ISET

ISET Economist Blog

A blog about economics in the South Caucasus.

The "Over-Education" Trap

In recent years, many countries in Europe and the former Soviet Union have seen an explosion in university enrollment. During approximately 10 years (from 1999 until 2010) higher education enrollment increased by 64% in Central and Eastern Europe, 27% in Central Asia and South Caucasus, and 19% in Western Europe and North America (see UNESCO).

    1999-2005 2005-2010 1999-2010
Low enrollment 
level in 1999 
(below 30$)
Country % enrollment
in 1999
% enrollment
in 2005
%
change
%
enrollment
2009-10
%
change
%
change
Romania 21.11 45.81 117% 63.77 39% 202%
Kazakhstan 24.4 52.66 116% 40.02 -27% 58%
Czech Rep. 25.86 47.62 84% 60.65 27% 136%
Macedonia 21.74 29.68 73% 40.42 36% 86%
Mongolia 26.94 44.67 66% 53.30 19% 98%
Slovakia 26.14 40.08 53% 54.16 35% 107%
Kyrgyzstan 29.17 42.54 46% 48.81 15% 67%
Tajikistan 13.7 17.76 44% 19.67 11% 44%
Turkey 23.05 31.94 39% 45.82 44% 99%
Armenia 23.56 28.34 20% 51.53 82% 119%
Uzbekistan 12.92 9.81 -23% 9.92 1% -23%
Azerbaijan 15.72 14.45 -8% 19.26 33% 22%
 
High enrollment 
level in 1999 
(above 30$)
Hungary 33.44 64.08 92% 61.68 -4% 84%
Lithuania 44.05 76.45 74% 77.37 1% 76%
Slovenia 52.33 79.59 52% 86.93 9% 66%
Latvia 50.64 75.25 49% 60.1 -20% 19%
Croatia 30.44 43.77 44% 49.17 12% 62%
Ukraine 47.73 68.6 44% 79.47 16% 67%
Poland 45.75 63.9 40% 70.54 10% 54%
Russia 51.43 72.16 40% 75.89 5% 48%
Estonia 50.43 66.69 32% 62.7 -6% 24%
Georgia 35.78 46.56 30% 28.25 -39% -21%
Belarus 51.47 63.95 24% 82.95 30% 61%
Moldova 32.69 36.1 10% 38.15 6% 17%
Bulgaria 45.04 44.15 -2% 53.02 20% 18%


Several tendencies are evident in the data:


  • Over 10 years, enrollment has increased the most in those Eastern European countries that had relatively low enrollment rates (20-25%) at the outset of the period. For instance, the Czech Republic, Slovakia and Romania have more than doubled enrollments, catching up with the established EU member states. Another country that has more than doubled student enrollment is Armenia.
  • Enrollments have grown at a relatively modest pace (or not at all) in Central Asian countries that had very low enrollment rates at the outset of the period, such as Uzbekistan, Azerbaijan and Tajikistan, and in Georgia after 2005.
  • Enrollments grew much faster in the first half of the period (1999-2005) throughout the transition region. By 2005, many countries appear to have exhausted their higher education potential because of a combination of reasons including the availability of cheap (or free) study abroad opportunities, especially for new EU member states, stronger labor markets (affecting the opportunity cost of further education), and education system reforms that placed greater emphasis on the quality of students (through national exams, and of universities (by having licenses revoked).

Now, there is no arguing that increasing higher educational enrollments may be a very positive development for most transition countries aiming for the “knowledge era”. However, the sheer pace and extent of higher education expansion in many transition nations is suggestive of an uncontrolled explosion bringing about great efficiency losses and costs for the societies involved. Here are two reasons:

  • How can a country (almost) instantly increase enrollment in a field of education in which it had no prior expertise? Only by lowering the standards.
  • How can a country instantly double student enrollment? Only by allowing very weak students to buy diplomas of “higher education” from pseudo universities. In many (documented) cases, diplomas exchanged hands for a modest price equal to the marginal cost of printing and “normal” profit for “university” owners. No requirement to attend lectures or pass exams. No questions asked.

Interestingly enough, an uncontrolled expansion of undergraduate education creates demand for further (Master’s level) studies, often of very low quality, in order for the better students to differentiate themselves from other diploma holders (and to “signal” higher quality in the labor market).

As a result, many transition nations now find themselves in an over-education “trap”.  How does it work?

Not having a college degree in a society that does not provide reputable vocational training (as in Germany) and where more than 60 or 70% of the population do have college degrees carries a stigma. To avoid it, everyone is trapped into getting a college degree, regardless of its quality and relevance for future occupation. The more people get trapped, the more “costly” it is to opt out.

