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TAFE-blogging

August 22nd, 2006

Reader Paul Williams, who works in TAFE policy in NSW, points me to this interesting report on the economic value of TAFE, undertaken by Allen Consulting, who do the whole thing with a general equilibrium model and estimate the NPV of the TAFE sector at $196 billion.

The report has had some coverage in the media, but there’s a pretty good case to be made that this kind of thing could be better disseminated through blogs, where there’s time to debate the issues. Then again, you could argue that after 30 comments we’ll all be debating the influence of climate on the civil war in Iraq.

You can read it here

Also, in today’s (Wednesday) Fin, Alan Mitchell has an excellent piece lamenting Australia’s lousy record in building human capital, something that isn’t helped when the PM encourages kids to drop out of school at the end of Year 10 in the hope (unlikely, these days, without the kinds of skills obtained by persevering to Year 12) of getting and completing an apprenticeship.

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  1. Razor
    August 23rd, 2006 at 12:29 | #1

    I don’t understand why there isn’t a HECS style funding system for TAFE.

  2. jquiggin
    August 23rd, 2006 at 14:06 | #2

    The main problem is that TAFE is run by the states. Also, until relatively recently fees have been low (nonexistent in some case) so there is a lot of resistance to introducing a mechanism that would make it easy to collect significant fees.

    Finally, the HECS system has a threshold – no repayments until your income exceeds some proportion of average weekly earnings. Not all TAFE graudates would pass this level, though obviously some are doing very well.

    I don’t think these problems ought to be insuperable, but we’d need a substantial reorganisation of the whole sector first. Nelson’s creation of a federal system of “super-TAFEs” before the last election was a step in the wrong direction, I think.

  3. August 23rd, 2006 at 14:37 | #3

    I had a go at this report over at Troppo, so forgive me for repeating myself.

    This is a truly terrible report. Indeed, it’s perhaps the worst document on returns to education that I’ve read in my life. It elides over the hardest issue (how do we separate selection effects from true economic return?), and spends all its time multiplying bad estimates by big numbers.

    The economic return to vocational education is probably positive, but knowing how it compares with the return to high school and university is the key policy question. It’s pretty evident from this document that you won’t find that answer by asking management consultants.

  4. August 23rd, 2006 at 14:40 | #4

    My last comment appears to have been caught by the spam-filter.

  5. jquiggin
    August 23rd, 2006 at 17:41 | #5

    Fixed now, Andrew.

    I only had a quick look at the report, but I thought the covered the selection issue reasonably. Again, off the top of my head, should selection be such a big problem for TAFE students if you are comparing them to young people in general. I’d have thought they’d be around the middle of the ability range.

  6. August 23rd, 2006 at 22:48 | #6

    It caught our spam filter too.

    Andrew is normally so polite!

    Any ideas as to why it got bounced?

  7. August 24th, 2006 at 00:58 | #7

    Nicholas – defamation perhaps! I guess we’ll see if filter doesn’t like terms like “terrible” – the “worst” etc … As Andrew is arguably the expert in the field, I tend to think we can rely on this being the truth or the defence of fair comment for his assertions.

    I’m really not sure who the management consultants would find who could argue as powerfully on the topic – so he could be alright on his day in court. That said : Troppo and John Quiggin is the publisher – what are your t’s and c’s like for user posts and use??

    Ohh … the unregulated world of blogs hey??

    May be there’s another economist lurking who could be paid enough to appear??

    Though I’m not sure there is any real damage to chase??

    Do you guys have any money??

    Lawyers hey with their spurious argument.

