Coursera – Financial Markets with Robert Shiller

If you’re interested in what Coursera has to offer, Financial Markets with Robert Shiller would be a good place to start.

Id recommend watching Coursera videos at 1.5x speed in order to save time. There are mini-quizzes that pop up during some videos to check that you’ve been retaining what the lecturer is saying.

The lecturer and guest lecturer for this course function as another data point on winner take all markets and how MOOCs will gain market share by packaging the contributions of several superstars in their respective fields.

I’m coming round to the view that online education will never replace the signalling function of bum-in-seat tertiary education – which is unfortunate for fans of technological disruption – but takes into account the sociological issues that stem from the tertiary education arms race, namely credentialism where more and more degrees are required to gain entry into labour market niches where an excess return can be earned.

Class of 2009 struggling in the USA

A study of more than 1,000 members of that graduating class from 25 selective colleges found that two years after graduation, one-quarter of them were still living at home. Thirteen percent had jobs that didn’t require any college education. Most were still getting some kind of financial help from their parents.

Read the whole article over at Vox.

There is a lot of interesting literature about how graduating into a recession can have a permanent negative impact on lifetime earnings. I would add that because of the importance of the first graduate job in determining your “career trajectory”, there will be enormous long term consequences if a non-trivial amount of graduates in New Zealand don’t end up with the sort of jobs they went to university to obtain.

One of the better parts of how New Zealand does tertiary education is that student loan repayments only kick in when you earn more than $19,084 and come straight out of your wages to IRD as opposed to the US situation where some graduates may have several different student loan providers to deal with – and make payments even if their “investment” in education hasn’t earned them a dollar in return.

Compare Study Options

Careers NZ has an excellent tool that draws on the reports produced by the Ministry of Education of what graduates earn in labour market incomes after completing their qualifications.

The tool is available on the Careers NZ website and enables you to compare different levels of study with median earnings for people who studied that qualification and obtained a job.

How much income inequality is driven by poor study choices at age 18? How much of a role do qualifications actually play as opposed to actual job performance? How can an academic talk about human capital when there clearly isn’t a return on investment for many young people? All interesting stuff, and more important to have serious debate about than humdrum political noise.

Allegedly Smart Students Not That Smart At All

The idea that performance enhancing drugs are necessary for good performance at a mediocre global university in New Zealand is laughable. In fact, it’s a good indication that allegedly smart students aren’t that smart at all.

A core component of the zeitgeist is the idea that academic performance is a really good predictor of life outcomes, or something. Controlling for the raw product (social and cultural capital are a prime example here) academics are working with doesn’t seem to happen very often, particularly in things like the Education Counts reports that track graduate earnings over time.

Taking performance enhancing drugs, to do better on something that doesn’t really matter if you’re building valuable skills, is a bit short-sighted. Also, if you need a pharmaceutical boost to help you regurgitate academic content, how will you cope in a cognitively demanding role that requires you to problem solve with new information you didn’t have at hand to study for weeks before “the test”?

What young graduates earn when they leave study

People take tertiary education for many reasons. They think about what they enjoy, what they are good at, what they are capable of and what will get them started on a career. Good careers are associated with better health, better well-being and more satisfying lives. So many young people are making their tertiary education choices to gain the skills they need for satisfying and rewarding work. They use a range of information sources to help them make these choices. The information in this report is designed to add to the data available to young people facing those decisions.

This information is not just important to students and to their families. The Government makes a very large investment in tertiary education each year – funding tertiary education providers, providing subsidised student loans and granting student allowances. One major purpose of the Government’s investment is to help improve the New Zealand economy and society by raising the level of skill in the population – which helps make our society more productive, contributes to the creation of wealth and leads to better social outcomes.

Studying the earnings of graduates is one way of looking at the contribution that the tertiary education system is making to New Zealand’s society and economy. So the information in this report contributes to an understanding of the value New Zealand receives for the investment we make in tertiary education.

Read the full report from the Ministry of Education.

domgradearningsHigh school students thinking about career options can play around with this excellent tool at Careers New Zealand that shows how different degrees have different earnings profiles. There is also good data about how getting honours or a master’s affects earnings.

Some people don’t like thinking about tertiary education in this way. They should check their socio-economic privilege! Most incoming undergraduates at New Zealand universities need their investment in their education to pay off in the labour market. If they get it wrong, there are significant consequences that can take years to recover from.

Considering the cost of administering the student loan and student allowance scheme, making tertiary education tuition free or forgiving student loan balances would probably be indistinguishable in cost from maintaining the status quo if you discount back future repayments.

University As Consumption Good

Firstly, James Zuccollo at TVHE:

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?

Secondly, Eric Crampton at Offsetting:

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.

The literature generally looks at university as an investment. You incur costs – foregone wages, tuition, lower income etc. for a few years in the hope of earning a higher labour market income after graduation.

In New Zealand, interest free student loans and the availability of Studylink to subsidise living costs introduce distortions to the market for higher education. Without facing high out-of-pocket costs, sub-optimal decisions are easier for high school graduates. With social mobility as one of the goals for the student loan scheme, I’m not sure it’s delivering when degree completion seems to be significantly easier for those from high income households.

When this is added to a lot of nonsense about “do what you love”, and a lack of frequent examination of the data on what graduates actually earn in New Zealand, it’s hard to classify university as an investment if almost everyone is treating it like a consumption good.