The over-education trap is not unique to transition nations. Economists are pointing out to the massive accumulation of debt by US college students as potentially the next asset bubble. US college enrollment has surpassed 70% in 2010. Prices for college degrees continue to rise, and so does demand. No parents want their children to be left behind.

The social and individual inefficiency associated with the over-education trap is hard to quantify, but here is a short list of what it might comprise, at the minimum:

  • Earnings of young adults who could have used 3-4 years of their life for work or vocational training that would help them avoid unemployment and increase productivity.
  • Earnings of excess university teaching personnel who have the potential to produce social value added in other sectors of the economy (including secondary education).
  • The cost of creating and maintaining excess physical infrastructure in higher education.

The over-education trap is by definition producing a “skills mismatch” in the labor markets of affected countries, i.e. a situation when an economy has a surplus of workers with tertiary and secondary general education, and a shortage of workers with technical qualifications. Common symptoms of this decease are high unemployment and employment in low skilled jobs among college graduates, and low monetary returns to tertiary education.

These symptoms are present in most countries of the transition region, including Georgia. Thousands of students still go every year into general economics, management, and legal studies that bring them not an inch closer to productive employment. Still, Georgia is a huge exception. In fact, it is unique among all transition countries in that, beginning in 2004-5, it had the political will to combat corruption in higher education and to set a high quality bar for both students and universities. As a direct consequence of its education policies, Georgia is the only country in the “high initial enrollment” group (above 30% in 1999) that managed to bring higher education enrollment from the peak of almost 47% in 2004 down to below the 1999 level of 35%.

Of course, weeding out weak universities solves only a part of the problem. Georgia has yet to offer its young generation a viable option of high quality vocation training and productive jobs.

QUESTIONS FOR RECENT UNIVERSITY GRADUATES:

  • How many of you have completed a full course of study at a university without acquiring any practical skills or getting an “education”?
  • How many of you felt that your studies in an MA, MBA or MSc program did not equip you with any knowledge beyond what you have already acquired in your baccalaureate studies?
  • How many of you have had the experience of having your job application rejected because you were, supposedly, “overqualified”? Or of taking jobs below your level of qualification?
Rate this blog entry:
10 Comments

Related Posts

Comments

 
Guest - RT on Tuesday, 24 April 2012 22:32

Very true. One should add high unemployment. With no job, youth would either head to streets or to colleges. So those with ambitions would chose the second and may end up in a low quality place.

One more comment on mismatch is that ambitious students will head to whatever good quality university is out there and may end up studying things that are not necessarily of great interest to them (or may not necessarily be in strong demand) just because it is the only chance to have good quality education.

Very true. One should add high unemployment. With no job, youth would either head to streets or to colleges. So those with ambitions would chose the second and may end up in a low quality place. One more comment on mismatch is that ambitious students will head to whatever good quality university is out there and may end up studying things that are not necessarily of great interest to them (or may not necessarily be in strong demand) just because it is the only chance to have good quality education.
Guest - Salome on Tuesday, 24 April 2012 23:08

Yes, at some point I agree with you and dear RT. We have too look from another direction. High unemployment and economic crisis cause over-education, where education acts as a shelter for youth rather than an investment.

This means that increase of the evarage level of education is the result of the supply side, (I would ignore stigma effect of the demand side and substitute it with private connectionk effect :))

Yes, at some point I agree with you and dear RT. We have too look from another direction. High unemployment and economic crisis cause over-education, where education acts as a shelter for youth rather than an investment. This means that increase of the evarage level of education is the result of the supply side, (I would ignore stigma effect of the demand side and substitute it with private connectionk effect :))
Guest - Randy on Friday, 27 April 2012 03:53

While it is certainly true that there are some worthless programs in the region, these numbers need to be carefully analyzed before any wide-ranging conclusions are drawn. Among the factors not mentioned that should be part of the analysis:

1) In many of the countries discussed there have been massive increases in the return to education since the fall of communism. This, plus the development of capital markets have enabled students to afford tuition at many newly established but serious private institutions that are of reasonable quality.

2) In many of the countries discussed there have been large declines in high-school aged cohorts as the collapse of births in the last years of the communist era and the turmoil of the early years of transition works its way through the educational system. This will increase enrollment rates even if the supply of university slots (and quality) remained constant.

3) Official enrollment rates in many East European and post-Soviet countries are poorly calculated. What the authorities do in the official statistics is to divide the number of new enrollees by the number of high school graduates. This ignores the fact that, with the increasing returns discussed above (plus high unemployment rates), many older students from previous cohorts are returning to university.

