Tuesday, 11 January 2011

The Hunt Report, and how to close the deficit

Michael Burke: There are many shortcomings in the Hunt Report ‘National Strategy for Higher Education’ – but one thing that’s very useful.

It's a shame that the authors have published a Report which cites the OECD Education At A Glance 2009 as the latest offering (p. 19). Just one month after the date of this draft report, EAAG 2010 was published in September 2010.

The accompanying press release for the later OECD study highlights the main theme of that report, titled 'Governments should expand tertiary studies to boost jobs and tax revenues'. Put another way: investment, not cuts.

The useful function performed by the Hunt Report is to highlight the relationship of this sector to the overall economy. We are told repeatedly that deficit-reduction is the overwhelming priority of economic policy. This from a government which has seen the public sector balance swing from surplus to over 32% of GDP.
The Hunt Report recognises that greater investment in tertiary education is required but suggests that this should come in the form of higher fees. Yet nowhere is there an understanding of the impact that investment in tertiary education has on government finance. The authors should have seen this even in the OECD EAAG 2009 version. It highlights not just the individual benefit from investment in third level education, but also the boon to government coffers. The public cost of higher education in this economy is equivalent to US$18,520, the government return for a male student is $92,738, a fivefold return.

Of course that return takes place over the working life of the male student. Women fare worse primarily because their pay is lower. In a Republic worthy of the name, there would be proper equality between citizens, most especially between men and women. Understood correctly, government has a significant fiscal as well as moral incentive to enforce equal pay. Even so there is still a huge return from investing in women’s tertiary education, just under fourfold the initial outlay.

The returns to government arise from higher income taxes and social contributions, as well as a lower likelihood of unemployment and associated costs to the public purse. They could be higher still, with changes to the tax regime, and in any event the OECD does not take account of higher taxation revenues from the likely higher consumption funded by those higher incomes.

The chart below is taken from the OECD EAAG 2009, C_A.8.5. It shows the public costs and returns to investment in tertiary education for the OECD economies.
Blue = public benefits
Grey = public costs

So, there is an upfront cost and a long but very high payback to government investment in tertiary education (although breakeven must be around 8 or 9 years). But the OECD borrows an idea familiar to financial market operators to account for this; net present value (NPV).

The $74,219 return shown in the chart is the NPV for Irish public investment in tertiary education (male).

The NPV is where the future cashflows are discounted by a given interest rate, in this case 5%. On this method the public NPV of investment in tertiary education for a male is over $74,000 and for a female is over $46,000. Actual borrowing costs, even from the heavy mob from the EU are not much higher than this, and financial markets understand NPV, even if government and its advisers do not.

When fees were introduced in Britain, application numbers dropped the following year. Growth in applications has resumed since, but from a lower base and a number of surveys suggest those fees (set at the equivalent of about €4,200 per annum, and about to triple) act as a deterrent especially to students from middle and low income families.

Instead, as the chart shows, the government could invest in higher education in order to help close the deficit.


Anonymous said...

Laim Smullen

The problem is the government this is rising the registration fees (or previously reintroducing
tuition fees) and while at the same time assit strapping all grant aid programmmes.All this
is happing despite the 30% the Irish studnet
body is reciving some from of a


Mature students unfairly hit by changes to grant scheme

Back to Education Allowance Storm Brewing (or not?)

also as regards the university funding issue since 1968 the government paid 66% of each student tuition fee to ensure greater mass perception. Mature presently pay fees and postgrads.

IT previously RTCs were always free because they were funded with european structrual aid money,
but only Diploma courses offered degrees were finished in university courses. That is why ITs are as far as Know luke warn on the fees issues.
The same mount of tax payers will properly poured into
Universities with very little value coming out for the taxpayer.
(Fine gael also wants the state to part subside the fee’s of foreign
Students so as irish Universities can attract more foreign
Students hence driving up the points race and reducing the
The number place for the Irish students in a time of high

<a href=" some gender and class data in third level.






Anonymous said...

Michael, we already went down the route of investing heavily in thrid level.

Except that most of this "investment" went into increasing the salaries of those who work in third level, to the extent that they were paid up to 50% more than their counterparts in comparable European economies.

And the return on that investment? Four hours a week lecturing, for 22 weeks a year, in return for a salary premium of the order of 50k. Nice work if you can get it, but not a compelling case for investment.

The extra resources that weren't wasted on princely salaries went into in the massification agenda, because its so much easier to set simple numerical targets for mass participation at third level than it would be improve the quality of teaching and learning. So we scrape the bottom of the barrel, dragging in low-quality students onto "degrees" in sports psychology and event management, for which there will never be any realistic employment prospects.

