“When I tell people I’m a student, it tells them I’m achieving something compared to being jobless,” he said, sipping green tea at a cafe near the university’s main building. “In reality, there might not be such a big difference.”
Finnish students stay in college longer than in any other developed country save Austria, the Netherlands and Denmark, getting their first university degree on average at 29, according to a 2013 report by the Organization for Economic Cooperation and Development. That compares with 24 years for Britons, 26 for Germans and the OECD average of 27 years. Most Finns who graduate from college get a master’s degree.
Easing the long years in college is the fact that students aren’t required to pay tuition. The state also provides grants of as much as 500 euros ($670) a month plus meal support and loans of as much as 400 euros a month.
[...]
While Finland’s two recessions since 2008 have pushed companies to cut jobs, unemployment has risen less than in many of its European peers. At the same time, so-called hidden unemployment is on the rise. The number of people not seeking work though they’d like to find it increased 10 percent in June from a year earlier.
[...]
Only about 50 percent of all university students graduate in five-and-a-half years or less, Helsinki-based Statistics Finland says. One-third of graduates are 30 years old or more, compared with an EU average of 17 percent, Eurostat says.
“School has traditionally acted as a buffer when the economic situation is bad,” said Ulla Haemaelaeinen, a senior researcher at the Finnish Social Insurance Institution in Helsinki. “It’s a policy choice.”
Showing posts with label education. Show all posts
Showing posts with label education. Show all posts
Thursday, August 21, 2014
Public education as an unemployment subsidy
From Bloomberg News: Eight years of college lets Finns hide from labor market.
Tuesday, August 5, 2014
What caught my eye
1. How the government exaggerates the cost of education, by David Leonhardt at the New York Times.
2. A measure of global systemic financial risk, from NYU Stern's V-lab, via Econbrowser, and a chart for China:
3. The U.S. can't inflate away its public debt, probably. From a recent paper by Jens Hilscher, Alon Raviv, and Ricardo Reis: Inflating away the public debt? An empirical assessment. [Ungated version.]
5. The dark side of the Italian tomato. Also in French and Spanish.
One might argue the subsidies are a net positive if tomato production is more efficient in Europe than in Africa. But if that were the case, then why would European production need to be subsidized? Leaving aside that, what's the effect of European subsidies? European farmers win, the impact on everybody else is uncertain, at best.
But it turns out the government’s measure is deeply misleading.The more challenging question is: Given the changes that we're about to see in how higher education is provided (online classes), how much will college cost in 20 years? (Hat tip to my wife, to whom I can't give a confident answer when she asks: "How much do we need to save for our [8-month-old] son's college?")
For years, that measure was based on the list prices that colleges published in their brochures, rather than the actual amount students and their families paid. The government ignored financial-aid grants. Effectively, the measure tracked the price of college for rich families, many of whom were not eligible for scholarships, but exaggerated the price – and price increases – for everyone from the upper middle class to the poor.
[...]
Fortunately, the government isn’t the only organization that collects data on college tuition over time. The College Board also does, and it publishes different indexes on published tuition and net-price tuition, separately for public and private colleges. (Only scholarship grants are considered in the net-price calculation. Loans, appropriately, are treated as part of the tuition that families are really paying.)
Net tuition and fees at private four-year colleges have risen 22 percent since 1992, the College Board says, and the increase has been 60 percent at public four-year colleges. Community-college tuition has declined, because aid grants have outpaced published tuition. These numbers are obviously quite different from the government’s index showing a 107 percent increase.
2. A measure of global systemic financial risk, from NYU Stern's V-lab, via Econbrowser, and a chart for China:
3. The U.S. can't inflate away its public debt, probably. From a recent paper by Jens Hilscher, Alon Raviv, and Ricardo Reis: Inflating away the public debt? An empirical assessment. [Ungated version.]
Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.4. Valuing non-US equities: claims about the CAPE (cyclically-adjusted price-earnings) ratio, by Andrew Smithers. Part I. Part II.
5. The dark side of the Italian tomato. Also in French and Spanish.
Italy, the third largest agricultural producer after France and Germany, vies with Spain for first place in the production of vegetables. In the past 10 years, Italy has produced an average of 6 million tonnes of tomatoes per year (FAOSTAT). According to FAO, the exportation of concentrated Italian tomatoes was facilitated in 2001 by a reimbursement by the EU of 45 euros ($61) for every tonne of product exported (FAO). But that’s not all. Overall, according to Oxfam, the EU subsidises tomato production to the tune of approximately 34.5 euros ($47) per tonne, a subsidy that covers 65% of the market price of the final product (Oxfam). But who in Brussels is aware of the paradox of subsidising an export product that dumps on local produce in Africa?The European Union subsidizes local production of farm products, which puts Africans out of work in their home countries, which drives them to migrate to Europe, lowering wages in Europe. In the end, the tomato pickers might enjoy the same expected utility in Africa than in Europe, after cost and quality of living are accounted for. European producers win, African producers go out of business.
One might argue the subsidies are a net positive if tomato production is more efficient in Europe than in Africa. But if that were the case, then why would European production need to be subsidized? Leaving aside that, what's the effect of European subsidies? European farmers win, the impact on everybody else is uncertain, at best.
Friday, June 14, 2013
Links 20130614: TV, Indonesia, Philippines
1. Most European countries have a public television network, at least partially funded by the government budget. Greece just decided to turn its TV off, at least for a while. This brings back to mind a question: Do countries need a public TV? What kind of TV should that be?
To the first question, one could argue that certain types of broadcasting are a public good, in the economic sense of the word. I am more and more skeptical about this argument, as the cost of producing and distributing media content has declined dramatically in the advent of the internet. Also, my experience watching Televisión Española (TVE, the public network in Spain) is that the average quality and breadth of their programming is not significantly higher than that of its private sector competitors. If anything, the liberalization of the sector during the 1980s and 1990s led, I would argue, to a progressive deterioration in the quality of TVE's programs. Rather than forcing competitors to increase their quality, TVE was dragged down into a race for ever dumber, mass-pleasing programs. Another argument against the public good view is that the objectivity of the content produced by public TV is greatly undermined by the very fact that it is funded by the government, thus diminishing the social welfare produced by this supposedly public good.
If, nonetheless, you must have a public TV network, what should it look like? If the public TV must cater to the median voter, but the content that is appealing to that voter is already being provided by private sector networks, public TV is a waste of taxpayer money. I would advocate for keeping it as small as possible: news, weather, parliament debates and announcements,... that sort of thing.
2. Indonesia's terrible school system.
3. Is the Philippines overheating? You know there is something wrong when a country is growing at 7.8% (more than any of its neighbors), its unemployment rate is in its bottom quintile within the last 20 years, and yet the central bank governor feels compelled to go out and reassure the markets by saying that they have more scope to cut interest rates to "further support growth." That is what is happening now in the Philippines. And the problem is, I think, that the country is experiencing a classic case of excessive capital inflows and shrinking current account balance, currency appreciation, plus a stock market bubble and possibly a property bubble.
To the first question, one could argue that certain types of broadcasting are a public good, in the economic sense of the word. I am more and more skeptical about this argument, as the cost of producing and distributing media content has declined dramatically in the advent of the internet. Also, my experience watching Televisión Española (TVE, the public network in Spain) is that the average quality and breadth of their programming is not significantly higher than that of its private sector competitors. If anything, the liberalization of the sector during the 1980s and 1990s led, I would argue, to a progressive deterioration in the quality of TVE's programs. Rather than forcing competitors to increase their quality, TVE was dragged down into a race for ever dumber, mass-pleasing programs. Another argument against the public good view is that the objectivity of the content produced by public TV is greatly undermined by the very fact that it is funded by the government, thus diminishing the social welfare produced by this supposedly public good.
If, nonetheless, you must have a public TV network, what should it look like? If the public TV must cater to the median voter, but the content that is appealing to that voter is already being provided by private sector networks, public TV is a waste of taxpayer money. I would advocate for keeping it as small as possible: news, weather, parliament debates and announcements,... that sort of thing.
2. Indonesia's terrible school system.
Education experts say less than half of the country's teachers possess even the minimum qualifications to teach properly and teacher absenteeism hovers at around 20 percent. Many teachers in the public school system work outside of the classroom to improve their incomes.
Corruption is also rife within schools and universities - with parents often having to pay bribes for their children to pass examinations or pay for services that should be provided by the state.
Indonesian Corruption Watch claims there are very few schools in the country that are clean of graft, bribery or embezzlement - with 40 percent of their budget siphoned off before it reaches the classroom.
Meanwhile, millions of dollars in foreign aid is poured into the country's education system despite the government spending only a very small proportion of its GDP on schooling. And some international observers are asking why Indonesia still relies on external funding for school construction given that it has been listed as a middle income country by the World Bank.And here is the Pearson ranking of countries by cognitive skills and education attainment, where Indonesia ranked last in a list of 40 countries. Pearson has posted on its Learning Curve project lots of fun graphic tools and data that allow you to compare countries along many dimensions of human capital.