Still, though provoking

While it is certainly true that there are some worthless programs in the region, these numbers need to be carefully analyzed before any wide-ranging conclusions are drawn. Among the factors not mentioned that should be part of the analysis: 1) In many of the countries discussed there have been massive increases in the return to education since the fall of communism. This, plus the development of capital markets have enabled students to afford tuition at many newly established but serious private institutions that are of reasonable quality. 2) In many of the countries discussed there have been large declines in high-school aged cohorts as the collapse of births in the last years of the communist era and the turmoil of the early years of transition works its way through the educational system. This will increase enrollment rates even if the supply of university slots (and quality) remained constant. 3) Official enrollment rates in many East European and post-Soviet countries are poorly calculated. What the authorities do in the official statistics is to divide the number of new enrollees by the number of high school graduates. This ignores the fact that, with the increasing returns discussed above (plus high unemployment rates), many older students from previous cohorts are returning to university. Still, though provoking
Guest - Eric on Friday, 27 April 2012 20:25

Randy, you are of course right, these data are not 100%, and maybe even not 90% correct. In fact, the strongest distorting factor is international students. I would think, for instance, the the tripling of student enrollment in Romania (the European leader!) is to a large extent explained by the arrival of Moldovan students (Moldova itself has had very modest increases in enrollment).

I would somewhat disagree on demography. It started to play a role only after 2006-7, but the major expansion in higher education began earlier, while age cohorts were still quite large. Thus, supply must have increased quite dramatically at the expense of standards.

I agree that many of those included in the enrollment statistics were doing a second or third degree, in an effort to "retool" from, say, engineering, to management. This must have been a good thing. I don't have the data on their share in total enrollment, however, it could not have been very large.

Similarly, the newly established private institutions were a drop in the bucket. For example, the global leader in the number of universities per capita during the 1990s was ... Kyrgyzstan. Of the hundreds of new Kyrgyz institutions, only one or two were good.

Thus, despite whatever drawbacks of the data, the picture is what it is. Young people have been for many years flocking to "universities" that only yesterday were "PTUs" or "Technikums". They were pushed into "education" by the lack of jobs. They were pulled into it by a whole bunch of factors, all working in the same direction: the "stigma" factor, the opportunity to defer or avoid the military service (for boys), networking and marriage market, ability to maintain a full time job while studying (study does not require exerting an effort), low $ cost of acquiring a degree (very low indeed at the worst "university"). Demand created supply and the rest is history.

What I would like to emphasize here is that anti-expansionary education policies, where and when employed, were very effective in stemming the flood. Excellent examples are Kazakhstan (in 2007) and Georgia (in 2005). Kazakhstan employed several clever measures including a minimum (sic!) tuition fee (to raise prices from dumping levels) and a minimum score on the National Exam to qualify for higher education. The impact was immediate. The complementary measures included investment in vocational training, but I don't whether that was effective or not...

Randy, you are of course right, these data are not 100%, and maybe even not 90% correct. In fact, the strongest distorting factor is international students. I would think, for instance, the the tripling of student enrollment in Romania (the European leader!) is to a large extent explained by the arrival of Moldovan students (Moldova itself has had very modest increases in enrollment). I would somewhat disagree on demography. It started to play a role only after 2006-7, but the major expansion in higher education began earlier, while age cohorts were still quite large. Thus, supply must have increased quite dramatically at the expense of standards. I agree that many of those included in the enrollment statistics were doing a second or third degree, in an effort to "retool" from, say, engineering, to management. This must have been a good thing. I don't have the data on their share in total enrollment, however, it could not have been very large. Similarly, the newly established private institutions were a drop in the bucket. For example, the global leader in the number of universities per capita during the 1990s was ... Kyrgyzstan. Of the hundreds of new Kyrgyz institutions, only one or two were good. Thus, despite whatever drawbacks of the data, the picture is what it is. Young people have been for many years flocking to "universities" that only yesterday were "PTUs" or "Technikums". They were pushed into "education" by the lack of jobs. They were pulled into it by a whole bunch of factors, all working in the same direction: the "stigma" factor, the opportunity to defer or avoid the military service (for boys), networking and marriage market, ability to maintain a full time job while studying (study does not require exerting an effort), low $ cost of acquiring a degree (very low indeed at the worst "university"). Demand created supply and the rest is history. What I would like to emphasize here is that anti-expansionary education policies, where and when employed, were very effective in stemming the flood. Excellent examples are Kazakhstan (in 2007) and Georgia (in 2005). Kazakhstan employed several clever measures including a minimum (sic!) tuition fee (to raise prices from dumping levels) and a minimum score on the National Exam to qualify for higher education. The impact was immediate. The complementary measures included investment in vocational training, but I don't whether that was effective or not...
Guest - Randy on Friday, 27 April 2012 22:53

