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Skills vs. Education

I’m no Andrew Leigh or Andrew Norton when it comes to thinking about education and the economics thereof, but what the hell … I wrote the following back in 2005 for some reason and thought it worth sharing:

I see some confusion about the differences between ‘educated’ and ‘skilled’ that I think many people are unappreciative of, unaware of, or quite deliberately gloss over. In part, I guess, it’s affected by the hodgepodge of meanings attached to the word ‘education’ itself. It’s certainly the acquisition of something, but is it ‘skills’, or is it ‘An Education’ (capitalisation deliberate)?

“An Education” is what some people might refer to as intellectual spinach – it’s good for you, eat it! – and is the logical extension of what the US calls Social Studies. It’s a look at history, the make-up of your society, your government, the philosophies that underpin it and so forth. It is, in essence, what used to be regarded as essential in the British upper-middle classes for spitting out a ‘gentleman’ and could perhaps be summarised as “the world and your place in it”.

Skills, on the other hand, are what make you productive and therefore, valuable, to the economy. Skills are what businesses want and to a certain extent, all they’re interested in from their workforce.

The confusion comes about because, by simple virtue of our humanity, technology progresses. The things we do continually require less effort – fewer inputs, less physical work – to produce the same output. As such, the history and future of mankind as economic agents is entirely about a progression away from the physical and towards the intellectual and with that moves the skill-requirements of industry. This has made the acquisition of skills and the acquisition of “An Education” overlap. To excel in either now requires critical reasoning and imagination.

This hasn’t escaped the politicians of the world and when they speak of a skilled workforce being needed to take the economy forward, they’re talking about intellectual skills. They see universities as factories for producing skilled workers and this grates with those in academia who see universities as secular temples – places where supplicants go to seek enlightenment.

As society has progressed and the intellectual demands of the economy have grown, we’ve seen a corresponding increase in the number of years that a person spends in schooling before entering the workforce. I don’t doubt in the slightest that when people complain that two or three extra years is just blocking a person from being productive was made with the same force back when the push first came for most people to finish grade 12 at school rather than stopping at 10. Whatever the extension, the gist of it is to emphasise the intellectual development for longer and postpone the skills training until afterwards. The latest suggestion is just to hold off on the “skills” for a masters and to work on your critical reasoning through your undergrad.

This sounds fine in theory (we live longer and we earn more in real terms, so the cost of delaying our entry to the work force pays off), but it faces an ultimate dilemma in my opinion, and not just that we’re running out of academic levels to force kids through. The years of schooling that we force on our young has now extended well past the time of their physical and, to a large extent, psychological maturing. A kid is no longer expected to buck against the unfairness of the world while welding something in a factory, but to do it at university. That’s fine so long as there’s development of some kind to be had – we’ve always tied education to development – but what about when the person is a physically, psychologically and emotionally mature adult?

The technological progress of the world is not just continuing, either – it’s accelerating. That means that the rate at which the insufficiently skilled lose their value is only going to increase and with it, the demand for mid-life education is going to grow.

Thus, to my mind, there should be an almost fundamental rethink on how we allocate the fraction of our lives in education. Instead of doing all of it in one long burst at the start of our lives, we should be doing a large part of it initially, while we physically and psychologically develop, but then spread the rest out over time as we need it. Make the start-of-life education first and foremost about surviving in society, then focus on essential, universal skills and the development of critical thinking before just touching, broadly, on your career of choice. Then work for a time before returning to study to focus and specialise.

In addition to not forcing people to stay as underling students past their maturity, this allows people to change career direction with reasonable ease and for those people who don’t find what they want at university to not be discriminated against for the rest of their lives because education is a process and not an event that they missed.

Essential skills are the things that we probably all groan about: Typing, computer-use intuition, communication skills, both written and verbal. The things, in essence, that make a productive (though boring and uninspired) office worker.

This also addresses part of the question of university funding. The argument for free education centres around the fact that students have never had a job and so can’t pay for it up-front. The argument for making them pay up-front anyway hinges on an efficient capital market that allows them to borrow against future earnings. [Note added in 2008:  I was pretty clearly ignoring the idea that parents could afford to pay the lot for their kids] Continuing education as I’ve described it would only happen after a person has been working for some time and has had a chance to save, so the problem is moot: Make them pay.

