on behalf of their international students. The larger body is the better bearer of that risk and can more efficiently lay it off with better access to competitive quotes on exchange options contracts. We have a pretty variable exchange rate: since I've been here, the New Zealand dollar rose from about $0.60 US to $0.75, back down to $0.60, up to $0.80, down to $0.50, up to $0.75, and now up in the $0.80-$0.85 range. We quote international students $NZ tuition fees that, over the course of a student's enrolment, could double or halve relative to the student's home currency.

There are a few ways of insulating foreign students against that currency risk. For an additional up-front fee, you could guarantee that tuition rates in the student's home currency would not appreciate by more than some manageable amount relative to changes in domestic tuition rates, then buy option contracts on the exchange markets to lay off that risk. You could allow students to pay up-front for future years' tuition to lock in current exchange rates if current exchange rates are favourable, with a discount for early payment of future years' tuition charges and subject to refund if the student drops out. You could even offer international tuition fees in the student's home currency, guaranteeing that enrolled students would see no increase in that tuition schedule relative to the increases enjoyed by domestic students, for the three or four years of their degree - again, laying off the risk in international markets.

I hate economic impact numbers

What the heck is "economic impact" even supposed to mean? Seamus keeps wondering if it wouldn't be fun to set an honours project asking "To what relevant economic question is "economic impact" a useful answer, if any?"

My main reason for hating them is that they're so awfully abused by the press. It's hardly the press's fault though - if we as a profession keep producing these figures without adequately explaining (or understanding, in some cases) what they are, they'll keep abusing them.

Today's example, highlighted by Matt at TVHE: a $200m estimated "economic impact" of health disparities between Maori and Pakeha New Zealanders gets turned by the journalist into a cost to taxpayers.

The University press release:

Avoidable deaths of Māori children in New Zealand are costing the country at least 67 lives and around $200 million per year in economic impact, but greater Government spending on primary care and other key interventions could help to resolve the problem, health researchers say.

The journalist version:

The public health physician said 67 Maori children died avoidable deaths every year, costing taxpayers $200 million annually.

Ummm, no. Unfortunately, the Auckland University press release is about as unhelpful as possible in letting any journalist sort this out. Why? Not only do they fail to link the article, they also fail to name the journal: the study was "published in an international public health journal".

If you search through PubMed on the two authors' last names, you can find the article. It's here. But little chance a journalist will have time to do that.

What do you get if you read the article? Here's the results brief at the start:

Preliminary estimates suggest child health inequities between Māori and non-Māori in New Zealand are cost-saving to the health sector. However the societal costs are significant. A conservative “base case” scenario estimate is over $NZ62 million per year, while alternative costing methods yield larger costs of nearly $NZ200 million per annum. The total cost estimate is highly sensitive to the costing method used and Value of Statistical Life applied, as the cost of potentially avoidable deaths of Māori children is the major contributor to this estimate.

So both the press release and the journalist's piece ignore that Vaithianathan and Reid produced a range of estimates with a $200m upper bound rather than a point estimate around $200m. And, the larger number relies on VSL measures. What's a VSL measure? The intangible costs of a premature death. That's only a cost to the taxpayer in the rather indirect sense that the people who are sad when someone dies prematurely may also be taxpayers, and that some of the VSL measure could be viewed (given how NZ's VSL measure is constructed) as partially being due to that premature deaths are tragic for the family. And, worse, the University press release cites the deaths as though they were something not included in the $200m.

There's other weird stuff in there. There's a measure of time out of work for grieving parents that's based around the median wage rate, but if the whole darned story is about the costs of poverty among Maori in terms of premature mortality, it's just a bit odd to use the median wage rate. But I'd hardly expect a journalist to pick that up.

Why oh why can't university press offices pumping published work done at their schools link to the darned paper and write things that won't be misinterpreted by journalists? Are they trying to confuse people? I could understand it if the article were behind a ton of subscription gates, but this one's free access.

Can we just ban economic impact studies? It's almost inevitable that the things get misinterpreted like this. And they then do far more to confuse than to illuminate.

Costs to the taxpayer of $200 million.... How long 'till somebody cites this in Parliament as a cost to the tax system? Any bets?

