Recently, Chlöe Swarbrick, the Green Party MP, wrote a piece for the NZ Herald discussing access to tertiary education. Now, opinion pieces from politicians tend to be declarations of a stance, rather than serious pieces of analysis; they are intended to remind the voters where their MP stands. That’s what Chlöe’s article is – a simple declaration of a position. That wouldn’t normally justify a detailed critique. Except that Chlöe is her party’s tertiary education lead and she raises important points with important implications for policy. Shouldn’t we expect her to be knowledgeable about the topic? In a position to develop coherent principled policies on tertiary education for her party?
Much of the focus of Chlöe’s article is on student allowances. And that got me thinking about student allowances and how, in my view, the allowances scheme needs repositioning. But first, let’s review Chlöe’s case.
In summary …
… Chlöe’s article argues that:
- Educational underachievement is a consequence of poverty.
- Education is a public good – we all benefit from a more highly educated workforce – but the costs of tertiary education are carried by students.
- Students face high rents for low-quality accommodation. Students undertake part-time work while studying to meet the cost of rents.
- Student allowances are targeted, so only a minority receive a full allowance.
- The government should spend more – making the allowances scheme more generous – to improve access to tertiary education.
Sounds logical? Let’s look at the detail.
Point 1: Educational underachievement is a consequence of poverty
Chlöe cites Max Rashbrooke’s recent Stuff column on education and concludes that “poverty causes educational failure”. The evidence is clear that socio-economic status is correlated to participation in post-secondary education. But does material poverty actually cause educational failure?
The Canadian education economist Ross Finnie finds that what he describes as “cultural factors” are much more important than family income in determining whether a young person will undertake tertiary education. When he controls for the level of education of young people’s parents, the effect of family income on the decision to attend is much reduced. Adding factors such as the “cultural communication” the child experienced, and “… the level of family help with school work, participation in cultural activities, the amount … and the diversity of reading activities…” further reduced the importance of family income in the decision to participate in tertiary education.
In the US, economists Flavio Cunha and James Heckman synthesise a vast amount of research (from psychology, neuroscience, education and other fields, as well as economics) to conclude that “…family income … plays only a minor role in determining child college participation, although much public policy is predicated on precisely the opposite point of view.” Instead, their research suggests that targeted interventions that begin in early childhood and are sustained throughout childhood are the most effective in increasing the probability of tertiary education enrolment and in reducing the likelihood of an individual ending up on a benefit.
In New Zealand, the definitive research on this matter is a leading-edge 2018 statistical study by researcher David Earle. Testing a very large range of variables, Earle found that the most important factors that influence participation in tertiary education were school achievement factors, followed by parental education qualifications and ethnic group. Collectively, those factors explained nearly 60% of the variance in participation. Socio-economic status (SES) was also a statistically significant factor, but it had a very small impact; when SES was tested alone for its impact (ie, without taking account of any other factors at all) across an entire birth cohort, it accounted for around 11% of the variance. So 89% of the variance is not related to deprivation.
When Earle narrowed the focus to look at only those who had obtained a university entrance qualification, he found that the level of performance in NCEA was the most important factor. The next most important factors were parents’ highest education qualifications and being of Asian ethnicity (which was associated with significantly higher probability of participation). SES was also a statistically significant factor in this model but it was very slight – accounting for less than 2% of the variance. The other factors that contributed to the variance were the characteristics of the school attended, being of Māori ethnicity, having been “stood down” (ie, suspended) from school and having a parent who had accessed mental health services – but these were of even lower impact.
One key point is that Earle’s statistical models – built on the Statistics New Zealand’s Integrated Data Infrastructure – draw on data on education, health, demography, crime and justice, employment, earnings, location … Yet even so, these models account for only part of the variance in participation. Part of the differences in the rate of participation derive from unobserved variables – factors that are invisible to government administrative systems. Unmeasured factors, factors like attitudes, motivation, parenting approach, cultural practices … these other non-financial factors play a significant role.
Does poverty “cause” decisions not to participate in tertiary education? The evidence is clear – it does not. There is an association between deprivation and participation; deprivation is a factor, but it is a minor factor. Other factors are much, much more important.
Point 2: Education is a public good
The second leg of Chlöe’s case is that tertiary education is a public good – we all benefit from living in a society where people have advanced skills.
Now it’s indisputable that tertiary education creates important social and public benefits. Graduates generate more income and so pay higher taxes. Higher levels of education also lead to non-financial benefits – externalities. For instance, higher levels of education are associated with social benefits like greater civic engagement, greater social cohesion and better health (even if it is difficult to separate the influence of higher education on these characteristics from the influence of family and other unmeasured factors). Higher cognitive skills in a population leads to greater innovative capacity in the society, which, in turn is associated with economic wellbeing.
