Covid-19 is bursting the bubble in higher education


Trade, Development, and Immigration
Economic Theory
In 1999 the Blair government set an official target of having 50 per cent of 18-yearolds attending university and turned the expansion of numbers from an aspiration to an actuality. The reasons for this policy, supported by both parties, were economic rather than educational in the traditional sense. It was thought that expanding student numbers and university provision would help to meet several policy goals.  

The main one was more rapid economic growth: the belief was that having more graduates of any kind (the subjects being studied were a secondary consideration) would lead to higher growth in GDP. The evidence for this was a supposed correlation between the proportion of the population of various countries in higher education (HE) and levels of GDP, and also between GDP and total number of years spent in HE.

The belief that having a degree makes a graduate more productive than a non-graduate and that consequently more graduates mean higher growth rests on what is known as the human capital model of education. According to this, formal education increases human capital (abilities and capabilities that make people more productive) by imparting skills. This is recognised by the award of an academic qualification.  

The problem is that there is a lot of evidence against this. It seems from empirical evidence that primary education does impart useful skills that are transferable (can be applied in multiple contexts) and make people more productive, such as literacy and numeracy. However, this is much less true for secondary education, diminishing in fact as one goes through the process, and not true at all for higher education, except in some very specific cases. What though does a degree do? Why are people prepared to pay a significant amount to get one and why do graduates historically enjoy an income premium? 

The answer is given by the alternative model of the value of education, the signalling theory. In this the main value of a qualification such as a degree is as a certification or signal to prospective employers. The mere fact of sticking at a degree for three years and getting it tells the employer something about the kind of person you are and the kind of qualities you have (in most cases before you went to university), qualities that make you a better bet as an employee. (The qualities are that you are reasonably bright in the sense of having analytical intelligence, you are rule compliant and conformist, you will work hard, can complete tasks to a deadline, have adequate social skills, reasonable communications skills, and can stick to a task). It does not in most cases say anything about the particular taskspecific skills you have and it does not say much about other qualities such as inventiveness or originality.  

In over 90 per cent of cases the graduate will use nothing at all of the skills or knowledge that they acquired at university in their subsequent employment (and will probably forget most of it) they will pick up the skills they need for a job on the job itself. This signal is valuable to employers because they are looking for a particular kind of person that a degree helps to identify (a reliable employee) and they are on the wrong end of an information asymmetry (the applicant knows what kind of person they are but the prospective employer has no idea and no record to go on). 

There are some degrees that do impart skills and knowledge that are then used in employment and make the graduate useful for a specific kind of job, such as medicine and engineering or vocational courses in general. These however are very much a minority of degrees overall. It may be that a degree course in general does bring out or strengthen the highly generic qualities listed earlier but, if so, this is a very slow and expensive way of doing it. The cost of the degree to the student actually makes it more valuable to the employer as a signal because a signal that is costly to acquire is only going to be acquired by people who really want it, which is an additional piece of information in the signal.  

This system, of certification by educational attainment, is not about producing a more skilled labour force that still takes place in employment. It is about managing the labour market and about regulating and controlling access to occupations and roles that are high paid and (more importantly) high status. There is one fundamental problem: there are not enough highpaid and high-status jobs for all of the people who would like to have one. This means that the system is using the tool of university education to allocate a static or at best very slowly growing number of roles among an increasing number of applicants. 

When you combine that basic reality with the business enterprise model of the university adopted since the 1980s, the result is indeed a highly competitive market, but a deeply flawed one. For various reasons the competition will not take the form that it does in other markets of price competition, product variation and price differentiation because none of these helps when the good being supplied to the actual primary customers (employers) and secondary customers (students) is the nearly homogeneous one of a signal. To be seen as providing a low-quality signal is disastrous. Instead the competition takes the form of an arms race – that is a competition where the measure of success is relative rather than absolute performance 

The goal is simply to maintain or improves ones position relative to others rather than to do better by some criterion such as profitability or quality. There are strong similarities to competitive sport and the results are the same as in the Football League overspending, lack of real competition, and inflated salaries for the internal beneficiaries (senior managers). The other huge problem is that this whole process is naturally self-limiting and ultimately futile. It had already reached those limits before the pandemic arrived, but by the time that happened the policy and its outcomes had hollowed out higher education from within. It has only taken the disruption of Covid-19 to bring it down. 


This article is an edited extract from To a Radical Degree: Reshaping the UK’s higher education for the post-pandemic world.

Head of Education

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).

1 thought on “Covid-19 is bursting the bubble in higher education”

  1. Posted 16/08/2020 at 14:56 | Permalink

    Very thought provoking piece, which explains why I come across high-flying financial people who graduated in english lit or geography. So where do we go from here, though? If degrees are merely another signalling device, will A-levels suffice (not this year of course) and turn Universities into (much) smaller research institutions? Or channel school leavers into VS(O) with a graded certificate to act as a signalling device? A switch of general emphsis to vocational type courses might improve matters at the margin re the skills-based model. But for the time being I like the suggestion (made by Ryan Bourne) that the Instiution should be responsibility for charging students so that the fee-income stream becomes part of their funding, giving them an incentive to place students in courses with better earning prospects (and therefore train them for more productive roles).

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