To set you up for life [in debt]
Going to university is still a big decision, and it’s a choice which more and more of you are making. We want that decision to pay off, to set you up for life, and our reforms will make sure universities do just that.
Jo Johnson. 2016. Open Letter to Students
The measures will enable information on earnings and employability to be evaluated more effectively which will inform student choice. This data, presented in context, will distinguish universities that are delivering durable labour market outcomes and a strong enterprise ethos for their students.
DBIS. 2015. Small Business, Enterprise and Employment Act: Education Evaluation fact sheet.
We intend to increase undergraduate tuition fees for home/EU undergraduate students in line with the inflationary increases allowed by government. You should therefore expect an inflationary increase in your fees in each subsequent academic year of the course, subject to government regulations on fee increases.
Exeter University. 2016. Tuition Fees
it is certainly not fit for the future
We all know that there is still a big debate to be had about the financial viability of the student loan system. This afternoon is not the occasion to rehearse the fragility of the Ponzi scheme that now underpins that system, but I often used to debate with the Minister’s predecessors whether Britain could look forward to a debt write-off of £70 billion or £80 billion. The basic message was pretty simple: the student loan system as currently set up is not fit for purpose, and it is certainly not fit for the future.
Liam Byrne. 2016. Higher Education and Research Bill, Second Reading
Peter Lampl and the Sutton Trust, who have championed that access for more than a decade, repeated their fears in their briefing on the Bill, including, specifically—this has been alluded to but the Secretary of State was unable to give an answer—the fact that English students have the highest level of debt in the English-speaking world. The figures are: £44,000 on graduation and over £50,000 for those requiring maintenance loans.
Gordon Marsden. 2016. Higher Education and Research Bill, Second Reading
We know that loans and more debt at a time of economic uncertainty are a luxury few in our society can afford. The biggest division in our society today is between those who are able to turn to the bank of mum and dad, and those who are not; university education and the possibility of higher fees is simply a bigger part of that picture of whether we may end up crushing talent, rather than developing it, if we do not act. Nothing in this Bill will change that. Nothing that this Government are doing will change that problem of all 18-year-olds being held back by not having the bank of mum and dad—I refer not just to those who want to go to university, but to those who have fantastic business ideas and those who want to go into FE. A truly socially mobile country would seek to work for 100% of 18-year-olds, not just 50% of them. It would recognise that the debt they might incur might affect not only their choice of whether to go to university, but their ability to get on the housing ladder and the ability for their families to look to the future at all. I say that as someone who represents too many families who have £10,000 to £15,000-worth of unsecured debt hanging over their heads as it is. If the Bill does not address that issue—indeed, if some of the changes it is making are making it even more likely that these people will incur higher debts—we will lose that talent, to the detriment of us all.
This is taking place in a country where a rising number of middle income families are now in rented accommodation because they simply do not have the savings even to begin to get on the housing ladder. We are asking them to take on more debt, and potentially to subsidise more debt for their children, and this will hold too many back.
Stella Creasy. 2016. Higher Education and Research Bill, Second Reading
The experiences of graduates in the labour market in their first six months after graduation were mixed and heavily dependent on the subject they studied and the institution they went to.
Degree subject and institutional type have a large impact on graduate earnings and there are clear gender inequalities in graduate pay.
We found that many of the attitudes graduates had last summer about the cost of their degree, its overall value, and their levels of student debt had not changed over time.
The freezing of the repayment threshold on student loans has undermined graduates’ trust and confidence in the student loans system.
Graduates are accumulating non-student debt and are carrying debt over from their time studying.
Graduates are struggling to afford life after university and are choosing to live back with their parents to save money.