What is needed now is appropriate use of the resources we can afford to devote to third level. Appropriate levels of pay, less pathetic levels of teaching productivity, less endless duplication across institutions, and a concentration on under-grad provision in the subject areas with a chance of feeding into economic development.

And if that means fewer, better students than currently is the case, so be it. It certainly will mean less nest-feathering among the faculty than they've grown used to.

Martin O'Dea said...

I agree that there is a massive amount of waste in our current education model - but I strongly disagree that less people studying can ever be a desirable outcome.

We need to be aware of the dynamic that arises from the information age. Again, our chief resource now is not, in any meaningful way, limited in its potential usage among a population; i.e. information.

There is a really central point here and it is similar to arguements about the world not being able to facilitate 9 billion people in 2050. Of course, taking current modes of living and projecting forward like this is clearly not the way to go when the rate of change is increasing, particularly. So could 9 billion people survive in a world with century old technology - well, no; but then again we are not organising ourselves so that the near 7 billion currently are surviving. Can we by 2050 have 9 billion people who have enough food and technology to afford them what would now be seen as a comfortable life - and perhaps even more comfortable than today for the poorest in 2050; ABSOLUTELY.
If anyone has a difficulty with that I will debate you live for as long as it takes.
Massively increasing computational power, nano-tech revolution and the drawing in of so many fields into information technologies is not some made-up, fantastical thing - it is here and it really is incumbent on leaders of ours and other countries to inform themselves of it all. Will we have 9 billion comfortable well medicated and fed, entertained and educated people in 2050...I sincerely doubt it.
However, we must acknowledge the possibilities and accept the responsibility for inertia. My last hope is that young people will ride the information age and the global solidarity that is coming from global communications and surpass what we have aimed for - however, I would suggest that we could at least provide them with the possibility that comes from an education; having deprived them of so much else.

Education should most certainly be free; but it should also be as accessible as possible - in an earlier post I talked about getting at least some level of education available for mass consumption via interactive platforms available on phone apps and with basic internet connections; to allow virtual lectures ala conferences in second life or teleplace, as well as interactive group based assessments and multi-media revision packs etc. Would that we get 23 year olds listening to professors as they wear their i-phone earpiece on the train and find a wide guidance into their own careers and/or businesses rather than what we watched in programme ‘Departure Day’ on RTE a couple of nights ago

Michal Burke said...


your "'return' on that investment? 4 hours a week lecturing..."

mistakes an input (lecture hours) for a return (higher taxes from the graduate, as per the OECD).

It could be possible to up the lecturers' hours. But it may that ther are other returns you haven't reckoned.

I was taught by one Prof. who did less than 10hrs a term, but then he sold 100s 000s of books and did tv series, which created huge numbers of jobs, exports and tax revenues. So however much he was paid, his efforts probably paid for the entire University by himself.

That's what highly, or exceptionally highly trained workers can do.

Anonymous said...

mistakes an input (lecture hours) for a return (higher taxes from the graduate, as per the OECD)

So where is this return on the investment of which you speak? If the professor was paid in line with European norms, say €75k as opposed to €125k, would he produce fewer graduates? Would those graduates be less productive? Would they pay less tax?

The investment I referred to was the salary premium paid to Irish academics. I simply don't see any return on this. And please don't tell me that we need to pay those salaries so as to attract "world-class" faculty, as magically the vast of majority of those world-class academics enticed by those world-beating salaries just happen to be Irish and would have ended up working here anyway, regardless of whether there was a tasty extra €50k p.a. to tempt them.

I was taught by one Prof. who did less than 10hrs a term ...

So obviously an outlier that I hardly even need to make the point

And even so, the appropriate source of renumeration for his books and TV series should be his publisher and TV producers, not his "day-job" employers at the university (on who's time & dime he was probably busily engaged in his media moon-lighting).

Michael Burke said...


perhaps you could see the evidence in the OECD chart provided, where Irish tertiary level education costs are $18,520 compared to the average $27,811 and the (male) NPV is $74,219, compared to an OECD average $51,954.

An education-based contribution to economic revival and deficit-reduction would require more professors and students.

According to the OECD, Ireland spends 49.6% of all tertiary education spending on the compensation of teaching staff ($9,186 per pupil), compared to 43.4% for the OECD average ($12,070).


The return to Irish investment in tertiary education is high, and higher than average, partly because input costs are lower. Increasing the returns even further could be achieved by capital investment (which is exceptionally low) and by increasing student numbers.

