All Posts Tagged With: "economy"

$16-million deficit puts other programs on the chopping block as well

The Guelph Mercury is reporting that the University of Guelph’s women’s studies program and the organic agriculture major have been eliminated. The decision was made by the senate board of undergraduate studies two days ago.

The university is facing a $16-million deficit, which means eight programs with low enrolment won’t be offered next September.

The Mercury says the senate will decide the fate of the bachelor of science in technology degree program and a bachelor of applied computing degree program at the University of Guelph-Humber on April 7.

At the senate meeting, dean of arts Donald Bruce explained to the board the women’s studies program, created in 1979, is at an impasse and hasn’t had a curriculum revision since 1994.

“It has been stagnant since then,” said Bruce.

Serge Desmarais, the university’s vice-president academic, says senior administration provided guidelines for the college deans to find ways to cut their budgets. He  says the university will probably have to continue to consider further courses and programs for elimination.

Newfoundland and Labrador eliminates interest on the provincial portion of student loans

The government of Newfoundland and Labrador has released its 2009 Budget. The budget, which has a $750 million deficit, makes a number of changes to student financial assistance that, according to the minister of education, provide for the “best student aid package in the country”. Spending initiatives that will impact the student pocketbook include:

• a continuation of the tuition fee freeze at Memorial University of Newfoundland and the College of the North Atlantic;
• an increase in up-front, non-repayable, needs-based grants from $70 to $80 per week of study; and
• the elimination of interest on the provincial portion of student loans.

Offers graduates up to $20,000 if they relocate and stay for at least seven years

Premier Dalton McGuinty shrugged off concerns Tuesday that Saskatchewan’s cash-infused efforts to lure graduates west will exacerbate Ontario’s economic woes by poaching its best and brightest.

McGuinty insisted that Ontario still has 100,000 jobs it can’t fill, even though the province has lost about 160,000 jobs since October and its unemployment rate is at a 12-year high.

“My competition is not the rest of Canada,” he said. “My competition is New York, Michigan, Massachusetts, even California. And we are not going to take our eye off that ball.”

McGuinty seemed unconcerned that Saskatchewan Premier Brad Wall is headed to Ontario next week to offer college and university graduates up to $20,000 if they move to his province and stay for at least seven years.

The offer is being made to graduates across Canada, but Wall is making the pitch himself in Toronto – his second Ontario recruitment drive in seven months.

Wall hasn’t been shy about his efforts to storm Ontario for skilled labour.

Earlier this month, he hosted a lunch for 86 Ontario families who moved to Saskatchewan following his government’s recruitment push last fall.

Last summer, his ministers led two delegations of Saskatchewan employers to London, Ont., and Windsor – a city where the jobless rate sits at a painful 12.6 per cent.

Manitoba is also setting its sights on Ontario and other hard-hit provinces this spring with a $2-million TV ad campaign to entice disheartened workers to relocate.

Both Saskatchewan and Manitoba have managed to escape the worst effects of the recession and are among the few provinces expected to see growth this year.

Despite middle-class backlash, group says move is necessary to preserve quality of education

On the heels of the release of the 2008 Survey on Canadian Attitudes toward Learning, which suggests that Canadians are concerned about the existing costs of post-secondary education, the Educational Policy Institute has released a report advocating that provincial governments allow post-secondary institutions to increase tuition further in order to offset declining revenues. From The Toronto Star:

Dramatic tuition hikes must be part of a recession survival plan for Canada’s ivory tower, warns an education think tank.

Colleges and universities must consider charging more, despite a middle-class backlash, if they hope to avoid diluting the quality of education during the economic crisis, says the report by the non-profit Educational Policy Institute.

The report predicts fee hikes of up to 25 per cent in the next couple of years – in line with increases during the last recession – which would generate $1 billion to $2 billion for recession-hit campuses.

The full text of the EPI report can be downloaded here in .pdf format.

Foreign students can also apply for residency when their student visas expire

The federal government plans to “substantially increase” the number of foreign students it allows into the country this year.

Immigration Minister Jason Kenney made the announcement Friday. He didn’t say how many more students will be lured here, but noted Australia allows 10 times more students from India than Canada does.

Kenney said Canadian universities are pressing for more foreign students because they pay the highest tuition fees, making them “a source of revenue.”

He said foreign students would have a chance to understand Canada’s labour market and languages, and put themselves on a “much faster pathway” to immigration.