Fraudulent visas: de facto and de jure

Suppose that you want to come to live in New Zealand. You're young. You don't meet the criteria for a working visa. And you haven't quite the qualifications for a student visa. What happens? At least according to the Herald, you falsify your qualifications, come to New Zealand on a student visa, sign up with an education provider that doesn't look too closely at your qualifications and go and get a job at an orchard or a fish and chips shop.

That's de jure fraud. The documents used to get the visa were fraudulent.

Imagine another hypothetical situation. Something that cannot happen at Canterbury, at least not for very long, because we have progression standards where any student failing to maintain some minimal GPA is thrown out of the University. Consequently, anybody wishing to take this hypothetical path chooses a university that does not have progression standards.

Consider the case of an international student who gets a visa and enrols at a New Zealand university but who never shows up for lecture, never shows up for tutorial, never completes any piece of assessment, and never shows up for the exams. The student pays international fees but is, as far as the lecturer is concerned, a ghost. The high international fees paid go to cross-subsidize the education of those students who do attend classes.

You can pretty easily make the case that the whole deal is highly beneficial to everybody involved. The parents get to pretend that their kid has failed out of an international school because of cultural or language problems (instead of having the kid enrol in a known-to-be second or third tier school in systems with tight entrance standards), the kid gets a working holiday, and there's a massive cross-subsidy to real international students and to domestic students. But you can also pretty easily make the case that it's a de facto fraud on the spirit of the student visa.

Maybe somebody who falsifies a document to get a student visa is more likely to be dishonest on other margins and consequently is worth chasing after. But is it really that much worse than falsifying the spirit of the visa application by enrolling at a New Zealand university but never attending lectures and never submitting assignments?

I'm not sure how many ghost students the other New Zealand universities are getting. Before we had progression standards, they weren't exactly uncommon on my class lists. If we want to keep the cost to domestic students down, let's hope Immigration New Zealand sticks with the de facto cases.

Exam security

Canterbury takes its invigilated exams pretty seriously.

Students in our big 100-level exams have to leave all of their materials at the front of the room save a pencil, pen, ruler or non-programmable calculator (as needed for the exam). Hats have to be left at the front of the room. We arrange students through the room in a checkerboard; we know where each student is seated so we can check scripts later on if we suspect somebody's copied from a neighbour. Two invigilators stalk the room throughout. We leave a blank row after every second row of students so the invigilators can get up to any student who's asking a question, or who is peeking a bit too often up a shirt sleeve.

What are the key features of this set-up?

• Students can't tell where they'll be seated before entering the room. They'll likely be seated near somebody with an alphabetically close last name, but they can't tell where in the room they'll be.
• Students can't easily smuggle answers in; the only materials they're supposed to have in front of them are the ones they have to have, though we'll usually allow a water or drink bottle.
• Students don't have access to the blank exam booklets, which vary colour from year to year and, occasionally, by whatever the lecturer happens to have had in his older stock. It's not always easy to predict what the colour of the exam booklet cover will be, so it's harder to smuggle in one that has notes inside.
• Invigilators can approach any student from an oblique angle; as they can be behind a student, it's hard for a student to tell when he's being watched.

Turns out that those measures would thwart most of the exam hacks that students taking this government cybersecurity course tried when they were instructed to try to cheat on the exam. The quiz asked them to write the first hundred digits of pi. Some of the hacks were very nice, but students didn't have to try all that hard given the reasonably lax exam setting.

 

Here's the working paper: Embracing the Kobayashi Maru. What did the students try?

• Variants of encoding the answer onto materials they were allowed to bring into the exam with them: textbooks; the back of name tags that always sit on desks; notebooks; course schedules; post-it notes; food; coffee cup sleeves; random materials that might be in a pencil case; hidden in a watch bezel; bringing in a pre-completed answer sheet hidden among other papers.
• Variants of hacking the exam room: writing on ceiling tiles; writing the answer on sheets of paper in the pile that the invigilators were likely to distribute on request for blank papers; hiding the answer within the computers on the desks;
• Hacking the grader's or invigilator's laziness: Memorize the first ten digits, then provide random numbers.

