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The Economic Cost of Education

Degrees for Everyone! Anyone!

Asian culture recognizes education as a fundamental cog in a well oiled family, community and economy. It is no surprise that Asians are climbing very quickly up the education ladder now that most families are able to afford a tertiary education for their kids. But there is a danger that the blind rush for education is less than optimal. Currently, multiple schools are opened catering to students of different caliber. The top end still land in leading US and UK universities. Below that, universities from Japan and Singapore figure just behind the Ivy League. Yet in each of these countries, it is possible to get a degree regardless of caliber. Multiple lesser known schools piggy back on more accomplished names handing out degrees that can be earned purely by time and investment. While I am firmly for individuals to realize their fullest potential, this system has a major flaw.

Education as a Signal

Education has always been regarded as investment to human capital. The more you learn the more useful and productive you are, making you a greater economic asset to a firm and an economy as a whole. It is expected that less academic orientated individuals leave school not because they are not good enough but that the academic journey is not suited for them.

There are basically 2 kinds of degrees offered in universities – academic degrees especially in the areas of the arts and sciences; and vocational degrees such as medicine, law, engineering, business administration and accountancy. The first is an academic journey. Individuals in this category are expected to be well suited to the role of research and development. The second is a professional journey. These degrees produce individuals who, as its name suggest, go on to be professionals. It must be remembered that not every job is considered professional even though one may be highly skilled in it. The definition of ‘professional’ has been largely diluted over the years. It is in the same essence that a degree requirement for nearly any job has diluted education as a signal. Now you need a degree for jobs that never actually need one. This could be due to a larger than optimal or over qualified labor force. Nevertheless, this is a problem because it means that too many people are spending too much time in education. Ask a large majority of degree holders if what they learnt in their degrees were actually utilized at work. You will get a large negative response but that it was still important to get that certification so as to land an interview. Just that interview. This is the problem. An inappropriate amount of time is spent just to make it past a high entry bar that is not required for most jobs.

Time is Money Friend

To an economist, everything has a cost. You sitting and doing nothing for that split second has a cost and benefit. The cost, known as opportunity cost, is the value placed on something you could have been doing. The benefit here is that you are resting. If the benefits outweigh its opportunity cost, by all means please carry on. If not, then the use of your time is inefficient. The same applies to education, every bit of time spent on acquiring a certification (that is actually not really required in the first place) has an accounting cost and the aforementioned opportunity cost. Accounting cost will cover the amount spent on the extra unnecessary years of education. Opportunity cost will return the amount you could have earned if employed earlier. (or if the job you applied for, which didn’t actually need a degree, took you in). Total both and you get a tremendous amount of unnecessary time, money and effort spent. This is loss to self and to the economy.

Overdoing A Knowledge Based Economy

Singapore moved towards a knowledge based economy in the late 20th century. It was the right move but after spending necessary effort to do so, we are at the point where we could be over doing it. This is the point of diminishing marginal returns. The sad thing is that society takes a lot more time to adjust compared to economic policies. Education has a social standing (or stigma if you are deemed to not have reached a certain socially accepted level) attached to it.

Rethink

We must think – ‘am I spending the correct amount of time studying to realize my potential and land a career that suits me’. It shouldn’t be attempting to study to the highest possible level no matter the cost. We need to rethink along these lines. I am not suggesting dumping education, but I am speaking against going extreme in the opposite direction.

It would be funny to find a job listing in 2050 that requires an honours degree for a clerical job. 

Dave Junia

Dave Junia | administrator

Analyst. Cyclist. Photographer

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