Under a program launched last year, foreign students are eligible to apply to become permanent residents when their visas expire.

Kenney also said he expects a major reduction in the number of temporary foreign workers allowed into Canada because of the slowing economy and rising unemployment.

- The Canadian Press

President Obama’s arrival coincides with stalling Canadian investment in research

The Times Higher Education Supplement suggests that universities across Canada may soon face a brain drain as a result of the contrasting federal government policies on academic research on either side of the Canada-U.S. border:

The mood among US scientists is buoyant after Barack Obama used his inaugural presidential address to emphasise his commitment to research, promising to bring the curtain down on years of neglect under George W. Bush.

But in neighbouring Canada, the future looks less certain, as President Obama’s arrival has coincided with the stalling of public investment in research.

This is seen by some as an ominous concurrence that threatens to reverse the recent brain drain that has seen scientists flee the US for greener pastures north of the border.

Are universities a nest of richly subsidized radicals who are overpaid and underworked?

Though the moment is sure to fade away, the recent York University strike brought the challenges of the modern university to the attention of the chattering classes in central Canada — a fleeting benefit of the prolonged and unfortunate experiences of York’s students and workers.

In her column in Saturday’s Globe and Mail, Margaret Wente reminisces about her experiences with higher education, including time spent smoking dope at an unnamed university (likely UofT). Amidst her usual tried-and-tested barrage of insults and name-calling, Wente manages to hit on some of the biggest problems facing our universities at present:

The first problem is that there is no money, especially these days. The second problem is that universities are not terribly popular with the public, who tend to see them as a nest of richly subsidized tenured radicals who are overpaid and underworked. (Unfair, but not entirely.) Taxpayers are only willing to subsidize universities to the extent they believe they contribute to the national wealth. The third problem is that a vast proportion of the student body neither wants nor needs a traditional liberal education anyway. They have no desire to sit at the feet of cloistered masters debating truth and beauty. They are essentially there for the credentials.

Is education a right or an investment? The debate continues here

Firstly, I apologize for not getting involved in the comments last time around. Blog posting involves a responsibility to engage in the resultant debate, but jumping into the pond would have been much too haphazard, particularly given that I wasn’t expecting that volume of response and got to it late. So I’m going to try and address some of the points I feel aren’t being fully understood while trying to cover a lot of ground with respect to how economists typically think about educational issues. There are responses to some of the previous comments at the end of this post.
The decision to attend any postsecondary institution revolves around a basic choice: preferences over potential lifetime income streams. The idea, for most, is that by sacrificing a bunch of weekends and the chance to earn a salary for a few years to read textbooks and write exams, we can emerge from university with expanded labour market opportunities. There are very, very few people who can be credibly told that regardless of whether they attend university or not, they’ll never earn more than minimum wage – and who still choose university. Similarly, there are not many people who’d pay the full costs of university simply for the pleasure of it.

Since different people have different abilities and different feelings toward being stuck in lecture halls for years on end, not everyone makes the same decision to attend university or not. It’s entirely possible the story could end there. The oldest university still operating today was founded as a private charitable religious endeavor. Yet in most countries throughout the world, government has decided to intervene and distort the incentives facing those people making the choice whether to invest in PSE.

Why? Most economists (if they had no idea what university education consisted of) would first ask whether PSE is a public good, i.e. something that can only be realistically provided by government. The leading example is national defense – it’s very hard to imagine all Canadians teaming up to collect the money and fund a military force without some sort of a central body to oversee things. Public goods are characterized by being (a) unexcludable and (b) nonrivalrous. If I’m scared of the Americans invading and I buy a military to defend the country, I can’t decide to not provide military protection to my neighbour; I cannot exclude him. It is nonrival because we can both consume it simultaneously, unlike a hamburger.

However, education is certainly excludable – the professor can close the door – and at least somewhat rival. Lecture seats cannot be filled by an infinite number of people. Instructors do not have infinite time. Lab space in the hard sciences. The straightforward case is therefore very weak for direct public provision of educational services, so it’s incumbent on us to start being cautious about whether the government has a legitimate role.

Let me throw out some reasons from economics textbooks why governments might get involved. Democratic values rely upon an educated populace. Citizens could be boundedly rational or misinformed about the impact of education. Private markets could be flawed and unwilling to extend loans to those wanting to borrow against their future high income to attend university – this is the consumption smoothing argument I advanced the other day. People who earn more will remit more taxes. (For the record, each year of PSE confers about a 5% annual wage premia and an 8% total return, though that’s only one estimate, there remains much uncertainty about the true numbers; there are some tricky statistical issues.) Providing a home for academics to work might result in favourable conditions for other enterprises – this happens a lot in biosciences. Etc.