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Andrew vs. Andrew (continued)

Following on from yesterday, Andrew Norton has his second piece up [A.N., A.L.].  He continues on the early topic of teaching civics, concluding with:

In my view, preserving public education to teach civics is a non-solution to a non-problem.

I’d love to see a longitudinal study looking at what people covered in school and measures of their criminality, understanding of and participation in democratic society one, five and ten years after leaving school.  Until then, this aspect of the debate will continue to be rhetorical.

A.N. then moves on to the topic of financing, acknowledging A.L.’s point that there are economies of scale but arguing that they could be achieved through school associations or chains.  He suggests that the government still be involved, subsidising schools on a per-student basis inversely weighted to the students’ socio-economic backgrounds:

[W]e could fund all schools on a similar basis to private schools now, according to parental SES background. That would lead to reduced rather than greater government expenditure, with tax cuts helping parents finance higher private outlays. Schools servicing the most disadvantaged areas would get the most money, providing what was necessary to make private schools viable. Schools in the most affluent areas could be taken completely out of the public funding system; this if nothing else about my proposal would please the AEU. 

This seems a reasonable and persuasive point to me.  However, since it would amount to the government paying for the schooling of the poor, it seems implausible to assume that they would not want a say in how the money was spent.  It would be, in effect, an Australian education equivalent of Railtrack/Network Rail in the UK – a nominally independent organisation that nevertheless operates with a government-backed guarantee of funding to achieve government-stipulated requirements.  This may well represent an improvement over the status quo (and I suspect it would be, from a financing point of view), but it is not full privitisation.

I was never particularly concerned with financing except insofar as it affects selection.  This sort of scheme, which does keep the government involved, may help ensure that every child gets accepted somewhere, but my concerns about student complimentarities and the need for national education standards remain.

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Worth following …

Andrew Leigh and Andrew Norton (you can find a brief introduction to each of them here) are having a “bloggish debate” on whether public schools ought to be privatised. You can follow the entire discussion at either of their blogs. We thus-far have an initial comment from both. The first came from Andrew Norton [A.N., A.L.]:

… The government owns most schools, employs most teachers, tells them what to teach through state-set curricula, and examines students to make sure they have it right-even kids escaping to private schools can’t avoid these last two aspects of state-run education … Across the political spectrum, activists want to use public education to influence young minds. In his book Dumbing Down, Kevin Donnelly documents how left-wing academics and teachers shape curricula to fit their political agenda. In government, the Liberal Party proposed a national history curriculum, which was widely seen as another front in the so-called ‘culture wars’. Rather than fostering social unity, as some of its supporters claim, state-controlled education is a source of division and nastiness. Instead of allowing different groups to devise their own curriculum, and letting parents choose between them, we fight over a common curriculum …

In response, Andrew Leigh argued [A.N., A.L.]:

… indoctrination isn’t all bad. I’d like to live in an Australia where children shared a basic understanding of democratic values, and understood our geography and our history. I’m more confident that public schools will achieve this than I am about private schools … you’re either arguing (1) for the private school funding to be raised to the same level as public school funding, or (2) for the government to get out of the schooling game entirely. Fortunately, we have an interesting natural experiment of reform (1). In 1981, the Chilean military government passed a law (or whatever dictatorships do to put things into effect) that gave the same per-child funding to non-government and government schools. Fifteen years later, 62% of kids were still in government schools … Public education is worth preserving because it helps engender shared knowledge and values; because a public system guarantees access for all children; and because its economies of scale will often make the public sector more efficient than the private sector.

I love reading both Andrews on education. They’re clearly both incredibly smart and thinking incredibly hard on a topic to which most people simply apply a few platitudes and rules-of-thumb. A few of my thoughts, which I’d love to see them discuss at length:

Selection. Private schools are selective, meaning that only the smartest (or wealthiest, or most religious) students are granted access. If the entire system were privatised, what school would accept the academically-below-average, non-religious poor?

Conformity risk. On the other hand, the one-size-fits-all approach so often seen in public education is an imposition of conformity and can lead to the supression of individual talents.

Student complementarities. The success of a student in a subject is arguably positively influenced by the success of their classmates. Even if complementarities do not exist in student ability, they may still exist in student behaviour. Separating the most- and least-able (or most- and least-disruptive) students will benefit those in the advanced grouping and disadvantage those in the lower group. If present, this effect will be greatest for students close to the cut-off in both directions, meaning that there will be a sharp, essentially discreet difference in group performance.

