Andrew Norton replies further in the debate over the question of whether too many people are undertaking tertiary education. He raises quite a few points, to which I want to respond by setting out my view of the key issues. I’m going to focus exclusively on the instrumental view of education as a way of preparing people for the labour market – I’ll took about broader issues later (I hope).

My starting point is that the general trend of technology is to increase the demand for relatively skilled labour. This isn’t true always and everywhere, but it holds on average for any timescale from a decade to a century. So the proper question isn’t whether there are too many people getting tertiary education (or finishing high school, or whatever). It’s whether the growth in the number of people getting more education has temporarily outstripped the growth in demand for more educated workers. The signal that this is happening will normally be a compression in the wage distribution, more particularly a decline in the wage premium associated with higher levels of education. We haven’t seen any sign of this so far, if anything the reverse (of course, labour markets are complex and this outcome could result from other factors, such as the decline of unions).

In the long run though, we can assume that the labour market will demand more and more educated workers. A worrying possibility is that we might run out of people capable of benefiting from further education. Norton raises this point, specifically mentioning

high university drop-out rates for the weaker Year 12 students that would make up the bulk of any expansion in the system (suggesting it may simply be beyond many of them).

There’s no doubt that weaker students are struggling at present. But I don’t think we can conclude that we have reached the bottom of the barrel in terms of student ability. A far simpler explanation is that massive cuts in resources per student (about 50 per cent in universities over the last decade) have had the effect you would expect, with the weaker students suffering most.

This is clearest at the secondary level, where school completion rates fell sharply after cuts introduced by the Kennett government in Victoria and the Olsen government in South Australia. This outcome can’t be explained by a weaker student body, since the denominator in the completion rate is the entire age group. And some European countries are already managing school completion rates close to 100 per cent, with standards comparable to ours. The US has also had a norm of high-school completion for many years (hence the term ‘dropout’, which would have made no sense in Australia until very recently), though standards are variable.

Perhaps at some point we will run up against inherent limits in the intellectual capacity of the population. At the moment though, I’m more worried by the incapacity of those making education policy to accept that in this as in all other economic activities, lower inputs means lower outcomes.