sou · GYB388 · 2010-11-30 00:00:00 — This is the second highest average graduation age in the countries. is the only country where the average graduation age is higher than in . The Swedish uni- versity students also start their university-level studies exceptio- nally late. The median entry age is over 22, which is also the second highest age among the countries. As in other European countries, the Swedish population is aging rapidly. When a growing fraction of people will reach retirement age and start receiving pensions, the burden to public finances is increasing. Since the pension system is not fully funded, the pen- sion payments need to be financed mainly from social security contributions collected from the working age population. Increases in the life-expectancy are also likely to lead to increases in health care expenditure and therefore create an additional burden on the public purse. As a response to these challenges many countries have implemented reforms aiming to delay retirement. A sufficiently large increase in the employment rate of the older cohorts could solve the problem that population aging creates for public finances. However, policies with large effects on the average retirement age are hard to implement. In addition, creating stronger incentives to delay retirement would typically require cutting benefits from people who retire early. As early retirement often is caused by vari- ous disabilities, such policies may also be harsh to people with diminished work ability and limited chances to affect their retire- ment age. Since extending the work careers at older ages is difficult, it seems natural to ask whether it would be easier to instead incre- Bilaga 3 till LU2011 ase employment rates by getting the youth into the labor market earlier. Given that most countries manage to get their youth through the higher education system much faster than , there might be scope to increase the efficiency of the Swedish system and lower the average graduation age. This would most likely also increase aggregate employment rates. However, since many students are employed already during their university studies or before entering a university – at least part time – faster gradua- tion may also decrease employment rates in some age groups. The net effect on employment depends on the relative size of these effects working in opposite directions. However, in addition to the potential effects on employment, the policy makers should be inte- rested in the effects of graduation age on productivity. If lowering the graduation age leads to a decrease in unskilled part-time stu- dent employment and a simultaneous increase in post-graduation employment, this is would be beneficial for productivity even if the aggregate employment rate remained . It is also clear that a lower graduation age is a sensible policy goal only if a sufficiently high quality and quantity of education could be maintained. Efficiency is improved if the same amount of human capital is produced faster, but not if lowering the average graduation age would imply a large decrease in the quality of edu- cation that the graduates receive. Though average graduation age in is exceptionally high, the questions related to the late graduation are not entirely specific to the Swedish education system, nor are they very recent. The problems related to late graduation are currently discussed also in other Nordic countries where graduation ages are almost as high as in . Interestingly the topic has been discussed for quite some time, also in countries where graduation ages are substantially lower. The earliest example is probably an article written already in 1903 by W. published in the Popular Science Monthly: The belief seems to have become general that the American boy of today takes his first collegiate degree – A.B. or its equivalent – a good deal older than his father took his, and a great deal older than his grandfather. (, 1903) In 1925 wrote about the same issue in . At the time the discussion was focused on the need of Bilaga 3 till LU2011 organizing American secondary schools more efficiently but the underlying issues were quite similar: The movement toward the reorganization of secondary education began in the last decade of the nineteenth century () One of the chief arguments in favor of this reorganization was the need for shor- tening the period of preparation for lifework, especially the profes- sions. It was argued that our schools and colleges were organized in such a way as to render it difficult, if not impossible, for a young man to begin his work as a physician or a lawyer before the age of twenty- six or even thirty, that it was advisable to begin professional work at an earlier age, and that some reorganization should be effected that would reduce the number of years necessary for preparation. (, 1925) The issues discussed in these early examples are surprisingly similar to issues in current policy discussions. graduation is a problem mainly because it delays the entry into productive work and lowers the employment rate. The problem is getting increasingly severe as the share of the population in the working age is decreasing. Maintaining the welfare state requires high employment rates. Dec- reasing average age of entry into the labor market is one of the important where the employment rate could potentially be increased. This report reviews factors related to the progress of the Swedish youth through the higher education system to the labor market. It starts with a comparative analysis that is largely based on data on employment, unemployment, and participation in the education system. The purpose of this comparison is to iden- tify the features of the Swedish system that differ from the other countries. After this comparison the report covers the lite- rature on the effects of policies that affect or may affect the labor market entry age. In the Swedish context these policies are related