Since most of us can probably agree these are good things, not as many people will attend university as is socially optimal without government intervention. For example, suppose the benefits to me of getting a degree are $150,000, with an additional $25,000 in benefits to society, for some combination of the reasons listed above. (Just because these numbers are in dollars doesn’t mean they only include monetary benefits. If the student receives pleasure from learning, it’s included in the benefits. This way, I don’t have to introduce utils. Any cost-benefit study will monetize nonmonetary benefits in this way.) If the degree costs me $160,000 (including things like the income I choose to forego by working less), then I won’t attend. But if the government gave me $15,000 to attend university, then I would be better off by $5,000, and society would be better off by $10,000. Actually, more like $8,000 – raising $1.00 in taxes costs about $1.20 in wealth – at least, that’s the figure I used in cost-benefit class – in what is called the marginal excess burden of taxation. But the important point is that there’s scope for win-win here.

The problem arises in that the government is not all-knowing. If I value the degree at $200,000, then the $15,000 from government is free money in my pocket and a waste of resources in generating the funds and transferring them to me. Bigger problems arise as the subsidy increases, say with the same costs and societal benefits as before, but with the government subsidizing the cost down to $50,000. Then someone who only values the education at $60,000 could enroll, be personally better off by $10,000, but cost everyone else collectively $65,000 (or $87,000, counting that 20%)! But clearly it’s impossible to get everyone (anyone?) to accurately state their valuation of the degree before they even start classes. It’s equally impossible to accurately measure the benefits to society from one more person having letters after their name.

This brings us to student loans. Since large subsidies have the potential to generate these losses, which economists would term “deadweight losses,” other methods of reaping the ‘positive externalities’ of education might be worthwhile. Credit markets are imperfect, as illustrated over the last year. If the majority of the benefits of education accrue to the individual, rather than society, then student loans become a very effective tool for achieving the win-win described above: if I value my degree at $300,000, it costs $150,000, but I cannot raise the money as an 18-year-old, the government can step in with a loan to cover the discrepancy, enhance my welfare by the $150,000 and grant society the $25,000 in externalities. Even better, by placing the choice of whether to accept the loan or not on the student, the government implicitly learns the worth they place on their education, thereby significantly reducing the chance of spending a lot of money on someone who doesn’t value the service.

Intentionally or not, the combination of subsidies and student loans both serve different purposes: to tip people over the edge and rake in the social benefits, and to fix credit markets, respectively. Whether you think subsidies should be larger or smaller depends on your assessment of the magnitude of the externalities, but the dominance of student loans over grants/subsidies/etc. makes much more sense from an efficiency criterion. Both, yes, but loans should be first. Given that many Canadians have willingly – willingly! – shouldered billions in student debt, I cannot say that the government offering this choice has proved anything but a benefit to most (obviously, university provides no future earnings guarantees, some do lose out on this lottery, see my response to Joey below). If student debt was such a horrible thing, people would avoid it accordingly. Conclusion, as before: student loan debt is a good thing.

I’m not saying students are better off because they have to pay tuition. But if we decided to implement free tuition, that would basically be making a large transfer of funds from society to (a) students and (b) an incinerator – unless you think that someone else attending university is worth hundreds of thousands of dollars to the rest of society, above and beyond what the individual earns from their degree. I don’t think the numbers add up that high and cannot find any references that would support such a magnitude of externalities.

Beyond this framework, most points raised about how much the individual should be expected to pay are not economics but religion. “Social justice”, “equality of opportunity”, and so forth are termed normative statements. These arguments are ultimately subjective judgments about how an individual believes society should operate, and as such are removed from the microscope of scientific analysis, which is only equipped to discuss how society does operate. Some people may be willing to sacrifice large amounts of resources to ensure that tuition is free to all comers, which is fine in the context of one’s moral viewpoint. All economics can do is compute the likely effects. Now, I’ll try to address some of the specific points raised in the comments.