Tertiary education also generates the technical skills that societies need for their well-being, for instance medical skills and the skills used in the education, legal and financial systems. A shortage of critical technical skills will reduce the public’s ability to access those skills and drive up the price of those skills, passing higher costs onto the public.
While those externalities represent important public benefits, higher education doesn’t meet an economist’s definition of a pure “public good”. Economists understand a public good as one which is non-exclusionary (meaning that the good is available to all, without rationing) and non-rivalrous (meaning that a person can consume it without reducing other people’s consumption of it). Tertiary education enrolment is available only to those with the entrance qualifications. And in some programmes – such as medicine – there are strict limits on the number of places, leading to severe rationing.
This sort of analysis leads researchers like Klaus Hüfner, Gareth Williams and Walter McMahon to conclude that higher education is best described as a “mixed” good, one that is both public and private.
And we see that mix of public and private benefits in the labour market. Analysis of New Zealand data shows very clearly that tertiary graduates earn a premium over those without a post-secondary qualification and have greater protection against unemployment.
In her NZ Herald article, Chlöe dismisses that evidence; “try telling that to a nursing or teaching student,” she writes.
OK. Let’s look at the data on the earnings of nurses and teachers. The salary scale for registered nurses – even without add-ons available to those who take on senior leadership roles – sees new graduates start at just shy of $60,000, move to $83,000 within seven years, and, if promoted to senior nurse, progress to more than $100,000. Of course, that is less than a doctor will earn. But compare it with the median earnings in the NZ labour market. Data from Statistics NZ gives the median earnings for a full-time, full-year worker as around $58,000. A registered nurse enters the profession, in the first year following graduation, with a salary 4% above the national median. In year seven, a nurse is earning 44% above the median. A senior nurse can earn well above double the median. Teachers reach the median earnings after three years and by their tenth year on the job, the basic salary is 48% above the median – and they have the opportunity to apply for management roles in teaching which pay salary supplements.
That’s not to comment on the constant lament of teacher unions and the nurses’ union that society doesn’t value those professions enough. However, it is factually incorrect to say that there is no significant wage premium for the qualifications needed for those jobs. Compare them with the whole labour force and the premium is significant. Compare them with non-graduates and the premium is even greater.
This simply reinforces the fact that there are private returns – as well as public benefits – from gaining a tertiary education qualification, even a qualification in a field commonly thought to be undervalued in our labour market.
Gareth Williams argues that discussion of the split of the benefits from education between the graduate and the public are almost always about “who should pay” for education. And some researchers (for example, Walter McMahon) have tried to measure the share of the benefit captured by the individual graduate. That exercise is always likely to be difficult, driven by approximations, interpretations and assumptions. Making judgements about the share of the cost of tertiary education that should be met by the student is the sort of decision we elect governments to make. However, responsible governments make decisions on how much of the cost to pass on to students, taking account of the clear evidence that there is a public, as well as a private, benefit from tertiary education. The Ministry of Education calculates that, in 2021, the government paid 85% of the cost of tertiary tuition, with students and their families meeting the remaining 15%.
Was Chlöe right on this point? I strongly endorse her claim that there are important and valuable public benefits from tertiary education. But her article dismisses clear evidence that part of the benefit – financial and non-financial – is captured by private individuals; even teachers and nurses gain from their education.
Point 3: Students are forced into part-time work to pay high rents for low quality accommodation.
We all know that many people have spent their student days living in cold and damp flats. That is unfortunate and regrettable. But the quality of housing isn’t a function of tertiary education policy or student support policy. Even if students had the money to pay for high quality accommodation, that wouldn’t solve the problem of mouldy, cold rentals. In a society with a housing shortage and significant homelessness, shifting students out of low-quality flats would see other low-income people move in. And we all heard the stories about what happened when student allowances and the living cost component of student loans was lifted by $50 a week in 2018 …. in the cities with the highest number of students, and a shortage of flats, the rent for those cold, damp bedrooms went up. Much of the increase in allowances and loans went straight to landlords …
To get real change in the rental housing market in student cities, an important first step is to address housing shortages. And to make sure that students’ landlords have implemented the government’s heathy homes standards. Those standards should ensure that cold, damp and mould should have been eliminated by the time the standards are fully phased in (by mid-2024).
Point 4: Student allowances are targeted. Only a minority receive a full allowance.