(Dis)Economies of scale and profitability. As mentioned briefly by Andrew Leigh, schools experience economies of scale in minimising costs. However, there are also diseconomies of scale in maximising student performance once classes get too large. This means that private schools would not set-up shop in areas of low population density and that public schools focused on getting the maximum quantity of education for the minimum cost often sacrifice quality in areas of high population density.

Standards and externalities. Government involvement helps ensure that a common, minimum set of standards are met by all students. Employers and universities need to be sure that school-leavers have certain key skills and be able to compare candidates from different schools. I’m happy to assume that the market would produce a generally-trustable measure of the first of these requirements, but not the second. Witness the lack of interstate university attendance in Australia where there is poor comparability of students across states, compared to the high student mobility in the U.S. where the S.A.T. serves as a single, national standard. The S.A.T. is not perfect, but the comparability it offers increases competition in both directions between student and university.

In addition, society as a whole may wish for a third set of standards that are not direct prerequisites for employment or university, such as a minimum understanding of history or civil society. This final point rests on the positive externality of such education. A country’s institutional strength – arguably a cornerstone of growth – may rest on a commonality of feelings of civic duty, for example.

Teacher quality and incentives. I doubt there will be much disagreement between the two Andrews on this one. If they mention it at all, I suspect both will support some form of incentive pay to teachers on the basis of student performance. Personally, I would argue that to the extent that student complementarities exist, at least some of any incentive payment ought to go to the school as a whole. I also wonder if the measure of success ought to be broader than on-the-day performance on a standardised test and perhaps attempt to focus on the students’ outcomes. For example, one year after leaving school, look at whether students are employed or in higher education and if they are in the latter, look at the cut-off for the course they chose.

Full disclosure: I attended a state school for years 1 to 7 and a (small) private school for years 8 to 12. My mother has worked at that same private school for close to 18 years.

Continued tomorrow …

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Oz Election

Well, the Australian election is getting pretty damn close now.  A few random thoughts:

  • Both at an aggregate and at a seat-by-seat level, the betting markets have blown out in favour of a Labor victory.
  • There have been plenty of predictions of exactly how many seats Labor will win, but as ever, Bryan Palmer does a superb job of aggregation and analysis.
  • We have, as Joshua Gans puts it, “US style election-lawyering” from the Coalition, who have released legal advise suggesting that 13 Labor candidates may be inelligible to stand.  I am entirely in agreement with The Possum on this one:  “Sour grapes do not play well with the electorate, threatening to bring in lawyers to try and overturn the election result looks bitter. Not accepting the umpires decision, and threatening to take your bat and ball and go home looks pathetic.”
  • Andrew Norton has some good work in looking at the reasons why the Coalition are on the nose.  His prognosis:  expect a long time in opposition.  I’m not sure I agree with him, but I can’t really explain why, so I’ll just shut up and direct you to him.
  • A friend here in London was voting for somewhere (sorry, I have no clue where) in NSW and thanks to the beauty of the Australian preferential voting system, had to rank One Nation, Family First and Fred Niles.  I really don’t know how I’d put them.
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Libertarianism, inequality and cultural homogeneity

Andrew Norton doesn’t think much of this article by Christine Wallace in the Griffith Review, in which she argues that the Coalition under Howard has instigated libertarian policies by stealth. He calls it “a dozen or so pages of ignorance and silliness,” citing this paragraph from page 8 in particular:

The libertarian logic is that, since personal freedom and the existence of free markets are inextricably entwined, and since – as Bork puts it – “vigorous” economies are vulnerable to being “enfeebled” by particular cultural practices, then the champions of personal freedom have a licence to police cultural practices – in the interests of freedom and economic vigour. Thus libertarians can reason that difference (for example, multiculturalism, homosexuality) must be eliminated so that the economy can function better – reasoning that is absurd, to say the least.

A commenter on Andrew’s blog also highlighted this bit on the previous page:

The central difference between the Howard Government and the Hawke/Keating Governments is that the Labor governments saw a crucial role for the public sector … especially in relation to issues of economic inequality; about which libertarians are unconcerned.

