Economics Prof. Robert Allen’s research focuses on economic growth and technological
change in North America and Europe. The following is an excerpt from “The Education
Dividend,” a report he wrote for the Canadian Centre for Policy Alternatives
(B.C. Office). The entire report can be found on the centre’s Web site at www.policyalternatives.ca.
The economy of the 21st century will require a highly edu cated work
force, and, indeed, the Canadian economy has been shifting in this direction
since the 1960s. The expansion of colleges and universities has increased the
supply of educated workers, while demand for their skills has grown at least
as rapidly.
Data from the 1990s indicate that further expansion of the educational system
is warranted. The test is whether the social rate of return exceeds the cost
of borrowed funds.
Education involves the cost of building and operating schools, the student’s
cost of books and supplies, and the wages students forego by studying instead
of working.
The principal economic gain from this investment is the higher wages that
graduates and program completers earn as a result of their studies. Juxtaposing
these figures gives the social rate of return, which shows the combined profitability
of education to the student and the Treasury (and thus all citizens.)
Social rates of return are extremely high for finishing high school or completing
high school or acquiring a trade certificate, for college career programs, and
for university degrees. The profitability of completing high school with either
a diploma or trade certification is in excess of 25 per cent in most cases,
while the profitability of a college career diploma or undergraduate degree
is generally a further 10 to 15 per cent.
Undergraduate degrees in all fields of study are highly profitable for women,
and most fields are also profitable for men. Since these rates of return exceed
the cost of government borrowing (5 per cent), it is profitable for the province
to borrow money to make these investments.
Interprovincial comparisons throw more light on the matter.
In the 1990s, B.C. has increased its spending on education by a greater percentage
than has any other province. Much of this increase, however, has simply met
the needs of population growth, which has been higher here than anywhere else
in Canada.
Pupil-teacher ratios in elementary and secondary schools are higher here than
in many provinces, so there is a case for more spending to reduce class sizes
and drop-out rates.
Post-secondary participation rates (at both the vocational/career and university
levels) are near the Canadian average when participation is measured with enrolment.
When program completions are the measure, B.C. does badly at the university
level, since this province awards fewer bachelor degrees relative to its population
than does any other province.
The number of degrees awarded is far below the growth in demand for university
graduates, so there is a strong case for expanding the universities and university
colleges at the third and fourth year levels.
Class sizes have grown substantially at the province’s universities because
enrolment has been increased without significant corollary increases in the
number of full-time faculty. An increase in the number of full-time faculty
would cut class sizes, providing better education for all undergraduates, and
improving completion rates.
B.C. has frozen tuition fees for post-secondary programs at low levels. This
is a desirable policy in many respects, since it promotes economic development
and greater access, while reducing inequality. However, the provincial government
must significantly increase educational spending in order for these objectives
to be realized.
B.C. should increase spending on education even if greater spending leads
to a deficit or postpones tax reductions. Education is too good an investment
to pass up. It is only sound business to borrow money at 5 per cent in order
to realize a profit of 10 per cent, 15 per cent, or even 25 per cent.
The demand for educated workers is rising in British Columbia, and the increase
is expected to continue into the next millennium. Knowledge-based industries
provide the opportunity to diversify the B.C. economy away from the extraction
and export of primary resource commodities.
The profitability of investing in education at all levels is very high, and
so there is both economic need and popular demand for more spending in this
area.
Social rates of return and comparisons with other jurisdictions suggest the
following areas require attention:
1. The B.C. pupil-teacher ratio in elementary and secondary schools exceeds
the national average. An additional 1,550 teachers would be required to bring
the ratio down to the Canadian average (based on 1996/7 figures).
2. A significant proportion of students in British Columbia fail to complete
high school. Programs to increase graduate rates warrant further support.
3. B.C.’s universities and university colleges should be expanded to increase
the number of bachelor degrees by about 70 per cent, or 8,000 per year. This
would bring the rate of university completion up to the Ontario level, which
is appropriate since B.C. (like Ontario) is a growth centre of the knowledge-based
economy. Most of the expansion should be at the third and fourth year undergraduate
level.
4. The colleges and universities need more full-time faculty to reverse the
increases in university class sizes that have occurred in the last decade, as
well as to teach the additional undergraduates that the provincial economy requires.
To erase the damage of funding restraint and return the student-to-full-time-teacher
ration to its 1980 value would require another 1,800 full-time teachers in the
university and university colleges.
In addition, the following conclusions regarding educational funding were
implied by the analysis.
5. The long-run success of the B.C. economy means that the province’s population
has been growing — and will continue to grow — faster than that of the rest
of Canada.
B.C. not only must provide the resources for its existing population — which
all jurisdictions must do — but in addition must build and operate schools
to accommodate the new immigrants. The latter expenditure implies that B.C.
must invest at a higher rate than most other provinces.
B.C. now spends a smaller fraction of its GDP on education than all provinces
except Ontario and Alberta. B.C. should increase its investment rate in education
to be the highest in Canada if it expects to continue to be a growth centre
in the knowledge-based economy of the 21st century.
6. Most funding for B.C. colleges and universities has come from the provincial
government (including federal transfers to the province for post-secondary education).
Government funding has one great advantage over tuition fees as a source of
revenue; namely, that the provincial government can borrow at lower cost than
private individuals. Hence, if the province finances education, it will be profitable
to expand the system beyond the point where private individuals would find it
profitable.
A larger system would be good for growth and good for equality in the province.
To secure these favourable outcomes, however, the provincial government must
expand funding for post-secondary education.
College and university graduates, in fact, pay for more than the cost of their
education through the higher taxes they pay over their lifetimes. These taxes,
in effect, are compulsory contributions to their alma maters.
The federal and provincial treasuries should pass these contributions on to
the colleges and universities and not use them to retire debt or reduce taxes.