3. Is the Philippines overheating? You know there is something wrong when a country is growing at 7.8% (more than any of its neighbors), its unemployment rate is in its bottom quintile within the last 20 years, and yet the central bank governor feels compelled to go out and reassure the markets by saying that they have more scope to cut interest rates to "further support growth." That is what is happening now in the Philippines. And the problem is, I think, that the country is experiencing a classic case of excessive capital inflows and shrinking current account balance, currency appreciation, plus a stock market bubble and possibly a property bubble.
Friday, January 25, 2008
On college endowments
According to a study released yesterday by the National Association of College and University Business Officers (NACUBO), the endowment fund of Harvard University is worth $34.6 billion, a 19.8% percent higher than a year ago. 76 colleges and universities sit on endowments over $1b. Even more impressively, almost every one of the 733 institutions analyzed reports a double-digit increase in the value of its fund. (Look up the endowment of your alma mater here.)
Chart 1 (click to enlarge)
The increase in the value of the endowments has been the result of at least two factors: risk taking and stock market bonanza. First, higher-education institutions invest large portions of their wealth on high-risk, high-return securities. On a dollar-weighted average, in 2007 they held a 47.4% of their funds in equities, an 18.2% in hedge funds, a 5.4% in private equity, and a 3.6% on venture capital investments. Wealthier universities hold riskier portfolios than the average. (See Chart 1.)
Second, average stock prices have increased almost every single year for over 25 years. In spite of the burst of the dot-com bubble in 2000, the inflation-adjusted Dow Jones Industrial Average Index ended 2007 at a level five times higher than in 1982. Even the most passive portfolio manager would have achieved high returns in this stock market.
Chart 2 (click to enlarge)
No surprise then that most universities have performed so well. Over the last ten years, the return on most endowments beats the S&P 500 index, which grew at a healthy 7.1% annual rate itself. (See Chart 2.) In the case of the largest portfolios, universities beat the market by a long shot.
News of these fabulous riches has prompted some sectors to demand that universities share more of their wealth. Lawmakers remind them that, as tax-exempt institutions, “they’re supposed to offer public benefit in return for (that) exemption.” Private foundations, which are also tax-exempt, are required by law to spend 5% each year; the average for colleges is 4.6%, with little variation across levels of wealth (see data). Parents, on the other hand, don’t understand why tuition keeps going up while universities continue to amass wealth. Little do they suspect that the cost of college is stoked by the self-interest of parents and students themselves, not that of universities.
The classic explanation for the rise of tuition is that the college premium —the positive gap between the earnings of college graduates and high school graduates— has increased the demand for college education, thereby raising its equilibrium price.
More interestingly, the stock market has also made tuition rates go up, according to a paper* by my former colleague at the University of Chicago Pablo Peña (pdf). Rises in asset prices increase the amount of resources available to universities. Part of that wealth is spent on inputs that improve the quality of education: more and better qualified professors, and newer and more sophisticated facilities, such as labs, computers and libraries, for instance. Higher quality, in turn, increases the amount of human capital accumulated in college, and ultimately affects life-time earnings, i.e. the returns to education. Prestige considerations may be at work too: celebrity professors and state-of-the-art facilities increase the reputation of the institution, adding to the value of the diploma. Therefore, larger endowments spur the demand for college education, and drive up tuition rates.
Differences in the value of endowments across universities are vast: the combined value of the top ten colleges represents 35% of total endowment assets. In light of Pablo’s theory, the implications of this inequality depend on what universities and colleges spend their money on.
If they continue to use their wealth to improve the quality of the service they provide, demand for college education and tuition levels will continue to rise. Differences in tuition rates and education quality between top-notch and second-tier institutions will continue to widen too, since endowments and asset returns are highly concentrated. Also, because the ablest students —those with highest SAT scores or best records of achievement in high school— benefit the most from the quality of college education, the matching of the best students with the best institutions will intensify. Differences in the quality of students across colleges will increase.
On the other hand, universities could start using their endowments to increase capacity or subsidize the cost of college. In this unlikely scenario, the equilibrium price of higher education will probably decline, the quality of college education will drop, and the college premium —the earnings of college graduates vis-à-vis high-school graduates— will drop.
Selected institutions have recently been announcing that they will increase financial aid. Recent announcements might suggest that this could actually happen among selected institutions. Harvard and Dartmouth have eliminated loans from their aid packages and will be giving grants instead; and Yale has followed in their footsteps. These de facto cuts in average tuition rates are not going to change the system. First, they won’t change the quality of education at top universities, for which the foregone tuition revenue is peanuts. Second, they won’t reduce the cost of attendance of the average college student, because the number of institutions that can afford foregoing tuition revenues is small.
