Sunday, March 29, 2009

A Side Effect of the Downturn

Pretty much everyone knows the main effects of a recession, incomes fall and unemployment rises. This isn’t surprising as it is part of the definition of a recession.

What is less obvious is that enrollment in post secondary education rises in recession. This is particularly true of post graduate studies. Enrollment in graduate programs decreases when the economy is doing well and rises when the economy hits bad times. There are a couple of reasons for this.

The first is pretty basic. Grad school is a pretty comfortable way to withdraw from the labour force for a time. You aren’t expected to be looking for a job or maintaining a particularly high standard of living. To top it all off, most of your time is unstructured.

The second reason is a little more positive. While you’re hiding from a nasty labour market you might actually be developing skills that will increase your chance of getting a decent job at a decent wage. You’re making an investment in human capital at a time when the cost (in terms of foregone wages) is low.

This will reinforce a trend in labour markets for some time, credential creep. The minimum requirement educational requirement for a number of different jobs has been increasing over time. Think of the number of jobs that now require a minimum of an undergraduate degree that were being done by someone with a high school diploma 20 years ago.

This trend has already been reinforced by the accrediting institutions in North America. Look at the number of MBA programs that have sprung up at virtually every university campus. Most offer nothing more than a watered down BBA degree. The “economics” taught is generally laughable – a standard intro course is more demanding. This would be fine and add value to society if those taking the programs had no background in business. Remember the original intent of an MBA program was to train engineers and other tech-heads some basic management skills. The problem most of the people in these MBA’s already have a business degree. Result, employers ask for an MBA, not because they expect that any real skills are developed there, but as a way of limiting the number of applications.

The trend isn’t limited to the private sector. There are now a remarkable number of PhD’s working in various government departments. In some cases this makes sense. Government needs people who are capable of keeping up with the developments in various academic disciplines as the findings might apply to policy. I’m not sure how many PhD’s are needed in this capacity how ever? Do you need a PhD to read and get the thrust of a journal article?

What I am sure of is that we’re going to see an increase in post secondary enrollments over the next few years. Universities and colleges will be working exceptionally hard to “accommodate” the extra revenue sources, I mean students. As the number of people with graduate degrees grows, employers will exhibit a stronger preference for those with graduate degrees.

Punch Line: after the current problems are over, the relative value of high school diplomas and undergraduate degrees will be even lower.

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