both to the age of entry into higher education and to the duration of higher education. In the end of the report I will go through potential policy recommendations that might have an effect on the age of entry into the labor market. In addition to policies implemented or discussed in , I will also discuss experiences of policy inter- ventions implemented elsewhere, particularly policies implemented in . The Finnish experiences could be useful as the labor market and educational institutions in many are ways similar. Another natural reason is that I am more familiar with Finnish experiences than with effects of policies implemented elsewhere. Bilaga 3 till LU2011 This report is an outsiders view on the Swedish higher educa- tion system. Conclusions are based on international research, dra- wing primarily on studies published by economists. Thus, the rep- ort will not go into details regarding the Swedish system, and will not include a complete coverage of Swedish studies from other fields. Rather, the report aims to provide a birds eye perspective on the main features of the Swedish system, and summarize the les- sons that can be learned from international economic research on the topic. 2Swedish tertiary graduates compared to graduates in other countries This chapter compares the progression of the Swedish youth thro- ugh the higher education system to that of the youth in other countries. In some of the more detailed comparisons the Swedish youth are compared to the youth in , , , , , , the UK and the . Thro- ugh comparison to the other industrialized countries, I will try to identify the special features of the Swedish educational system, and to find dimensions where the Swedish higher education system appears to be more or less effective than the systems in other countries. The data for the comparisons are mainly derived from various databases. The has collected vast amounts of data on the performance of the education systems in the member countries. These data are particularly useful since they make it pos- sible to compare systems with widely varying characteristics. However, comparisons should be made with due care. For example, in some countries graduating from tertiary education typically refers to completing a short bachelor level program lasting three years while in others a typical first tertiary level degree is a degree that typically takes five years to complete. Direct compari- sons of the duration of university studies in different countries might therefore be misleading. Instead, comparing time spent in education between ages 15 and 29 is probably more informative regarding differences in investments in education. Swedish tertiary graduates compared to graduates in other countries Bilaga 3 till LU2011 A natural place to start the comparison is to examine the differen- ces in the average university graduation age in different countries.2 Figure 2.1 reports the results from these calculations. According to the figure, the average age of tertiary-level graduates varies a lot across countries. The average graduation age is lowest in where university students typically graduate already at the age of 22. Also, graduates from the UK universities are very young; the average graduation age is below 24. University graduates in all Scandinavian countries are in the other tail of the age distribution. In 2007, the average graduation age in all five Scandinavian coun- tries was over 27. The average graduation age in was over 29 which was the second highest number among the countries from which data was available; only had an even higher ave- rage graduation age. Since some graduates are very old in most countries, and this group thus have a large effect on the mean, one could argue that the median graduation age (i.e. the age when half of the graduates have graduated) could be used instead of the mean. In most coun- tries the median age is lower than the average (median graduation age is 27 in ) but the ranking of countries is affected at all if medians are used instead of means. One should also note that changes in the average age of graduates from year to year may not reflect changes in the speed of processing through the system. For example, policies that induce those whose studies have been delayed to complete their degrees would increase the number of older graduates and hence increase the average graduation age. However, as shown in Figure 2.1 below, average graduation ages have been relatively stable over time within countries; the ranking of countries is very similar for the years 2000 and 2007. 2 Interestingly, such statistics turned out to be hard to find. The most recent publication reporting comparable numbers from several countries is The Education at a Glance from 1998. However, the average graduation age can be calculated based on data in the database. Bilaga 3 till LU2011 Swedish tertiary graduates compared to graduates in other countries Figure 2.1 Average age of university graduates from tertiary 5A programs (first degrees) Average age of graduates Source: Own calculations based on data from . Note: The original data contain the number of graduates from tertiary (5A) programmes with academic orientation by age. In calculating the average graduation age missing values on number of graduates at a certain age that are zero by default or not available are assigned a value of zero. In cases where only an age interval is given I have used the midpoint of age range and coded age groups 30 – 34 to 32, 35 – 39 to 37 and over 40 arbitrarily to 42. The average university graduation age depends on the average entry age into universities and on the average duration of university stu- dies. Even if the university studies are efficiently organized, the average graduation age will be high if the students enter university late. Figure 2.2 displays median age of entry into tertiary level pro- grams in the OCED countries. The entry age is clearly among the highest