Joey: I agree in that nobody – or at least very few people – want(s) to default. Maybe, maybe there are one or two people who attend university and plan a personal bankruptcy the week they get out the door. Student loan debt is difficult to erase from the books, harms the credit rating and so on. I agree. There is a fine line between being too harsh on those who didn’t realize dreams through university – particularly since the government subsidies prodded them into taking the risk in the first place – and being too generous and opening the door to large-scale losses. Without the numbers, it’s difficult to judge. As Bob Whitney points out two comments down, there’s no guarantees here, but there’s no coercion, either. University is a risk that people take willingly.

Dale: I’m not presenting a single argument that cannot be found in an introductory microeconomics textbook anywhere in the country. I have probably moderated my points here a little bit relative to last time, but I don’t think anything fundamental has changed. It is ideological only in the sense that evolution is ideological: what I’ve said above enjoys virtually as strong a consensus among economists as evolution does among biologists, except none of us are sure of the numbers and thus have accordingly different responses. As I said, an individual may have moral judgments as to what policies should be pursued – economists like to maximize net benefits – but if one does not accept that social goal, then we enter a philosophical sphere. With respect to your first citation, it is misleading. Here is chapter 7 of the first reference, for example. Every nonmonetary benefit they quote accrues to the individual, not society, so free tuition is not justified no matter how large the nonmonetary benefit is. In fact, if the benefits were only monetary and nonmonetary – but both reaped by the individual – there would be zero case for government. The only way to justify free tuition is the belief that benefits accruing to the rest of society, not the individual, are larger than the costs of education, which I find very difficult to argue and cannot find any evidence to support. I seriously doubt you’ve read any part of either book.

Jeff: I do believe that people who are paying $10,000 to sneak across from Mexico to the U.S. illegally are doing it because it’s a good deal. For them. It may not be good in our eyes – anyone reading this article probably has better options than cramped factory hours at sub-minimum wage, but they wouldn’t do it if they had better options. Or do they just like to torture themselves? Similarly, sweatshops are a dream in some places. Certainly, the career and lifestyle that many Canadians desire are probably only obtainable from university education, barring exceptional cases. But we can’t promise everyone a good job just because they want it. I would still like an explanation for why people shoulder student loan debt if it’s against their best interests. Are they simply stupid? No. They’re taking a calculated risk to improve their lives. They expect that they will be better off with the loan and the degree than without either. On average, thanks to the student loan, they become better off. The government does not force anyone into student loans. As I said previously, how can “no university” be better than the choice between “no university” and “university plus loan”?

jessica: I agree entirely, you’re right, that’s a problem. Assuming that all parents are willing to fork out for their kids education is inaccurate. The education is an investment for the individual, not their parents, and should be calibrated as such. The intent of such legislation is to prevent rich families from using the student loan money – which comes at low, low interest rates – to buy a summer home or play the stock market with, but that doesn’t mean it’s blameless. Once anyone can vote, they should be free to conduct any financial arrangement without the status of their parents being factored in.

Chris: In my eyes, there is a difference. A graduated income tax has nothing to do with education. It is purely an issue of income equality. I think a progressive income tax is a good thing. But it’s got nothing to do with education. Why is paying back a student debt after graduation worse than paying an equivalent amount of higher taxes after graduation? The only difference I see is the former reflects how the individual gets most of the benefits of education and takes responsibility for that, while the tax and transfer invokes all sorts of bad incentives that I’ve talked about at length.

Josh: I cannot find “poverty” in my article, so I can’t respond there. But unequivocally, raising taxes reduces the incentive to work. Repudiating that is equivalent to a book-burning of every economics text on the planet. Like I said, education isn’t free, someone has to pay for it. Again, consider the extreme case: 100% tax rate. Why would anyone bother working? Number of professors = number of universities = 0.

patrick: ‘Default’ does not mean that the student still owes money. I am unsure where you got that impression, but you have it completely wrong. To quote, page three, last paragraph: “default (loans that are deemed uncollectible and lost)”.

Finally, I think it’s also important to note that anyone reading this, by virtue of visiting the oncampus site, is considerably more tied up in academic life than most. Whether a professor or a debt-ridden student, priors on these issues, mine included, are probably biased from the national mean, which is why I think it’s necessary to be objective, rather than advance policies that ‘would be nice’ or ‘sound good’.