Most of these won't work given our processes. To what sorts of attacks could we still be vulnerable? Security through obscurity is a pretty poor solution and I'm sure our students are more creative than I am anyway. So here are a few potential options:

• Notes written on or around drink bottles or coffee cup sleeves;
• Notes hidden on one's person and accessed in the privacy of a toilet stall, especially if you've drawn the lucky straw and both invigilators are of not-your-gender;
• Small notes written on erasers or taped inside the sleeve of a programmable calculator;
• Small notes hidden inside pencil cases if the invigilator isn't strict enough on the "pencils and pens only" rule;
• A note hidden under a pony-tail or in dreadlocks.

Options are near limitless for variants on open book or open notes exams; fair systems would let students either bring in anything (completely open book) or restrict students to bringing in only one or two sheets of paper of specified size. Otherwise you're just encouraging students to encode notes on the cover or in the text of the book.

Perhaps I should include a "Please cheat on this question" question in the midterms next semester. Academic misconduct and a visit to the proctor for cheating on other questions, but only a zero on that question if caught cheating on it with bonus points for demonstrating the hack afterwards; then we'd have a better list of things for which to watch out for subsequent cohorts. But as I'm not even sure it's a good idea, it's pretty unlikely that I'd be able to convince the various "Powers That Veto" that it's all that hot.

No exam system will ever be hack-free. It's important to set a strong anti-cheating norm, demonstrating that students could reasonably expect to be caught if they try so they don't expect to be disadvantaged if they don't cheat. Our processes probably do more to encourage honesty by showing that we care about honesty and setting the right expectations than by thwarting the most determined of exam hackers.

So we won't all be fired then

Whenever I read stories about the growth of MITx or other equivalents, I get a bit nervous about the long run for academics. I've consoled myself with that academia is really a rather more complicated product than just book-learning: there's all kinds of consumption and complex human capital formation bundled in with it; MITx can't easily replicate that bundle.

Noah Smith helps ease my mind.

Economists (including at least one in my PhD graduating class) have dedicated untold numbers of papers to showing that college doesn't produce useful skills. But I think that this is missing the point; useful skills, which you mostly learn on the job, are not the only valuable form of human capital. There are three extremely important forms of human capital that you can't acquire on the job:
1) Motivation,
2) Perspective, and
3) Human networks.
These, I believe, are the types of capital that college is designed to build, both in Japan and in the United States.

Motivation, in Noah's setup, isn't about showing that you can complete arbitrary tasks on a deadline (like assignments); rather, it's about building a network of people who will smack you around if you slack off.

Perspective is what you get when you're immersed in a rich environment different from the one you came from - you learn from others just what it is that you want to do. I knew going into university what I didn't want to do: farming and working outdoors where temperatures can hit -40. I didn't know that I wanted to be an economics prof until a few years into study.

And the human networks are self-explanatory.

MITx can replicate the book learning. If it's awfully careful in how it sets up local tutorial groups, it might be able to replicate some of the motivation aspect, but not unless you can get a substantial number of high quality students to flip from traditional universities to the MITx model. I have a harder time seeing how it replicates the "figuring out what I want to do with my life" aspect of university; human network formation too requires some push from the university equilibrium to the MITx equilibrium.

College is useless as a mechanism for signaling intelligence. It's probably somewhat useful for signaling the ability to work hard and resist temptation, at least in the U.S. where many colleges require hard work (but not in Japan). It is about consumption, but it's too concentrated in time to be mostly about consumption. College is really about human capital, of the kind not conveyed in classes - motivation, perspective, and networking. Rather than a hideously, inefficiently expensive signaling mechanism, college is an ingenious technology for building the kinds of human capital that are scarce among smart people in rich countries.

The biggest risk isn't from students wanting to switch from universities to online options like MITx, it's from governments deciding that massive subsidies to help high human capital types better network with each other isn't worth the public investment. The best counterargument is that publicly funded tertiary education with a strong bias towards subsidizing lower income students directly rather than having broad-based tuition subsidies or interest-free loans is probably the best way of facilitating upwards mobility among kids born in lower deciles but with higher innate ability. Noah's 'Perspective' argument here seems pretty critical. If you go to trade school to become a mechanic, you learn to be a mechanic, but you don't get exposure to the wider range of potential life options.