Ultimately, the student loan system threatens to add to the increasing intergenerational unfairness. The concern over student debt and the rising consumer debt owed by graduates is creating a cash shortage for many, leading to expectations that home ownership and even a pension are out of reach. This is coupled with the issue of the varied graduate outcomes that the cohort have received. Poor job security and low wages are hitting many graduates, particularly those who are from the most disadvantaged backgrounds, which is compounding the impact of debt and creating a fairly grim outlook for the last of the millennial generation.
immiseration and the organic composition of capital
Over and above differential access to different types of HE, individuals’ socioeconomic background may also continue to have an effect on their labour market outcomes after graduation. This might be because students from more advantaged backgrounds have higher levels of (non-cognitive) skills (see for example Blanden et al. (2007)) skills that are not measured by their highest education level, or by their degree subject or institution. Alternatively, advantaged graduates may earn more because they have greater levels of social capital and are able to use their networks to secure higher paid employment. The literature on this is quite limited in the UK but does suggest that graduates from more advantaged backgrounds, particularly privately educated students, achieve higher status occupations and earn a higher return to their degree.
Britton, J., Dearden, L., Shephard, N., and Vignoles, A. 2016. How English domiciled graduate earnings vary with gender, institution attended, subject and socio-economic background. Institute for Fiscal Studies, p. 7.
The IFS working paper proposes an economic model in which firms choose between two organisational forms: the old, centralised form and the newer, decentralised one. Here, we think of the choice of organisational form as a choice of ‘technology’, just like IT is a kind of technology. The decentralised organisational form is more profitable if and only if the supply of graduates is sufficiently high. When the economy starts with a very low proportion of graduates, the traditional organisational form will dominate. As the relative supply of graduates increases, the relative wage will fall and, once it reaches a critical threshold, firms will begin to adopt the newer decentralised form of organisation. The relative wage will stay at that critical level until all the firms have switched to the new form. After that, the relative wage should fall if the supply of graduates continues to rise. Thus, there exists a transitional period when the relative wage of graduates is invariant to supply changes.
Hence, we believe future increases in the proportion of graduates in the UK will tend to reduce graduates’ relative wages, unless some other skill biased technology becomes available. And that technology has to be sufficiently general to be applicable in all sectors (like how the IT revolution and decentralised organisational form spread across the economy). But we do not expect a future UK higher education expansion to automatically generate such a new general technology. The decentralised organisational form was first implemented by US firms and US multinationals before it was adopted by UK firms. Now that the UK is surpassing the US in terms of the proportion of graduates, there is not another readily-available general technology that the UK can adopt from the US.
Blundell, R., Green, D. and Jin, W. 2016. The Puzzle of Graduate Wages. IFS Briefing Note BN185.
We estimate that our average teacher would have cleared his debt by age 40 under the old system, but would still have £37,384 of debt in 2014 prices under the new system and have £24,479 to be written off at the end of the repayment period (age 51). (The debt to be written off under the new system would rise to £42,247 if he had borrowed enough to cover a PGCE course as well.) By contrast, we estimate that our average lawyer would repay his debt in full under both systems, achieving this in his early 30s under the old system and in his early 40s under the new one.
savings at younger ages under the new system are offset by increased costs in later life. After the point at which graduates would have repaid their debt under the old system, most will end up paying substantially more per year for several years. These costs amount to around an additional £430 per year on average between ages 31 and 40 in 2014 prices (equivalent to around 1.6% of net earnings) and around an additional £1,090 per year on average between ages 41 and 51 in 2014 prices (equivalent to around 3.7% of net earnings). This may make it more difficult for affected individuals to meet ongoing expenses over this period.
Crawford, C. and Jin W. 2016. Payback Time? Student debt and loan repayments: what will the 2012 reforms mean for graduates? IFS Report 93.
what worries the strategists of capital
If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.
These findings provide a new perspective on the growing debate in advanced economies about income inequality, which until now has largely focused on income and wealth gains going disproportionately to top earners. Our analysis details the sharp increase in the proportion of households in income groups that are simply not advancing—a phenomenon affecting people across the income distribution. And the hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents.
Dobbs, R., Madgavkar, A., Manyika, J., Woetzel, J., Bughin, J., Labaye, E, and Kashyap, P. 2016. Poorer than their parents? A new perspective on income inequality. McKinsey Global Insight.