in , though Icelandic students appear to start even later. The entry age is also high in and . Compa- red to the average the Swedish students enter into tertiary level education about two years later which already explains a large fraction of their comparatively high graduation age. Swedish tertiary graduates compared to graduates in other countries Bilaga 3 till LU2011 Figure 2.2 Median age of entry into tertiary education (2007) Median entry age to tertiary level programmes 2007 Source: Education at a Glance 2009: Indicators, Table A2.4. Comparable data on the duration of tertiary education for most countries can also be found in the databases.3 The latest estimates are displayed in Figure 2.3. According to these data, the average Swedish tertiary student is enrolled in less than five years. Note that this figure refers to the average duration of enrolment, including the duration for students who leave their studies without receiving a university degree. The figure shows that average enrolment duration in is longer than the average, but does not stand out as extreme in this comparison. Compared to , the study times are sub- stantially longer in countries such as , and even the UK. 3 The uses these to estimate cumulative monetary investments in education over the duration of studies. Bilaga 3 till LU2011 Swedish tertiary graduates compared to graduates in other countries Figure 2.3 Average duration of tertiary education (2006) Average duration of teriary education Source: Education at a Glance 2009: Indicators, Table B1.3b. Notes: Data refer to tertiary-type A education and advanced research programmes only. The estimates average duration of tertiary studies for most countries using the chain method. The method is based on transition rates i.e. the fraction of students in year i-1 that continue to study in year i. The product of these transition rates gives a probability that a student that started i years ago will still be enrolled. Summing these probabilities then produces an estimate of duration of studies. The method measures the duration of enrolment but not time required until degree since all students participating in tertiary education are taken into account, including drop-outs. Still the measure can be used to estimate the average length of time during which students stay in tertiary education until they either graduate or drop out. 2.2Cross-country comparison of factors related to average graduation age Large cross-country differences in the average graduation age and in the average entry age raise the question of whether one could explain these differences with observable differences in the way the tertiary education systems are organized, or perhaps with the eco- nomic incentives that the students and universities have for timely completion of university degrees. I will examine these incentives in more detail in the subsequent chapters; this chapter presents results of an exploratory analysis of the cross-country differences. Lack of detailed comparable cross-country data makes these comparisons rather speculative. A serious econometric analysis would also require a much larger sample. Therefore, I will only be able to present simple two variable plots on the relationship bet- ween the characteristics of the systems and the average graduation age. I have drawn a regression line to each figure to illustrate the direction of correlation between the variables. It should be noted Swedish tertiary graduates compared to graduates in other countries Bilaga 3 till LU2011 that these correlations are typically not statistically significant, and since many important features of the systems are left unaccounted for when calculating these bivariate correlations, the regression lines should not be interpreted as causal effects on the graduation age. One of the obvious explanations for the differences in study times – though not necessarily for the differences in starting ages – is the difference in the tuition fees charged by the universities. In Figure 2.4 I have plotted the estimates of the average tui- tion fee in tertiary education against the average graduation age in each country. According to the figure these are negatively correla- ted. Tuition fees are zero in all Scandinavian countries where the average graduation ages are the highest. Similarly, the tuition fees are sizable in the UK, where the average graduation age is low. The high tuition fees and the low average graduation age in the UK has a large impact on the visual impression from the Figure, but the correlation is negative (though no longer statistically significant) even if the UK is dropped from the data. Figure 2.4 Average tuition fee and average graduation age Tuition fee in tertiary education Source: Average annual tuition fees in public institutions or in government subsidized private institutions based on Education at a Glance 2009. Tuition fees refer to fee charged from national students in academic year 2006/2007. Tuition fee from private institutions is used instead if the share of students in private institutions exceeds . These tuition fees exclude membership fees to student unions. The average graduation age is based on authors own calculations as described in footnote to Figure 2.1. Bilaga 3 till LU2011 Swedish tertiary graduates compared to graduates in other countries Another potential explanation has to do with the progressivity of the tax system. Tax progression and the fact that taxes depend on annual earnings create an incentive to spread earnings into several years by studying and working part-time for a longer period instead of first concentrating on studies and then entering work with higher earnings. Figure 2.5 plots a simple measure of the pro- gressivity – the difference between the average tax rate of a person earning of average wage and a person earning of the ave- rage wage4 – against the average graduation age. The relationship is positive; the average graduation ages tend to be higher in countries where the income tax system is more progressive. However, the correlation is not statistically significant and even the sign is sensi- tive to the way tax progression is measured. Furthermore, one sho- uld note that according to the measures used here, the Swedish tax system is not particularly progressive and the late graduation age in cannot really be explained by the (lack of) incentives to graduate due to progressive income taxes. One should also note that the measure of tax progression does not account for income dependent benefits such as student grants or housing allo- wances. However, general tax deductions for low income workers that make part-time student employment potentially very attractive should be captured in the measure. 