Example of cohort effects:

Number of 17 year olds 1991 187,000
1999 135,000

Number who enrolled in college 1991 21,000
1999 24,000

Example of cohort effects: Number of 17 year olds 1991 187,000 1999 135,000 Number who enrolled in college 1991 21,000 1999 24,000
Guest - Randy on Friday, 27 April 2012 22:53

Example of cohort effects in Czech Republic:

Number of 17 year olds 1991 187,000
1999 135,000

Number who enrolled in college 1991 21,000
1999 24,000

Example of cohort effects in Czech Republic: Number of 17 year olds 1991 187,000 1999 135,000 Number who enrolled in college 1991 21,000 1999 24,000
Guest - Randy on Friday, 27 April 2012 22:57

One other comment. You are right that Technikums have been converting into Universities. Again this is largely a data distortion because the Bologna Process has split the old five-year East European magistarium degree into a three-year BA and a two-year MA so people who in the past did not go to "university," but rather to a shorter specialized institution, now show up in the BA part of university studies.

One other comment. You are right that Technikums have been converting into Universities. Again this is largely a data distortion because the Bologna Process has split the old five-year East European magistarium degree into a three-year BA and a two-year MA so people who in the past did not go to "university," but rather to a shorter specialized institution, now show up in the BA part of university studies.
Guest - Florian on Saturday, 28 April 2012 15:56

The article suggests a somewhat paradoxical result. If a country wants to enter the "knowledge era", it achieves this goal NOT by investing into universities, but by investing into ALTERNATIVES to universities. These alternatives offer opportunities to those many people (the broad majority of every society) who cannot get to an academic level. At the same time, if such alternatives are provided, then those who do have academic potential can go to real universities which deserve that name. Countries like Israel, with its college system, and Germany, with its several layers of sub-university education, are examples of how to do this.

The article suggests a somewhat paradoxical result. If a country wants to enter the "knowledge era", it achieves this goal NOT by investing into universities, but by investing into ALTERNATIVES to universities. These alternatives offer opportunities to those many people (the broad majority of every society) who cannot get to an academic level. At the same time, if such alternatives are provided, then those who do have academic potential can go to real universities which deserve that name. Countries like Israel, with its college system, and Germany, with its several layers of sub-university education, are examples of how to do this.
Guest - Galina Ovcharova on Wednesday, 02 May 2012 03:38

Where did you get the data on 70% enrollment in the US in 2010? Maybe this includes community colleges, which are essentially PTUs?
The numbers in the following source look closer to reality, IMHO: http://finance.yahoo.com/news/the-10-most-educated-countries-in-the-world.html
Have you noticed that in the US graduates of four-year colleges are still making more money than the people without such education, and that unemployment among them is lower? Does not it mean that the demand for such graduates is still sufficient to not label this education as economically inefficient?
Also note that the problem of US student debt is really mostly a problem among the graduates of for-profit colleges, those students that dropped out, and maybe community colleges, not the traditional non-profit four-year ones, where (in four-year non-profits) an average debt (averaged over those who do borrow) at graduation is around $25K. Note that if the debt is $25K, it is basically the government loans, for which (under the new Obama's law) the new graduates will not pay more than 10% of their income starting this year. This should be taken into account when considering (private and purely monetary) returns on one's investment in college. The new Obama's law definitely adds to government expenses, but can you really measure all the benefits of having more people with a good broad general education (which a college education is supposed to be, unlike the professional one)?

Note the following opinion (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.26.1.165):
"The claim that student borrowing is “too high” across the board can—with the possible exception of for-profit colleges—clearly be rejected. Indeed, media coverage proclaiming a “student loan bubble” or a “crisis in student borrowing” even runs the risk of inhibiting sound and rational use of credit markets to finance worthwhile investments in collegiate attainment. McPherson and Baum (2011) note that one form of cognitive bias impacting collegiate investments is attaching too much significance to extreme examples, like the few instances of undergraduate students burdened with more than $100,000 in debt with poor job prospects."
_________________________________

Your point about “universities” that only yesterday were “PTUs” or “Technikums” is perfectly right for post-soviet countries. Most likely, it's corruption combined with the lack of proper certification that creates a problem in developing countries: it is not over-education, but rather a lot of diplomas that don't really correspond to adequate education.

