'Flawed' Dearing logic dictates education policy

May 28, 1999

An economist claims to have discovered an anomaly in the Dearing report that undermines the government's tuition fees policy.

Neil Kay, an economics professor at Strathclyde University, says the anomaly could have distorted the Dearing committee's finding that graduates are the major beneficiaries of higher education and should therefore pay fees while they are undergraduates.

The government used Dearing and World Bank calculations to justify national policy on fees.

Professor Kay said: "It is like a house of cards: crucial policy has been based on Dearing's recommendations, which in turn are based on who benefits from higher education, which goes all the way back to this report."

Professor Kay's claims centre on Report 7, one of 14 in Dearing, which was prepared for the Dearing committee by officials at the Department for Education and Employment. Report 7, titled "The contribution of graduates to the economy: rates of return", is an attempt to define the economic relationships between graduates and society. The aim is to assess who benefits from higher education.

The report rules out benefits to wider society as negligible and focuses attention on the transaction in which graduates sell their knowledge for a premium and employers buy this premium-rate knowledge. It says: "This extra cost to the employer from hiring a graduate (rather than someone with two or more A levels) should reflect the graduate's greater value to the firm."

Professor Kay claims that the otherwise sound economic methodology applied by the authors may be inappropriate in assessing the complex relationship between graduates and employers and wider society. The authors equate the benefit to the employer (the "greater value to the firm") to the extra amount that the firm has to pay that graduate (the "extra cost to the employer"). It therefore follows that the only benefit to the employer is to pay a graduate more. Professor Kay says this is nonsensical.

"By eliminating (by assumption) all net benefits to the buyers' side of the market for graduate services, Report 7 is likely to have produced a distortion in the estimates of returns to higher education.

"In turn, this may imply a corresponding distortion in the judgement of who benefits from higher education. Since the government's current policies of higher education are heavily influenced by Dearing's conclusions on these matters, it may be that consideration should be given to revisiting these issues."

Mark Scott, an assistant economist with the DFEE, has written to Professor Kay. In the letter Mr Scott said that the rate of return to the firm was merely a transfer between groups in society, and so there was no net effect on the rate of return to society. The DFEE has not responded directly to Professor Kay's claims.

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