4 These percentiles are picked as rough proxies of average earnings of university graduates and average earnings of students. Swedish tertiary graduates compared to graduates in other countries Bilaga 3 till LU2011 Figure 2.5 Tax progression and graduation age Note: Progressivity of the tax system is measured as a ratio of average tax rate of a single person earning of the average wage to average tax rate of a single person earning of the average wage. Taxes include both local and national taxes and compulsory employee contributions but exclude employer contributions. Source: Tax database Table I.5 from 2008 . Average graduation age based on own calculations as described in the footnote to Figure 2.1. Finally, in Figure 2.6, average graduation age is compared to the estimates of the private return to tertiary-level education. The calculates these estimates as a net present value of ter- tiary education accounting both the direct and indirect costs of investments in education and the effect of education on lifetime earnings. Effects of taxes and transfers and the effects on the risk of unemployment are accounted for in this calculation. However, in practice, the private return to education is closely correlated with the raw wage difference between graduates from tertiary and secondary levels of schooling. According to Figures 2.6a and 2.6b average graduation age tends to be highest in countries where the return to education is low, particularly so in , , and . The average gra- duation age is substantially lower in countries like , , and the where the return to education is high. The relationship between the return to education and the ave- rage graduation age appears to be tighter for women (Fig. 2.6b). Bilaga 3 till LU2011 Swedish tertiary graduates compared to graduates in other countries For women the return to education also explains a substantial frac- tion of the cross-country variance in the average graduation age (R2=0.22), for the men the fraction is only . Figure 2.6a Return to education vs. average graduation age, men Net private present value of tertiary education, males Swedish tertiary graduates compared to graduates in other countries Bilaga 3 till LU2011 Figure 2.6b Return to education vs. average graduation age, women Net private present value of tertiary education, females Source: Private net present value for an individual obtaining tertiary education as part of initial education, ISCED 5/6 in 2005 from Education at a Glance 2009, Table A8.2. Calculated based on estimates of direct costs, forgone earnings while at university assuming standard duration of program, earnings gains, gross earnings gains, income taxes and transfers and effect of education on the risk of unemployment. In calculations for the present value a discount rate is assumed. Average graduation age is based on own calculations as described in the footnote to Figure 2.1. As a summary of the cross-country comparisons one could conc- lude that there are signs that differences in the average graduation ages are correlated with the incentives to invest in education which suggest that one could potentially lower the average graduation age by manipulating economic incentives. A progressive tax system, lack of tuition fees and low monetary returns to education weaken the incentives to move into the labor market quickly. However, the evidence is suggestive at best. The correlations are relatively weak and the number of available cross-country observations is so low that it is impossible to make credible claims on the effects of incentives. Lack of comparable data on the other interesting featu- res, such as the student support system, also makes it difficult to examine the reasons for the variation in graduation age with cross- country data. Bilaga 3 till LU2011 Swedish tertiary graduates compared to graduates in other countries 2.3Participation in education and employment rates of youth in the countries The implications of late graduation age (and late starting age) for the aggregate employment rate depend on how much the students work before graduation, and what the students do before entering into higher education. , I will use data from the for cross-country comparisons of youth employment rates and partici- pation in education by one-year age groups. A useful starting point is to analyse the size of the tertiary edu- cation sector in the countries. In Figure 2.7, I plot the estimates for the tertiary level graduation rates in different countries. These figures refer to tertiary type A education that cor- responds to the usual first university-level degrees. Tertiary-level vocational programs that are important in some countries (not in ) would be classified as tertiary type B education and are not included in this figure. The tertiary education sector has expanded rapidly in most countries. For the estimates indicate that the tertiary-level graduation rate has increased from of the relevant age cohort in 1995 to in 2007. This growth rate seems incredibly high and probably also reflects changes in classification. However, according to the figures tertiary-level graduation rates are not particularly high in even in 2007.