Addendum: Fiscal policy, since it’s a hot topic. Whether you believe fiscal policy is effective or not is not the point. The idea is that the government can spend today in order to raise the aggregate demand for goods and services in the economy, which requires employment to produce those goods, etc. From first principles, direct spending is more effective than tax cuts: the idea is to get more money into the economy, so spending a dollar certainly does more than handing someone a dollar (say through tax cuts) and letting them decide how much to save and spend. Conversely, forgiving student loan debt is starting off by dedicating all the money to savings, so you have to count on the second-order effect of the individual to spend out of the payments they would have otherwise made on their debt, so it gets the least money moving of all per dollar of government spending. I won’t make claims about consensus here, because right not the profession doesn’t have any real consensus about whether fiscal policy is a sound idea; though probably the majority are in favour, there is certainly not a hint of agreement on what the proper spending targets could be.

Anyway, there. Way too much text, but I wanted to be as clear as possible. I’ll respond to comments in the morning and at least a few times after that, between bouts of tackling a problem set.

Was the budget hot or not? Canadian education experts weigh in

“Overall, the PSE community should on balance be happy with this budget. $2.75 billion in infrastructure is a simply massive investment, and its effects will be felt and appreciated at campuses across the country. The lack of new funds for expanded research efforts is disappointing, and reduces what could have been a home-run of a budget to perhaps a ground-rule double.” — Alex Usher, Educational Policy Institute

“Infrastructure funding is crucial, no doubt, however, if there is not a parallel commitment to ensure adequate funding for students and institutions we will witness strange times at post-secondary institutions as new buildings go up, while students and teachers wait out in the cold for government support.” — Howie Bender, Ontario Undergraduate Student Alliance

“Canada’s colleges and institutes badly need an infusion of new capital to renovate, retrofit and expand facilities, and to acquire leading-edge technology for teaching purposes. This budget has announced measures to help address these needs and to provide increased capacity for advanced skills development.” — James Knight, Association of Canadian Community Colleges

“It’s good to expand the capacity of our institutions but if potential students don’t believe they can take on new debt in the middle of a recession, those seats will remain empty.” — Zach Churchill, Canadian Alliance of Student Associations

“At current levels, student debt depresses consumer spending and could harm the Canadian economy’s recovery. The federal government missed an important opportunity to help students and their families out of a $13 billion hole.” — Katherine Giroux-Bougard, Canadian Federation of Students

“Investment in post-secondary education and research is one of the best ways to stimulate the economy both in the short term and over the long run. The Harper Government missed an important opportunity in its limited initiatives for our universities and colleges.” — Penni Stewart, Canadian Association of University Teachers

“When I do the math on 30 per cent of $2 billion, based on what an average project might cost, it really doesn’t go very far. So I’m not holding my breath.” — Rick Buis, Lethbridge College

“I’m mystified at any move to cut operating support [for federal granting councils] at the very time they are sending such a powerful signal on their priorities by investing in infrastructure and scholarships.” — Heather Munroe-Blum, McGill University

“Universities will identify projects that are ready to go and will deal with urgent maintenance issues such as upgrading buildings, labs and research facilities. In these difficult economic times, supporting universities’ ability to contribute to Canada’s short-term recovery and long-term growth has an even greater significance.” — Tom Traves, Association of Universities and Colleges of Canada.

More students means a higher cut-off average for many exclusive programs

A tough economy is being cited as the reason behind record-level university application numbers in Ontario.

The Council of Ontario Universities says 84,300 applications have been submitted this year – a 1.1 per cent increase over a record set in 2008. The council says the figure is 42 per cent higher than the 59,197 applications made in 2000.

Peter George, chairman of the Council of Ontario Universities, says more people see a university degree as key to a successful career, “particularly when economic conditions are challenging.”

The only year with a higher total was the “double cohort” year of 2003.

That’s when 102,618 students applied to universities after the cancellation of Grade 13, causing two classes to graduate in the same year.

The council said the number of people applying for university typically increases during economic downturns.

“Applicants know that this is a good time to attend university and get that degree or to upgrade their skills, Paul C. Genest, council president, said in a release.

Last year, some 84,000 high school students applied for 64,000 spots at Ontario’s 20 universities.

Grade cut-offs change every year, and vary for each program in each institution. Last year, most schools made offers to students with minimum grades averaging in the mid-70s or 80s.

Several stringent programs made offers only to students whose average grade was in the low to mid-90 range. Those programs included McMaster University’s health sciences, York University’s Schulich School of Business and biotechnology at the University of Waterloo.

Some universities begin making offers of admission as early as February, but most institutions send out rolling offers until late May.

- The Canadian Press