Anonymous said...

Michael, you're evading the point that there's no evidence of non-zero return from investing in a large salary premium for academics.

Your point that a close-to-average proportion of the total third level budget goes on salaries is neither here nor there.

Say country A spends half of their third level budget on relatively few highly-paid professors lecturing 4 times a week to massive halls crammed full of students, while country B spends also spends half of their higher education budget on many more reasonably-paid lecturers holding one-to-one tutorials and an open-door policy during office hours, as well as a traditional lecturing load.

Now which country is getting a better return on their investment in lecturer payroll?

Also there are many other factors at work in this country, quite independent of the quality or otherwise of third level education, that could be driving up the apparent return we see per student. Including:

1. higher-than-average income inequality, means that those in higher-paid jobs (generally graduates) get a bigger share of the income cake

2. a concentration of graduate-hungry high tech FDI originated employers (who would happily import those graduates if they weren't available locally)

3. the salary premium deriving from monopolistic and competition-inhibiting practices in graduate-heavy fields such as medicine, law and the public service

Note especially point #3. If the state itself is the biggest consumer of graduates, and pays them an especially high salary premium, this distorts the apparent return on the original investment in educating that graduate (because the sate is funding both the investment and the "return").

Say I purchase shares in Intel, then run around buying up PCs at above-market rates, eventually doubling the price of Intel stock. Have I doubled my money?

Anonymous said...

Dude, where's my comment?

Nat O`Connor said...

It should be up now. Our spamchecker is over-zealous sometimes.

Michael Burke said...


I've already shown that there is no 'premium'. This economy spends much less than the OECD average on teachers' compensation. And less money overall.

If the argument is now that less teaching time is provided for that money the average primary school class size here is 24.8 (22.1 OECD), while the avge secondary class size is 22.7 (23.6), and the total pupil/teacher ratio is 13.2 in secondary education (13.0 OECD).

This is clearly a 'could do better' result and helps to identify obvious areas for increased Irish investment in education.

As for the assertion that the state's monopoly over educational provision drives up wages, as we have seen, the conclusion on wages is factually incorrect. There are only 7 OECD economies where the state spends a lower proportion of GDP than Ireland's 5% (of 30), and of those 4 have considerably higher wage ratios, or 'premia' for teachers.

The remaining 3, the US, Hungary and Italy, have both lower state spending and lower teachers' pay ratios. But they don't seem very interested in mass education at all, also having the lowest graduation rates of the OECD economies.

Henry Grodsk said...

Academics I have spoken to agree that Irish lecturers are very well paid compared to their opposite numbers in Britain but "four hours lecturing" is an old and empty slogan.

With only a little exaggeration, you can say it takes a lifetime to learn how to deliver a one-hour lecture. If not a lifetime, then years of study, hours of direct preparation and more years of experience.

Also, lecturers are expected to carry out and publish original research. The lectures are often based on such research, which of course means that they change over time; that is, you can't just repeat the same stuff year in year out, though no doubt you will find lecturers who do.

This is all widely understood and well known but I couldn't let it go.

Anonymous said...

I've already shown that there is no 'premium'. This economy spends much less than the OECD average on teachers' compensation. And less money overall.

Michael, we were discussing lecturers' salaries were we not? As opposed to teachers, that is.

Do I really have to explain why spending a smaller percentage of GDP on lecturers salaries, or even a smaller proportion of the third level budget on the same, does not refute the existence of a salary premium?

As for the assertion that the state's monopoly over educational provision drives up wages...

The assertion was that the state's monopolistic practices drive up compensation rates in all areas in which the it employs graduates. Not just teaching.

Are the OECD comparative numbers for teachers' compensation normalized for purchasing parity, perchance?

Are the OECD figures for the NPV of Irish public investment in tertiary education for a male student also adjusted for PPP?

Michael Burke said...


If you had taken the time to look at the OECD analysis, you would have seen that they refer to 'teachers' compensation' in tertiary education; this would include lecturers of all types, including professors.

You would have also seen they are not PPP-adjusted, nor are the returns (which would be meaningless, in any event).

But, hey, why bother to read the research, when it would only get in the way of the assertions?

Anonymous said...


So I see you're persisting with your fantasy that there is no salary premium in Irish third level education.

Rather than hiding behind the dubious conclusions you draw from the OECD numbers, how about just comparing actual salary levels?

Take for example the lecturer payscale in Engligh further education:


and compare to the pay scale for IoT lecturers here:


Or typical Irish university-level salaries here:


You also might want to consider these tasty little numbers: