275. Policy Analysis and Evaluation
5.1. Policy 1: An Increase in the Number of Places on UGC-Funded Undergraduate ProgrammesUGC-Funded Undergraduate Programmes
285. Suppose before the expansion, 20% of the secondary school students can obtain a place on UGC-funded programmes, and 40% of the students will be admitted to a self-financing programme; the remaining 40% of the students will leave the education system and enter the job market.
286. In the figure below, students are arranged according to their overall performances, including the academic performances in the HKDSE examination and the performances in other related areas, like interviews and extra-curricular activities. Before the expansion, the top 20% (80th - 100th percentile) of the students will be admitted to the UGC-funded institutions, while the middle 40% (40th – 80th percentile) will be admitted to the self-financing programmes offered by other institutions, and the lower 40% of the students (0th – 40th percentile) will enter the job market without pursuing higher education.
287. Figure 5-2 Expansion in Number of Places on UGC-Funded Programmes
288.
Before Expansion After Expansion 0%
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UGC-funded Self-Financed No Higher Educ
289. Suppose now the government allocates more resources to the UGC-funded institutions, and now the top 40% of the students can obtain a place on UGC-funded programmes. If the number of places on self-financing programmes offered by other institutions is unchanged, the next 40% of the students will be admitted to the self-financing programmes offered by other institutions if they can satisfy the minimum requirements for these programmes.
Overall Impact on Hong Kong
290. Education is an investment in human capital. Whether or not an investment is worthy depends on the cost and benefits.
291. The cost of expansion in the number of places on UGC-funded programmes includes not only the increased resources needed for providing education, but also the sacrificed production: there will be more students (the 20th – 40th percentile) entering the higher education system instead of the job market, which will result in a drop in the aggregate production of the economy.
The value of the sacrificed production depends on a number of factors, including the productivity of these secondary school graduates, the speed of experience (and thus productivity) accumulation, as well as whether there are jobs available for them. For example, if the economy is undergoing a recession and the job market is doing badly, the majority of these secondary school graduates may end up unemployed, and thus the cost of expanding higher education will be lower.
292. On the other hand, the social benefits of the investment in higher education depend on how much it can raise the productivity of workers, and also the external benefits that we discussed earlier. In particular, the rise in productivity can come from both the students in the 20th – 40th percentile and those in the 60th – 80th percentile, if we assume UGC-funded programmes are of higher quality and can lead to a further increase in productivity.
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294.
UGC-funded Institutions
295. The UGC-funded institutions receive extra financial support from the government and expand their programmes. In order to increase the number of places on their programmes, they will need to expand both the infrastructure and manpower. However, expansion of infrastructure like campus takes time, and congestion problems can be expected at least in the short run. Moreover, more manpower will be needed to take care of the additional teaching and administrative work. They need to compete with other local and overseas institutions for teaching and administrative staff, which may imply a rise in the labour cost.
296. In addition, with the expansion, the overall quality of students drops.
More resources may be needed to uphold the quality of their graduates.
Other Institutions
297. Because of the expansion of places on UGC-funded programmes, non-UGC-funded institutions will face a significant pressure. First, the expansion will lead to a higher demand for teaching and administrative staff, and thus these institutions will find it more difficult to hire quality staff, or even face the problem of a brain drain. To hire suitable and qualified individuals, they will have to offer more attractive compensation package to their employees, and it implies a higher labour cost. Second, as the students of higher quality (60th – 80th percentile) will be admitted to UGC-funded programmes, the quality of students admitted by non-UGC-funded institutions will be lower. These institutions are likely to face difficulty in maintaining the standard of their teaching and curriculum. If we assume that students with the lowest performance in HKDSE may choose not to further their studies in higher education, these institutions will face an additional challenge: they may need to compete with other institutions for the limited number of potential students, and that will be transformed into a financial pressure as these institutions receive no subsidies from the UGC.
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Academics and Staff
300. With the expansion, more academics and staff are demanded. Suppose the labour market is competitive, the higher demand for labour will lead to a rise in the equilibrium wage rate and the number of labour employed.
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302. Figure 5-3 An Increase in the Demand for Academics and Staff 303.
