What influences the choice of students as to what to study? Persons look for areas that bring the highest rate of return. - File

The Gleaner has been commenting for quite sometime on the mix of graduates that leave the UWI each year. The Sunday Gleaner of April 19, 2009, carried a front-page article entitled 'Low-paying jobs for grads - UWI study shows modest earnings by degree holders'. This article had interesting statistics on earnings of recent graduates from the UWI and the proportion of graduates byfaculty. In the public domain in recent times there has been asuggestion of charging differential interest rates on student loans to adjust the output mix of UWI.

Between 1998 and 2008 the UWI Mona graduating class (first degree) increased by 62 per cent. The graduating classes in the Humanities and Education in 2008 were 42 per cent and 45 per cent higher respectively than in 1998, while the graduating classes from Pure and Applied Sciences and Social Sciences have increased by 36 per cent and 55 per cent, respectively. Medical Sciences experienced an increase of 316 per cent over the period.

All faculties, with the exception of Social Sciences, had larger numbers of graduates in 2007 (when record numbers were achieved in these faculties) than in 2008. The most dramatic growth over the period was in Medical Sciences, with much of it occurring (163 per cent) between 2006 and 2007. This indicates that Medical Sciences had more than doubled its intake of students between 2001 and 2002.

Decline in Sciences

Over the period, the percentage of graduates accounted for by Pure and Applied Sciences have declined from 15 per cent to 13 per cent. In 2004 Pure and Applied Sciences had it smallest share of the graduating class - 11.6 per cent. Social Sciences started the period with 45 per cent of the graduating class and ended the period with 43 per cent. The highest and the lowest periods for Social Sciences was 2006 (48 per cent) and 2007 (39 per cent). Humanities accounted for 20 per cent of the graduation class in 1998 and 18 per cent in 2008.

In 2003 Humanities had its largest share of graduates - 23 per cent. Education accounted for 14 per cent of the graduates in 1998 and 13 per cent in 2008. Education had its largest share of 17 per cent in 1999. Medical Sciences started the period with five per cent of the graduates and ended it with 14 per cent. Medical Science is the only faculty which has shown a significant difference between its share of graduates at the beginning and end of the 10-year period under review. Social Sciences have had the greatest volatility in its share of the graduating class. All the other faculties have been fairly consistent.

Having described the stylised facts we are forced to ask ourselves what is it that accounts for the student distribution at graduation from UWI Mona. It is a fact that no faculty at UWI Mona admits 100 per cent of the qualified applicants. There is, therefore, a supply constraint for each of the types of degrees offered. The data indicate that UWI has increased the capacity of each faculty over 10 years in roughly the same proportion (with the exception of Medical Sciences).

Destined to fail

The suggestion in the public domain concerning applying differential interest rates to student loans, dependent on the field of study, as a mechanism to alter the mix of graduates, is destined to fail. Altering the interest rate according to faculty is an attempt to influence relative demand for various fields of study. The constraint is, however, a supply side one, since not all qualified applicants are admitted.

Lowering the interest rate for students in Pure and Applied Sciences will not increase the amount of people with degrees in Pure and Applied Sciences; it will merely ease the burden of repayment for those persons who graduate with a degree from this faculty. Equally so, raising the interest rate on students studying Social Sciences will not reduce the number of graduates from that faculty (although it might alter the composition of individuals who accept the offer to study the Social Sciences).

How does UWI change its capacity over time? No doubt this would be influenced by the amount of excess demand for the offering of each faculty which it faces each year (the difference between qualified applicants and admitted students). UWI would be irresponsible if it increased the capacity in any faculty to the extent that it had unused capacity, i.e., capacity for which prospective students would not apply.

Highest rate of return

So what is it that influences the choice of students as to what to study? Investment in human capital is no different from any other form of investment. Persons look for areas that bring the highest rate of return. By and large this is true, although there are a few exceptions, with a significant amount of the exceptions being people under holy orders.

The article in The Sunday Gleaner listed the average monthly salary of recent graduates by faculties: Humanities and Education $98,181, Pure and Applied Sciences $90,700, Social Sciences $87,951 and Medical Sciences $79,480.

An interesting question is: why would someone choose to study medicine, which has the highest annual monetary cost of all the faculties, and which requires five years of study compared with three years of study elsewhere? The answer is simple - people optimise not on the basis of income immediately after graduation, but on the stream of income over a lifetime, which the various courses of study allow. A youngster is not primarily concerned with his or her income on graduation vis-a-vis others, but equally with the comparisons at ages 40 and 50.

It is no secret that 40- and 50-year-old doctors tend to earn significantly more than 40- and 50-year-old teachers. In deciding what to study the youngster looks at the streams of income which the various options allow, and compare these streams with the cost of pursuing the various options. The one that provided the highest net return is the chosen option. Of course, the cost involved is not purely monetary but involves also the effort required by the student (different aptitudes require different levels of effort, hence different people choose different fields).

Tinkering at the margin

Given that the cost of a UWI education is minuscule compared with the lifetime stream of income that it generates, an attempt to influence demand by differential interest rates for student loans is simply tinkering at the margin.

Universities cannot force a skill mix on the society by increasing capacity in one area and contracting it in another. UWI has to respond to demand from prospective students, especially when operating in a landscape that gives increased choices to prospective students. If the society requires more of one set of skills and less of another, this should be signalled through the labour market.

Wages for scarce occupations should rise while wages for occupations that are relatively abundant should fall. This process would signal to prospective students the areas which society values and they in turn would be induced by higher rates of return to pursue these fields.

Unfortunately, much of Jamaica's labour market is littered with all sorts of distortions, which prevent the right signals from being sent. For example, within the government service there are attempts to tie one job with another, with some expert claiming that this job is equal to the other. A well-functioning labour market would grant a scarcity benefit to the skills in short supply and depress the wages of those skills of which relatively too much already exist.

If there is a scarcity of physics teachers in high schools and an abundance of English literature teachers, physic teachers should be paid more. This might be unpalatable to some but it is the best way to ensure that labour is allocated to where it is most needed. Creating a distortion in the capital market as a mechanism of addressing a distortion in the labour market is certainly not the way to go.

Overall economic condition

The article in The Sunday Gleaner complained that the wages received by UWI graduates are low. This might be so, but this is a result of the overall economic condition and has nothing to do with the quality, or lack of quality, which is produced at UWI. If the article was able to demonstrate that graduates, from other universities were able to command higher wages in Jamaica than UWI graduates, then an argument could be entertained about lack of quality coming out of UWI. The fact that a significant proportion of UWI graduates is able to find employment abroad indicates that a UWI degree is internationally tradable.

Peter John-Gordon is an economist. Feedback may be sent to columns@gleanerjm.com