But improved aid packages at top schools will make their programs affordable to the brightest students, regardless of their financial situation. If the newfound altruism of the Harvards and Yales has any effect, that will be an even more pronounced assortative matching of colleges and applicants by quality. The scope of these developments is very limited, but it’s good news —at least for believers, like myself, in a free, merit-based education system.
More data:
Tuition rates: table of nominal rates (html), graph of real rates (pdf, Figure 1)
Technorati tags: economics, education, college, endowments, college tuition
Chart 1 (click to enlarge)
The increase in the value of the endowments has been the result of at least two factors: risk taking and stock market bonanza. First, higher-education institutions invest large portions of their wealth on high-risk, high-return securities. On a dollar-weighted average, in 2007 they held a 47.4% of their funds in equities, an 18.2% in hedge funds, a 5.4% in private equity, and a 3.6% on venture capital investments. Wealthier universities hold riskier portfolios than the average. (See Chart 1.)
Second, average stock prices have increased almost every single year for over 25 years. In spite of the burst of the dot-com bubble in 2000, the inflation-adjusted Dow Jones Industrial Average Index ended 2007 at a level five times higher than in 1982. Even the most passive portfolio manager would have achieved high returns in this stock market.
Chart 2 (click to enlarge)
No surprise then that most universities have performed so well. Over the last ten years, the return on most endowments beats the S&P 500 index, which grew at a healthy 7.1% annual rate itself. (See Chart 2.) In the case of the largest portfolios, universities beat the market by a long shot.
News of these fabulous riches has prompted some sectors to demand that universities share more of their wealth. Lawmakers remind them that, as tax-exempt institutions, “they’re supposed to offer public benefit in return for (that) exemption.” Private foundations, which are also tax-exempt, are required by law to spend 5% each year; the average for colleges is 4.6%, with little variation across levels of wealth (see data). Parents, on the other hand, don’t understand why tuition keeps going up while universities continue to amass wealth. Little do they suspect that the cost of college is stoked by the self-interest of parents and students themselves, not that of universities.
The classic explanation for the rise of tuition is that the college premium —the positive gap between the earnings of college graduates and high school graduates— has increased the demand for college education, thereby raising its equilibrium price.
More interestingly, the stock market has also made tuition rates go up, according to a paper* by my former colleague at the University of Chicago Pablo Peña (pdf). Rises in asset prices increase the amount of resources available to universities. Part of that wealth is spent on inputs that improve the quality of education: more and better qualified professors, and newer and more sophisticated facilities, such as labs, computers and libraries, for instance. Higher quality, in turn, increases the amount of human capital accumulated in college, and ultimately affects life-time earnings, i.e. the returns to education. Prestige considerations may be at work too: celebrity professors and state-of-the-art facilities increase the reputation of the institution, adding to the value of the diploma. Therefore, larger endowments spur the demand for college education, and drive up tuition rates.
Differences in the value of endowments across universities are vast: the combined value of the top ten colleges represents 35% of total endowment assets. In light of Pablo’s theory, the implications of this inequality depend on what universities and colleges spend their money on.
If they continue to use their wealth to improve the quality of the service they provide, demand for college education and tuition levels will continue to rise. Differences in tuition rates and education quality between top-notch and second-tier institutions will continue to widen too, since endowments and asset returns are highly concentrated. Also, because the ablest students —those with highest SAT scores or best records of achievement in high school— benefit the most from the quality of college education, the matching of the best students with the best institutions will intensify. Differences in the quality of students across colleges will increase.
On the other hand, universities could start using their endowments to increase capacity or subsidize the cost of college. In this unlikely scenario, the equilibrium price of higher education will probably decline, the quality of college education will drop, and the college premium —the earnings of college graduates vis-à-vis high-school graduates— will drop.
Selected institutions have recently been announcing that they will increase financial aid. Recent announcements might suggest that this could actually happen among selected institutions. Harvard and Dartmouth have eliminated loans from their aid packages and will be giving grants instead; and Yale has followed in their footsteps. These de facto cuts in average tuition rates are not going to change the system. First, they won’t change the quality of education at top universities, for which the foregone tuition revenue is peanuts. Second, they won’t reduce the cost of attendance of the average college student, because the number of institutions that can afford foregoing tuition revenues is small.
But improved aid packages at top schools will make their programs affordable to the brightest students, regardless of their financial situation. If the newfound altruism of the Harvards and Yales has any effect, that will be an even more pronounced assortative matching of colleges and applicants by quality. The scope of these developments is very limited, but it’s good news —at least for believers, like myself, in a free, merit-based education system.
More data:
Tuition rates: table of nominal rates (html), graph of real rates (pdf, Figure 1)
Technorati tags: economics, education, college, endowments, college tuition
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