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How is the demand for part-time HE affected by changing economic conditions?

As the economics of tertiary funding hits the spotlight once more, Gavan Conlon asks what relationship there is with wider economic conditions and demand for part-time HE.
This article is more than 6 years old

Gavan Conlon is a Partner at London Economics.

The economics of tertiary funding is again in the spotlight (when is it not?). This week sees the deadline for submissions to the House of Lords Economic Affairs Committee inquiry on higher education, further education and vocational training. And when policy-makers are talking about the economics of tertiary funding, part-time higher education should not be ignored.

Part-time study is a vital part of a diverse higher education system. It widens participation and increases social mobility, providing choice to individuals who may not have had the opportunity to attend university straight out of school and now require the flexibility to continue their education part-time whilst meeting work and family commitments.

The reduction in the number of part-time student enrolments in England, however, poses a significant challenge: in the light of longer working lives, multiple career paths, ever-changing technologies and projected post-Brexit skills gaps, part-time higher education will become an even more important element of the higher education and skills jigsaw.

We have published a report (here) looking into the demand for part-time higher education and whether – as some have suggested – that the decline in part-time enrolment has been because of either the strength of the labour market or the fact that the increase in enrolment amongst full-time students has reduced the available pool of part-time students. In our report, we combine theoretical and empirical analysis to better understand whether the wider macro-economy impacts higher education enrolment and which students might be most or least affected by economic trends (and how).

The analysis demonstrates that, unlike full-time higher education, the demand for part-time higher education is pro-cyclical. This means that as the economy improves, the demand for part-time education should increase; however, how we assess an improving economy is crucial. Looking at real earnings is much more important to potential part-time learners than a simple assessment of employment rates. The analysis also illustrates that there is a pool of part-time demand for higher education that has not been exhausted following the increase in full-time enrolments over the last decade.

The decline of part-time higher education in England

There has been a substantial fall in the number of part-time students enrolled in higher education over the past decade, with the decline being particularly apparent amongst English higher education providers. In contrast, the number of full-time student enrolments has been on an upward trend. Domestic student enrolments fell from 337,000 in 2004/05 to just 184,000 in 2015/16. That’s a decline of 45% over a period where full-time numbers increased by 19%. This varies across the UK’s nations, with a 49% decline in England, 30% in Wales and 12% in Scotland. In contrast, the number of part-time enrolments in Northern Ireland increased by 10% over the period.

What is the economic context?

When describing the labour market as buoyant, reference is made implicitly to the number of jobs available in the economy. This implies that the strength of the labour market is reflected in terms of improvements in the employment rate observed since 2011. This is indeed true – there has been a significant increase in the employment rate since 2011 (from 70% to almost 75%) – and the most recent economic indicators (here) suggest that the employment rate stood at its highest rate of 75.3% between May and July 2017. If the commentators were correct, this should result in a decline in both full-time and part-time enrolment. However, we know that full-time enrolments have increased while part-time enrolments have declined.

Economic context: employment rates only go so far

Part-time students are substantially more likely to be older than full-time students, and in employment. As a result, part-time students are much more likely to have their decision on higher education enrolment affected by income rather than job availability. Therefore, the ‘quality’ of the labour market is important. It is not just about the number of jobs, but the income levels associated with the jobs that matter to part-time students.

When real hourly earnings are plotted instead of the employment rate, the analysis illustrates a significant decline (from 2008/09) followed by a more modest recovery (and the most recent ONS statistical release suggests that inflation is outstripping average weekly earnings (here)). Importantly, fluctuations in the numbers of part-time students appear to coincide with movements in real earnings, while full-time student numbers seem to run counter to this. This pattern would support the idea that potential full-time students are influenced by the opportunity cost of work, and possibly treat education as an investment good, while part-time students are more likely to treat education as a normal good.

What does the economic theory suggest?

We undertook a fundamental review of the economic theory to try and explain why the demand for full-time and part-time higher education move in opposite directions.

The theoretical analysis provides the answer, and suggests that:

  • Full-time higher education enrolment will decrease in a buoyant labour market (i.e. demand is counter-cyclical). The size of the decline will depend on the strength of individual preferences for higher education.
  • The demand for part-time higher education will increase in a buoyant labour market (i.e. demand is pro-cyclical). The size of the increase in part-time demand is dependent on the extent to which part-time students need to substitute out of work effort to accommodate additional study.
  • For part-time students, wages and household incomes – not employment rates – are the key manifestations of a buoyant labour market. Changes to real wages and incomes directly impact part-time learners.

Does the empirical evidence back up the theory?

Yes. In general, in the absence of borrowing constraints, the demand for (full-time) education is countercyclical. Individuals will substitute education for work when the current wage is low relative to future wages. Relaxing the assumption that higher education is a full-time commitment, a notion which clearly does not apply for part-time students, the evidence suggests that the demand for part-time education is pro-cyclical. However, the empirical evidence suggests that there are other significant factors at play in relation to the decline in part-time enrolments, including the change in tuition fee levels, funding arrangements (and credit constraints), as well as debt aversion. A number of these additional factors are evidenced by the stark difference in part-time enrolment rates by Home Nation over the most recent economic recession (and recovery).

Has increased full-time enrolment reduced the pool of prospective part-time students?

When we looked at what might be expected for part-time enrolments, the decline in part-time study was found to be more than 4.5 times as large as the increase in full-time study based on what might be expected in relation to population growth of the constituent populations. Even if the increase in enrolment of full-time students has in part reduced the demand for part-time study, this has in no way exhausted the latent demand for part-time education.

Does any of this matter?

Given the limited nature of the economic recovery, as well as the very significant uncertainties ahead, the current student finance arrangements need serious and thorough review in order to encourage potential part-time students into higher education.

One response to “How is the demand for part-time HE affected by changing economic conditions?

  1. Did the analysis take account of other sources of funding? I thought there was some connection between cuts to NHS funding after 2008 (training budget first to feel the squeeze) and decline in part-time enrolments. Part-time students are more likely to be funded by their employer alongside working aren’t they?

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