At least as measured by GDP, the economy and society as a whole is 5% better off. But is it? The income of the already-rich has risen by just over 10%, while the income of the already-poor as fallen by 50%. Does the former really swamp the latter when it comes to the well-being of society?
This has been an uneven economic recovery, looking across regions, income and age cohorts. Large parts of the UK – many regions, those on lower incomes, the young, renters – have not experienced any meaningful recovery in their incomes or in their wealth.
it is clear that recovery has been associated with both the incomes and, more strikingly, the wealth of the least well-off having broadly flat-lined. Recovery has not lifted all boats, especially some of the smaller ones. This pattern may go some further way towards solving the recovery puzzle. Whose recovery? To a significant extent, those already asset-rich.
Haldane, A.G. 2016. Whose Recovery? Bank of England.
So the world economy has still not recovered to pre-crisis levels. More important, the majority of households in the major economies have seen no ‘recovery’ at all. The great jobs expansion is been mainly in low-paid, low productivity sectors or in self-employment where incomes are relatively lower.
What worries the strategists of capital is that their failure to get capitalism going again or reduce the burden for the majority to pay for it is beginning to end their political control of the majority. Brexit, the rise of Trump and other ‘populist’ leaders now threaten the end of the neoliberal ‘free trade, cheap labour’ agenda of globalisation
Roberts, M. 2015. Globalisation and whose recovery?
Policymakers should strengthen defenses against protracted periods of global financial turbulence and tighter external financial conditions.
Priorities include reining in excess credit growth where needed, supporting healthy bank balance sheets, containing maturity and currency mismatches, and maintaining orderly market conditions.
And policymakers need to stand ready to act more aggressively and cooperatively should the impact of financial market turbulence and higher uncertainty threaten to materially weaken the global outlook.
IMF. 2016. World Economic Outlook (WEO) Update: Uncertainty in the Aftermath of the U.K. Referendum, July 2016.
declining productivity is primarily reflection of the fact that an increasing proportion of the labour force and employment is essentially “warehoused” in lower productivity occupations, pending either their final elimination and replacement or (hopefully) an accelerated move into higher productivity occupations.
In other words, as technology evolves, parts of the economy become extremely competitive but these segments tend to slowly and gradually reduce productivity of everyone else. The classic example is clearly impact of Amazon on Wal-Mart or impact of electronic trading on equity or fixed income traders or technological impact on clerical, accounting or legal profession. Indeed, the same largely applies to manufacturing. Whilst economists were correct to argue in 2008/09 that the US would experience a manufacturing renaissance, we were right that it was unlikely to lead to any significant rise in employment, as technology can now deliver superior outcomes with much less labour.
Most investors would immediately argue that this is good news as there is higher productivity per employee. Unfortunately, these investors would be wrong, as this argument ignores cross-sectional movement of labour.
key difference is that whereas past technological evolutions were aimed to supplement humans, the Third Industrial revolution is aiming to replace them completely, and hence we continue to view it as intrinsically far more disruptive.
as billions of young people based in least developed countries might encounter much greater difficulty than the 1970s- 90s generation in integrating into the global economy. In a world of ‘declining returns on humans’ having too many young people might be a recipe for social and political dislocation rather than growth, even if the business climate is improved. In our view, it is quite likely that when historians examine the last one hundred years, they would classify 1950s-1990s as the ‘golden age’. Although there would be inevitable academic disputes about exact boundary (i.e. whether the golden age ended in 1980s or whether there were two golden ages, i.e. 1950s-mid 1960s and 1980s-90s), however, as an overall period, we think it was time of increasing opportunities and generally rising returns on human capital. However, 2000-2030s will likely be classified distinctly differently.
Macquarie Research. 2016. What caught my eye? v.61 ‘Lumpenproletariat’ & deglobalization.
Education for a future of ‘declining returns on humans’.
Vesuvius, I am here/You are all I have/Fire of fire, I’m insecure/For it has all been made to plan
Though I know I will fail/I cannot be made to laugh/For in life as in death/I’d rather be burned than be living in debt
Sufjan Stevens. 2010. Vesuvius.