I’d point people to the 2013 Student Loan Scheme Annual Report for an interesting look at how the public sector discuss human capital and the effectiveness of the student loan scheme in achieving higher levels of “social and economic wellbeing”.

My concern at the moment is seeing a lot of people my age “double down” on what has proven to be a sub-optimal allocation of time and capital. Failing to obtain employment after undergraduate studies, but having good enough grades to continue with post-graduate employment, is typical. The changes to Studylink don’t matter as much if you have a part-time job and parental assistance – which far more people do than they might let on.

The student loan scheme is a major financial asset for the government. But are the higher incomes on offer really worth the enormous costs? How does this table below compare to the return on a trade qualification? I would argue that trades training is cheaper and leads to similar earnings profiles once you finish your apprenticeship and start your own firm.

Spending More Money On Education

More money is going to be spent on education.

I’m not convinced it will achieve anything.

Surely we passed diminishing returns to education spending billions of dollars ago?

Surely we have to think about the billions of dollars in student loan debt that financed majors that do not add value to the economy?

Well played by John Key though. Now David Cunliffe has to spend “more” on education.

This means in the debate John Key can smash him with “we’re spending more but keeping the budget in line, you’re trying to bribe voters by promising something the government can’t afford”.

Anyway, after the election who knows who the government will be composed of.

The idea of NZ First anywhere near the Cabinet room is almost as bad as the idea of the Greens in coalition with Labour and Mana.

First World Problems For People Wanting Cushy Academic Sinecures

The last few days have seen the eruption, among academic bloggers, of a tense discussion over tenure. These discussions have been going on for a while, of course, as the situation for newly minted PhDs keeps getting more dire, and the reaction of people with tenure is to tut-tut about how awful it is and say that someone should do something.

From Megan McArdle over at Bloomberg View.

I would contrast the despair of humanities PhD students with the centrally planned PhD job market for economics Phds. They almost all seem to get high paying jobs straight off the bat – it may not be at the university of your dreams but you’ll be fine. If they don’t want to become publishing monkeys they will get picked up by the finance sector at several multiples of a tenured professor in compensation.

Noah Smith wrote a good article about getting into an economics PhD program over at Quartz a while back. But let’s think about reality – when I can watch Tyler Cowen on Marginal University or John Cochrane on Coursera – what is the value added to society of a tenured academic these days?

Interesting Insight Programme On “Skills Mismatch” – Maybe Stepping On Dreams Is Necessary

I don’t think there is nearly enough focus on the harsh truth of the New Normal: forget about your hopes and dreams and focus on identifying a marketable skillset you’ll be able to develop at comparatively lower cost than people you’ll be competing against for jobs.

Use that labour market income to bankroll your “passion”, if you have one, and stop falling for the nonsensical idea that we should all work on our “passions”. I recently read Cal Newport’s new book “So Good They Can’t Ignore You” and have been converted to the idea that doing hard work and developing valuable skills – building career capital – is a far more rewarding pathway to success than focusing on “what you love” or “where your passion lies”.

There is not nearly enough information for students with non-traditional backgrounds going into tertiary study to make informed decisions that lead to the sort of outcome they are looking for – a decent job at the end of the degree. There is a wage premium for tertiary graduates, but there isn’t nearly enough explanation of what sorts of “soft skills” and “hard skills” are required to get from undergraduate to gainfully employed worker.

It is deeply troubling how many people “double down” on an undergraduate degree that failed to lead to full-time employment by pursuing further study. The signalling rat race is a waste of resources in my opinion because there is a major gap between what employers need and what universities produce.

The Value Of Online Education

The current labour market requires a university qualification in order to obtain employment. That’s pretty much a general rule. If you disagree, try obtaining well paid employment without either a university qualification or a trade certification. You will be an outlier if you are successful.

The value of online education, in my opinion, is that it enables self-starters to obtain the sort of education that a university qualification should be giving them but doesn’t. For reasons I haven’t yet wrapped my head around, my learning at university has been less than my learning online.

There is a major problem with learning online though – it’s only possible to realise the value of what you’ve taught yourself once you are employed and utilising those skills. There is a chicken and egg problem here – a lot of young people will not be given the chances they need to figure out where their comparative advantage lies in the labour market.

This increases the likelihood of sub-optimal investment in the university qualification itself. What degree you take matters, but what you major in matters even more. The Ministry of Education recently released a study showing that some majors clearly have an earnings premium over other majors.

In that sense, if you feel like you’re not learning anything valuable at university, online education is the recovery tool. Without forking out $800 a paper to simply jump through the hoops, you can exchange your time in exchange for far more interesting course content and skills.

This links into what Tyler Cowen was talking about in Average Is Over with respect to conscientiousness. If you can work through a textbook outside of class, do the problems and build a solid understanding of how that area you’re interested in works, you can do it for other fields as well. There’s a cumulative effect to applying yourself to online education – you build experience using the tools, you build experience sticking to a schedule and you gain more knowledge with which to identify other knowledge gaps to be closed.

I like learning new things and developing new skills – particularly IT related ones – but if it wasn’t for online education and the enormous amount of free resources available on the internet, my love of learning would have been destroyed by university. That’s something I’ve discussed at length with other people who have similar interests – rigid orthodoxy at university might signal reliability to future employers but it drums out any creative spark necessary for competitiveness in the skills market.