First a confession: I’ve not read more than two or three pages of Christine’s article. Still, if the blogosphere isn’t a place for partially informed comment, I don’t know what is. In the interests of fairness, though, I will disagree (slightly) once with Andrew and once with Christine …

In the paragraph that drew Andrew’s ire, Christine argues that the libertarian pursuit of free markets justifies cultural homogeneity. Andrew’s implicit criticism certainly seems to make sense: why should free markets and cultural heterogeneity be mutually exclusive? But it is worth noting that Christine may – at least to some extent – have an unpleasant point. For a market to operate efficiently requires trust between its participants. A market can certainly operate without trust if institutions are sufficiently advanced and corruption-free, but the enforcement costs they impose are a classic form of market failure, along with moral hazard and adverse selection. Even with good institutions, market efficiency is optimised by increasing trust. However, as Andrew Leigh has observed for Australia [here and here] and Robert Putnam has found for the USA [here], ethno-linguistic diversity breeds mistrust. In so far as they proxy for culture, Chrstine’s point at least partially stands.

Now back to Christine. She reckons that libertarians are unconcerned about inequality. It’s obviously a generalisation, but even in general, it’s misleading. While I’m sure that libertarians are not concerned about inequality per se, I’m equally sure that they are concerned with unwarranted inequality. Classic theory of the firm suggests that in perfectly competitive markets, a person’s wage will equal the value of their marginal product. Presuming (safely enough) that different occupations have different marginal products (so an engineer will contribute more to a firm’s profits than a cleaner), if people at the top of the pile are being paid more than their marginal product and people at the bottom are being paid less than theirs, a libertarian would oppose the excess inequality that resulted.

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The man whose name is anathema

Peter Martin, currently the economics editor of The Canberra Times, has got a nice little piece on labour productivity in Australia over here.

It’s fascinating for two reasons. The first is that growth in labour productivity in Australia has stalled – it may even be as low as 0% for the current financial year – and this slow-down coincides neatly with the Coalition’s Work Choices program. I’m not convinced that one necessarily caused the other. At the very least, I would have expected some sort of lag between Work Choices coming into effect and any change in productivity growth. Nevertheless, it looks ugly for the Howard government and they’re clearly doing their darndest to avoid drawing attention to it.

The second fascinating thing is that, even though this raises the question of whether Keating’s enterprise bargaining system was better in terms of promoting productivity growth, nobody – on either side of Australian politics – will dare mention this possibility. For the coalition, this makes perfect sense. They don’t want to acknowledge anything about the previous Labor government that was “better” than under them. For the Labor party, though, it’s far sadder. They’re clearly working under the assumption that invoking the name of Keating will tar them with the 1991 recession. It’s sad, because they’re just as clearly throwing away the best piece of evidence they have for Labor’s economic-management credentials.

In case anyone is interested, here is a graph from ABS data that Peter included in his piece, showing clearly that the quarterly change in labour productivity has turned negative for the last two quarters:

Quarterly change in Australian labour productivity

Recognising the probable noise in quarterly data, Peter also includes this graph of a four-year rolling average courtesy of Saul Eslake at ANZ:

Four-year rolling average of changes in Australian and American labour productivity

Paul Keating, speaking to the ABC’s Eleanor Hall in the week leading up to the recent budget, justified enterprise bargaining over individual contracts thus:

On this floor at the ABC here, there must be 150 people. If you went out there and said to them, look we’re going to make an agreement for the next three years or four with the ABC and we want 3 per cent productivity a year out of it, or 2 per cent productivity, together you could all do something.

But if they just take Eleanor Hall by herself and say, you will give us an increase in productivity, how can you, individually? How can you? What are you going to do, talk louder? Talk more? Be at work earlier?

For reference, the latest Australian federal budget can be found here. The section relevant to Peter Martin’s commentary is Budget Paper 1, statement 4.

Update – 14 May 2007 – In response to Andrew Norton:

Andrew is absolutely right that a firm is concerned principally with profit, but there are always two ways to get more of the stuff. You can do the same at a lower cost (as he speaks of), or you can do more, with the value of the extra done being more than the extra cost it requires.

Assuming that the amount of labour employed remains the same in both cases, the first possibility does not increase worker productivity; it only shifts a greater proportion of the output away from labour and into firm profits. The second possibility increases worker productivity, with an ambiguous effect on the labour/capital shares of output.