Where did you get the data on 70% enrollment in the US in 2010? Maybe this includes community colleges, which are essentially PTUs? The numbers in the following source look closer to reality, IMHO: http://finance.yahoo.com/news/the-10-most-educated-countries-in-the-world.html Have you noticed that in the US graduates of four-year colleges are still making more money than the people without such education, and that unemployment among them is lower? Does not it mean that the demand for such graduates is still sufficient to not label this education as economically inefficient? Also note that the problem of US student debt is really mostly a problem among the graduates of for-profit colleges, those students that dropped out, and maybe community colleges, not the traditional non-profit four-year ones, where (in four-year non-profits) an average debt (averaged over those who do borrow) at graduation is around $25K. Note that if the debt is $25K, it is basically the government loans, for which (under the new Obama's law) the new graduates will not pay more than 10% of their income starting this year. This should be taken into account when considering (private and purely monetary) returns on one's investment in college. The new Obama's law definitely adds to government expenses, but can you really measure all the benefits of having more people with a good broad general education (which a college education is supposed to be, unlike the professional one)? Note the following opinion (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.26.1.165): "The claim that student borrowing is “too high” across the board can—with the possible exception of for-profit colleges—clearly be rejected. Indeed, media coverage proclaiming a “student loan bubble” or a “crisis in student borrowing” even runs the risk of inhibiting sound and rational use of credit markets to finance worthwhile investments in collegiate attainment. McPherson and Baum (2011) note that one form of cognitive bias impacting collegiate investments is attaching too much significance to extreme examples, like the few instances of undergraduate students burdened with more than $100,000 in debt with poor job prospects." _________________________________ Your point about “universities” that only yesterday were “PTUs” or “Technikums” is perfectly right for post-soviet countries. Most likely, it's corruption combined with the lack of proper certification that creates a problem in developing countries: it is not over-education, but rather a lot of diplomas that don't really correspond to adequate education.
Guest - Eric on Wednesday, 02 May 2012 20:56

Galina, not knowing much about the US education market, I relied, for instance, on this publication http://economix.blogs.nytimes.com/2010/04/28/college-enrollment-rate-at-record-high/ in New York Times. I don't know what the 70% figure includes and what it doesn't. It could very well be that the 4-year colleges are catering to the needs of the right people, and the problem is all those other colleges. And I sincerely hope that the weaker college graduates are also able to get jobs to repay their loans.

Your statement on the causal effect of college degrees on earnings, however, is quite problematic. I have no doubt that, on average, 4-year college graduates are making more money than those without a college degree. I would not infer from that, as you seem to do, that college degrees are increasing people's earnings regardless of their talent and skill endowment. My point would be for people in the bottom half (and maybe much bigger share) of every age cohort twelve years of schooling may be more than enough to get a flavor of sciences, learn history, geography, language, computer literacy and social skills. They might be better off not wasting their time and (their parents') money on additional liberal arts education, which they don't really care about, anyway. Unfortunately, many of these kids end up wasting both because getting a college degree is "the right thing to do", because it might also be fun, and because other good options are not available to them.

In our part of the world, the problem is not really "over-education". It is waste of time and resources. People who buy their degrees don't get any education. Just a worthless piece of paper.

Galina, not knowing much about the US education market, I relied, for instance, on this publication http://economix.blogs.nytimes.com/2010/04/28/college-enrollment-rate-at-record-high/ in New York Times. I don't know what the 70% figure includes and what it doesn't. It could very well be that the 4-year colleges are catering to the needs of the right people, and the problem is all those other colleges. And I sincerely hope that the weaker college graduates are also able to get jobs to repay their loans. Your statement on the causal effect of college degrees on earnings, however, is quite problematic. I have no doubt that, on average, 4-year college graduates are making more money than those without a college degree. I would not infer from that, as you seem to do, that college degrees are increasing people's earnings regardless of their talent and skill endowment. My point would be for people in the bottom half (and maybe much bigger share) of every age cohort twelve years of schooling may be more than enough to get a flavor of sciences, learn history, geography, language, computer literacy and social skills. They might be better off not wasting their time and (their parents') money on additional liberal arts education, which they don't really care about, anyway. Unfortunately, many of these kids end up wasting both because getting a college degree is "the right thing to do", because it might also be fun, and because other good options are not available to them. In our part of the world, the problem is not really "over-education". It is waste of time and resources. People who buy their degrees don't get any education. Just a worthless piece of paper.
Already Registered? Login Here
Register
Guest
Tuesday, 15 October 2019

Captcha Image

Our Partners