Chlöe’s article is factually correct on this matter – allowances are targeted, with the amount of the allowance abated according to students’ parents’ incomes. And a small proportion of students receive a full allowance. But is that good or bad?
Subsidised student loans are the core of the New Zealand student financial support system. A subsidised loan provides finance that ensures that nearly all young people have the liquidity that enables them to enrol, but then requires those who benefit financially from their tertiary education to make a retrospective contribution to the cost. In 2019/20, the level of subsidy in the New Zealand loan scheme was around 36 cents for each dollar lent.
But there is evidence that loans can act as a deterrent to post-secondary enrolment in some population groups. That is the justification for targeting; allowances are intended to mitigate the risk that borrowing may deter enrolment by people whose circumstances might otherwise deter enrolment. Most government funding for tertiary education is regressive – that is, most of the benefit goes to people from high-income backgrounds. It is one of the very few areas of government social policy expenditure that shifts money from low-income families to high-income families. The targeting in student allowances is an attempt to moderate that regressiveness.
Chlöe thinks that the targeting of allowances should be eased. My view is exactly the reverse – I think that the current targeting is poorly designed – it spreads the money too far and too thinly and fails to address the causes of the problem it seeks to solve. One of the lessons of David Earle’s findings is that income deprivation plays a part, but only a small part, in enrolment decisions. Yet the main mechanism for addressing a shortfall in participation is financial. It’s a poor value spend.
Point 5: The government should spend more to improve access
There is no question that the government should do more to address access problems. But equity of access to tertiary education is a complex problem that has its origins early in life and in human behaviour. Knotty problems can rarely be solved by simply throwing money at them.
One thing that the government should definitely not do – should very definitely not do – is what Chlöe suggests in her Herald article (and what the Green Party argued for in its 2020 election policy) – extend eligibility in the current student allowances scheme. To do so would be regressive and result in lots of deadweight expense – paying people to do exactly what they wanted to do, with or without the allowance.
Instead, it’s time to signal fundamental change in the current student allowances scheme. As a first step, the government might tighten and narrow the targeting and, possibly, increase the financial value of the allowance. What the government should then do is to use David Earle’s work as a starting point for further, deeper research into the factors that actually do create barriers to enrolment. Perhaps some of the money currently spent on student allowances should be devoted to interventions that really do make a difference to equity of tertiary education access. That would involve work in areas beyond the tertiary education portfolio, with benefits across most areas of social policy. It would include more support for at risk children in early childhood education, or at school and more support for families. And maybe financial support – even, possibly, more generous financial support – for a small group of tertiary students. Look at the evidence first and identify the problems clearly. Then develop solutions that address the causes.
That will take time. And it will cost. But in my view, it should be the high priority.
I hesitated a long time before preparing this piece. I know it’s way OTT to do a detailed dissection of a breezy op-ed, intended to keep an MP’s name and ideas in front of her constituents. But, in this case, the writer, Chlöe Swarbrick, is the Green Party’s tertiary education lead. The Green Party could potentially be involved in coalition negotiations following the 2023 election. We need to have a sense of what sits behind their policy positions.
Chlöe is a very skilled, very gifted politician. But that’s not the same as being a skilled policy thinker. We need to know if and to what extent she is au fait with the issues currently facing the portfolio and the extent to which her views have been shaped by current research.
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 It is important to note that Max Rashbrooke didn’t say in his article that poverty caused underachievement in tertiary education. What he actually said was “socio-economic status, which includes factors like a family’s income, is the single biggest determinant of whether children do well at school or not”. He was talking about schools, not post-secondary education. And he never said that SES caused school failure; rather he said it was the “single biggest determinant”. Chlöe’s article doesn’t quite represent Max’s statement.
 The classic example of a “pure” public good is a lighthouse. Once the lighthouse is built and operating, no passing ship can be excluded from accessing the benefit of the signal it sends and nor does its use by one ship diminish the benefit experienced by the next passing ship – that is, it is neither exclusionary nor rivalrous.
 The subsidy rate changes from year to year, driven by the level of interest rates in the market and other conditions. The 36 cents per dollar figure for 2019/20 was the lowest cost in more than a decade. The rate has been over 40 cents per dollar in eight of the then preceding years and was at a decade high of more than 45 cents in 2020/11.
 The poor value of student allowances spending was illustrated in 2013 when the student allowances rules were changed to exclude postgraduate students from allowances eligibility; research shows that participation in postgraduate study was unaffected.
 For instance, reverse the Budget 2008 decision to reduce the age of exemption from targeting and reduce the parental income threshold so as to limit eligibility to a narrower group of very low-income students.