Government programs (such as subsidies and student loans) designed to inflate both the supply and demand for higher education have driven a wedge between universities, students, and employers. Like any other economic good, the value of a higher education degree is determined on the market, at the intersection of the subjective valuations and appraisements of those constituting the supply and demand of that particular good. The parties interested in these transactions are not just education providers and students, but also—or even primarily—employers looking to hire graduates into their companies. At least, that’s how things should be, with entrepreneurs at the forefront, driving and shaping up the content and quality of the education and training of their future employees.
But with the government interfering now for decades with this precarious balance, it is not unexpected to find that the essential link which allowed the market to work efficiently has been fractured. The result is that higher education degrees no longer hold any value for employers.
Recent evidence suggests that in the UK, for example, a record number of university graduates—one in four—face only a choice between unemployment and taking a job that does not require a degree. This shows that their degrees are not demanded on the market or, alternatively, that young people are malinvesting high student loans into degrees which, once obtained, will not offer them better employment alternatives than before—thus having a rate of return too low to justify the initial investment. Similarly, an investigation by The Economist has revealed that worldwide, BAs, BSCs, but also master programs such as MBAs are no longer considered to offer a candidate a competitive edge in the marketplace.
Another facet of the devaluation of higher education is the record high number of specialised degrees, a trend which began with masters and MBAs, but has now peaked into PhDs. The mismatch between supply and demand (academic positions) is even wider in this case. A 2013 paper published in Nature Biotechnology has found that “Each year, there are seven times more PhDs awarded in science and engineering than there are newly available faculty positions.” In fact, the authors show that
Since 1982, almost 800,000 PhDs were awarded in science and engineering (S&E) fields, whereas only about 100,000 academic faculty positions were created in those fields within the same time frame. The number of S&E PhDs awarded annually has also increased over this time frame, from ~19,000 in 1982 to ~36,000 in 2011. The number of faculty positions created each year, however, has not changed, with roughly 3,000 new positions created annually.”]
A part of these graduates, especially in economics, end up working for the government when they eventually fail the market test. But the trend is also extending further to postdoctoral fellowships, which are sought after by the 70% of PhDs unable to find alternative employment.
Taking the government out of higher education and letting universities compete in providing market-relevant, profitable degrees is only one part of the solution. The market for education won’t be entirely healthy until the government is also taken out of primary, secondary, and high school curricula and finances, allowing parents and pupils to become informed consumers of education and good judges of their investments.
This piece was originally published at the Mises Institute.