  8. Ernestine Gross
    August 24th, 2006 at 11:18 | #8

    I’ve read the TAFE report once on screen.
    1) To comment in detail would require working through the Monash model. I haven’t done that. I believe the authors of the report are fair in saying that their general equilibrium model is ‘orthodox’.
    2) Perhaps I can expand on this a little. Subject to the proviso in 1), IMHO, it is ‘orthodox’ in the sense that some externalities are not taken into account. For example, some people in society may benefit from the knowledge that there are well trained plumbers even though they may not employ one in their entire life. These benefits are not included.
    3) Within its framework, the paper provides projections of the distribution of benefits and costs on the ’supply’ and the ‘demand’ side of TAFE courses.
    4) The study takes the ‘educational aspects’ of TAFE as given. This is, IMHO, sensible for an economic study designed to assist in public sector financial decision making.
    5) The study considers two institutional environments.
    a) public sector provision of TAFE type courses under the Departmental model of decentralisation (as distinct from ‘fragmentation’).
    b) private provision of TAFE type courses
    6) The study arrives at NPV(cost/benefit) for (a) and (b) above. Given the numbers, (a) is preferred to (b).
    7) Their explanation for institutional environment (a) having a higher aggregate benefit/cost ratio than (b) is a reference to ‘economies of scale’ in administration. There are also some assumptions on the time profile of the emergence of private providers (which I find a bit optimistic; but this is only my opinion based on limited exposure to the applications by private providers under the NSW VET system).
    Theoretically, the interesting question is: Why aren’t the production technologies linearly additive? There are a number of hypotheses one could pursue.
    8. In contrast to some recent writings in various places, this model does not treat education as ‘consumption’. I maintain this is an important point, which is ignored in the ‘consumer version’ debate on education policies. It is important because if one were to treat ‘education’ as ‘consumption’ then one would have to represent the ‘outcome’ as lists of zeros. (I believe it is an advantage of the GE methodology to force talkers to look at what they are saying.) This corresponds to education being of ‘zero’ value as a result of treating education like ‘fish and chips’ or DVDs which fully depreciate in one or two years.
    9. In terms of the conceptual framework of general equilibrium theory, education can at most be represented by ‘production technologies’ with the feature of ‘joint production’ (eg students, teachers, physical capital; ie the stuff doesn’t fit into Financial Accounting without arbitrary ’standards’ and it doesn’t fit into ‘standard’ NPV calculations as done in corporate finance). I say ‘at most’ because I believe there is an aspect to ‘education’ which doesn’t fit into economics at all. It is the esteem (’value’) people give to knowledge relative to monetary wealth or physical possessions. One can arrive at monetarised valuations. However, this goes beyond economics concerned with the material welfare of humans; the concept of a commodity, which is central in GE models, would be overstretched.
    9. If parents would be modeled as ‘consumers’ of education for their children, as is entailed in some public comments I’ve come across, then I would appreciate if someone could give me a reference to a paper where the decision problem is detailed (information requirement on parents on their children’s abilities, their future preferences, ‘production technologies’ with many dimensions; uncertainty – the teacher who is liked by Jonny is sick during most of the year when Jonny is taking the teacher’s class – stuff like that). I’d like to see the complexity of the choice problem (over alternative ‘production technologies’ and subject to children’s preferences, abilities, and monetary and real resource constraints) and the conditions under which there is a solution – other than lists of zeros. Until such time I can’t make sense out of the ‘consumer version’ of the education debate. Apologies if I am asking for a reference as a consequence of having overlooked an important paper on this item. It is only the ‘consumer choice’ public commentary on education which made my ears prick.

  9. August 24th, 2006 at 19:21 | #9

    Corin,

    If Andrew’s comments are defamatory I’m a monkey’s uncle.

    (I’m actually a monkey’s great, great, great . . . . nephew, but uncle is another matter).

    Anyway, I’m happy to publish his comments. Despite Ken P’s warning to us all here.

  10. August 24th, 2006 at 21:04 | #10

    JQ, on p.51, they say: “Benefits for individuals have been estimated by identifying the number of TAFE NSW graduates by the level of their qualification, and comparing their average post-graduation salary to the average salary of graduates of the next lowest qualification.”

    When Chris Ryan and I estimated the returns to high school, we called this approach the “naive” return to education, since it ignores the possibility that higher ability individuals (or those who are more motivated) will choose to get higher qualifications. It sounds like you don’t think this is likely to occur at the TAFE level, but I’m not sure why.

  11. August 25th, 2006 at 00:05 | #11

    Nicholas – could not agree more – fair comment would definitely apply even if content was defamtory (which I also agree it is not). I was asked why filter rejected words – and clumsilly linked it to Andrew’s specific comment in an unintended fashion. Filter obviously spits out on basis of words with potentially defamatory content I expect.

    PS. I bet I made you look at your t’s and c’s though??

  12. August 25th, 2006 at 01:38 | #12

    Nicholas – just saw the article on Troppo – was this pure coincidence?? Very lucky of me to hit the same chord if so …

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