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305. However, it is likely that the rate of increase in the number of academics and staff hired will be smaller than that of the student enrolment. In
staff is also expected to rise. Thus, even though the wage rate is likely to increase, the overall change in welfare is ambiguous.
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Current Students and Recent Graduates
308. Current Students: As the expansion and upgrades of campus and facilities take time, the increase in the number of places on UGC-funded programmes is likely to bring a congestion problem to university students at least in the short run. Besides, even though universities may be able to cater the increased demand for academic courses (e.g., through enlarging the class size) due to the increase in the number of undergraduate students, the development of other experiential learning opportunities are unlikely to be able to cope with the increase. For instance, the quota for exchange programmes, internship programmes, and even hostels is, to some extent, beyond the full control of the universities in the short run. In other words, the increase in the number of places on UGC-funded programmes will lead to a more intense competition among students and it will probably lower the overall quality of the learning experience of students. Moreover, an expansion of higher education sector will lead to an increase in the labour supply of highly-educated workers in the near future. The job market will then adjust and the equilibrium wage of highly-educated workers will likely to drop, as shown in the figure below.
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310. Figure 5-4 Market for Highly-Educated Workers
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313. For some industries with growing demand for labour and thus growing wages, the effect of the increased supply of labour may be undermined / cancelled out. However, a slowdown of the growth in wages can be expected.
314. Recent Graduates: Even though recent graduates of universities / institutes have accumulated several years of working experience, they may not be too different from the fresh graduates from the point of view of employers. In other words, those soon-to-be fresh graduates are imperfect substitutes for them, and thus they will face more intense competition in the job market for highly-educated workers. The equilibrium wage is likely to decrease (refer to figure 5-4).
315. There is another interesting aspect of education. One of the roles of higher education is to serve as a signal of higher quality of an individual in the
job market. Traditional economic theory suggests that the one’s wage earning in the job market will be directly related to his productivity or quality. Firms are willing to pay more to hire employees with higher quality because they are more productive and are going to bring more revenue for firms. However, the quality of an individual is usually known to himself, but unobservable to the potential employers. This situation is called asymmetric information. Assuming that usually only individuals with higher ability (say, the top 20% of students) can gain an admission to a UGC-funded programme, pursuing higher education in (and graduating from) UGC-funded institutes is then a way for the individuals to send out a signal to the potential employers, indicating that they are of higher quality.
This is the signaling effect of education. This impact is particularly significant for those who have just graduated recently and have little working experience and evidence to demonstrate his own ability level. However, an expansion in the number of places on UGC-funded programmes will tend to lower the overall quality of graduates, and thus diluting the signaling effect of UGC-funded programmes, which and may cause negative impacts on the graduates.
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317.
Secondary School Students
318. With an expansion of places on UGC-funded undergraduate programme, more secondary school students will be able to obtain a bachelor degree from these institutions. Notice that the policy has the most significant impacts on those marginal students, i.e., the students in the 60th– 80th percentile and the 20th– 40th percentile. The former will be able to obtain a UGC-funded programme place, while the latter will have a chance to pursue a degree or a sub-degree in self-financing institutions. These students are expected to benefit because, as discussed earlier, receiving higher education can raise one’s ability and his future earnings. The students in the 60th– 80th percentile will receive extra benefits in the sense that they can pay less and receive higher quality education (the tuition fees of UGC-funded institutions are usually lower than that of non-UGC-funded ones); while students in the 20th–
40th percentile will sacrifice their current earnings and invest in their own human capital through education. Meanwhile, the learning experience in higher education for the top 20% of the secondary school students is likely to deteriorate, as UGC-funded institutions may not be able to maintain the quality of education they provide in every aspect.
319.
Business
320. With more graduates from higher education and thus a larger supply of highly-educated workers, the equilibrium wage tends to be lower (refer to figure 5-4). It means that businesses will be able to hire more workers with a lower cost. In addition, higher education tends to raise the aggregate earning of the whole population through improvements in productivity. It indirectly benefits businesses that are selling normal goods with an increase in income and a stronger demand for goods and services in the economy; yet it harms businesses selling inferior goods.
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