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The demographic challenge of higher education: Impacts of a decline in student
numbers on the Scottish economy
Kristinn HermannssonKaterina Lisenkova
Peter McGregorKim Swales
June 30, 2009Scotland’s Universities and the Economy: Impact, Value and Challenges
Fraser of Allander Institute, Department of Economics, University of Strathclyde; Centre for Public Policy for Regions (CPPR), Universities of Glasgow and Strathclyde
The “demographic challenge” for HEIs
• Demographic changes in the UK are projected to result in a fall in the number of students
• Recent Universities UK report makes projections of likely numbers of students
• We provide a CGE analysis of likely impacts on Scottish economy of Universities UK scenarios
Population aged 18-20Scotland
2006-based principal GAD/ONS projection
150,000
160,000
170,000
180,000
190,000
200,000
210,000
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In 2007 71% of the first year full-time UK-domiciled undergraduates were aged 18-20
-16.9%
-11.0%
UUK projections
• Two types of projections in UUK report:
– Baseline projection – based on demographic factors• Projected age/gender/ethnicity composition of the UK
population• Projected population of EU countries• Projected number of non-EU students• Projected conversion rate from undergraduate to
postgraduate study (increasing in line with recent trends)
– Three scenarios – take into account how HEIs may react to these changes
140000
150000
160000
170000
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190000
200000
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Projected total number of students (FTE*): UUK baseline
Source: Universities UK, own calculations
-11.4%
-6.8%
*FTE – full-time equivalent; part-time students added with coefficient 0.5
Description of scenarios
Scenario 1Slow adaptation to change
Scenario 2Market-driven and competitive
Scenario 3Employer-driven flexible learning
Participation of young people
Participation of older people
Employer engagement
Competition (UK)
Technology-based learning
As now but with some switch from full-time to part-time
Reduced participation in full-time but increased participation in part-time
Substantial reduction in full-time, but on headcount basis participation at current level
Modestly increased Substantially increased Substantially increased
Modestly change, mainly through increased influence on the curriculum
Increased but not necessarily primarily with publicly funded HEIs
Substantially increased – employers are the primary drivers of large proportion of public funding
Increased competition amongst publicly funded providers
Significant expansion of the range of private providers – fierce competition for UK students
Highly stratified and polarised system with only limited competition
Competition (int-l) UK HEIs compete effectively despite increased competition
UK HEIs compete less well With the exception of elite HEIs, UK HEIs compete less well. However, they engage with technology-based borderless education
Some increase in e-learning, but face-to-face learning is the predominant mode
Substantial increase in e-learning
E-learning is the predominant mode
Academic staffing As now with academic staff undertaking teaching and research
Two streams: one – research and teaching in large HEIs, the other – teaching in small HEIs
Flexible academic workforce. Increased movement between academia and business. Significant part of academic staff becomes self-employed, contracting work at several HEIs
Projected total number of students (FTE): all scenarios
Source: Universities UK, own calculations
140000
150000
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Baseline Scenario1
Scenario2 Scenario3
Sources of Scottish HEIs income
• Funding Council grants– Recurrent grants (Teaching) –proportional to the number of Scottish
students (FTE)– Recurrent grants (Research)– Recurrent grants (other)
• Tuition fees & education grants & contracts– Home & EU domicile
• Full-time fees – proportional to the number of full-time home and EU students
• Part-time fees – proportional to the number of full-time home and EU students
– Non-EU domicile – proportional to the number of non-EU students (FTE)
• Research grants & contracts; Other income
• Effectively a regional, empirical, general equilibrium variant of the Layard, Nickell and Jackman (LNJ) model. So the supply side is crucial (and, of course, non-passive)
• Multisectoral CGE calibrated on 2006 Scottish Social Accounting Matrix, with HEIs as one sector:
– 25 sectors, cost minimisation– 3 domestic transactor groups
• Goods markets modelled as competitive, with equilibrium relative prices determined simultaneously by demand and supply
– Demands fairly conventional – Trade flows sensitive to relative prices
• Labour market imperfectly competitive, though unified – characterised by regional bargaining - wage curve (w, u negatively related) - LNJ variant
AMOS-HEI: a CGE model of the Scottish economy
• Second element of flexibility - population is– either fixed– or Harris-Todaro (w, u positively related) - LNJ variant– When combined with wage curve the two relations tie down w, u
• Final element of flexibility relates to treatment of capital stocks, which are– either fixed (total and composition)– or gradually adjusted to optimal level, driven by gap of rental rates and user costs
• Dynamics in model are recursive: sectoral capital stocks updated each period through investment functions; population updated via the migration function
• Financial markets fully integrated and not modelled explicitly
• How does AMOS-HEI relate to IO models of HEI impacts?– Full specification of the supply side– Can therefore capture heterogeneity among regions (e.g. supply constraints?)– Relative prices (competitiveness) endogenously determined– But, if supply-side is passive, AMOS-HEI converges on comparable IO models
AMOS-HEI (continued)
Impact of the loss of income by HEIs: baseline
2006 2010 2015 2020 2025
UUK baseline
GDP (£m) 0.000 10.434 -15.325 -62.043 -73.158
Total employment ('000) 0.000 0.261 -0.378 -1.633 -2.020
Unemployment (%) 5.797 5.792 5.806 5.815 5.798
CPI (%change) 0.000 0.016 -0.029 -0.063 -0.017
Real wage (% change) 0.000 0.010 -0.018 -0.034 -0.001
HEI sector employment('000) 0.000 0.346 -0.594 -1.670 -1.152
Impact of the loss of income by HEIs: all scenarios
2006 2010 2015 2020 2025 2026
UUK baseline
GDP (£m) 0.000 10.434 -15.325 -62.043 -73.158 -74.869
Employment ('000) 0.000 0.261 -0.378 -1.633 -2.020 -2.051
CPI (%change) 0.000 0.016 -0.029 -0.063 -0.017 -0.016
Scenario1
GDP (£m) 0.000 15.015 -2.767 -40.618 -42.942 -39.913
Employment ('000) 0.000 0.379 -0.042 -1.057 -1.210 -1.123
CPI (%change) 0.000 0.022 -0.019 -0.052 -0.004 0.002
Scenario2
GDP (£m) 0.000 7.359 -23.555 -75.941 -93.255 -98.651
Employment ('000) 0.000 0.182 -0.598 -2.007 -2.558 -2.680
CPI (%change) 0.000 0.012 -0.035 -0.070 -0.025 -0.029
Scenario3
GDP (£m) 0.000 -3.808 -53.704 -127.030 -165.986 -179.044
Employment ('000) 0.000 -0.104 -1.402 -3.380 -4.506 -4.822
CPI (%change) 0.000 -0.003 -0.059 -0.097 -0.055 -0.065
GDP impact of the fall in student numbers: baseline
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£ m
HEI income only Including student's expenditures
GDP impact of the loss of income by HEIs : all scenarios
89900
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£m UUK baseline
Scenario1
Scenario2
Scenario3
Employment impact of the fall in student numbers: baseline
2397
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HEI income only Including student's expenditures
Employment impact of the loss of income by HEIs : all scenarios
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UUK baseline
Scenario1
Scenario2
Scenario3
Conclusions and future research
• The macroeconomic consequences of the demand-side impacts of UUK’s projections of student numbers entering Scottish HEIs appear fairly modest, though unambiguously negative
• These effects are smaller than would be revealed by conventional “impact” or “multiplier” analyses, in which wage and price flexibility would be unable to insulate the real economy
• However, here we do not include the adverse supply-side impacts of the projected contraction in student numbers, which we might expect to predominate over the longer term as these are reflected in the level of skills in the host region, and in the scale of knowledge transfer effects. In this sense the estimates represent a minimum estimate of the likely macroeconomic consequences of UUK’s projections
• Future research along the following lines:– impact on other regions– supply-side consequences of the “demographic challenge” – interregional effects – wider economic and social impacts of HEIs.