Should governments start making judgements on which university courses to fund, and where to cut student numbers, based on graduate employment metrics?

There was consternation among English universities earlier this year when the sector regulator announced plans to set absolute numerical thresholds for “acceptable performance for indicators relating to continuation, completion and progression to managerial and professional employment or higher level study”, which each subject grouping at each university would be expected to meet.

The Conservative government is concerned about courses deemed to deliver “low value” on graduate employment outcomes, in a system where public funds flow via student loans and where there are no controls on student numbers. There are suggestions that ministers might seek to cap student numbers on offending courses, potentially using that new outcomes metric; or the regulator could threaten to use the metric to withdraw access to student loan funding from courses falling short of the threshold, creating a “back-door student number control” forcing universities to shift away from courses close to the threshold.

This is part of a familiar pattern across many Western nations: as mass higher education systems become the norm, governments spend more on universities and demand more in return. Meanwhile, the financial crash, the pandemic and economic transformations have created increasingly tougher labour markets for many graduates. And technological advances have made it possible for governments and agencies to gather reams of new data on graduate employment, sometimes linking earnings and the profile of jobs to the courses and the universities where graduates studied.

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If moves to make graduate outcomes in the labour market a focus in funding decisions are a trend in the West, what might we learn from the examples of systems already in place?

In New Zealand, a Labour-led coalition government introduced an uncapped demand-driven system in 1999. But it scaled that system back in 2006 after concerns about graduate unemployment and underemployment.

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Instead, it introduced a system of three-year “investment plans”, where the government’s Tertiary Education Commission (TEC) agrees with institutions, including the nation’s eight universities, the course provision that will be funded – about a third of funding for tertiary education in New Zealand comes from student fees, with the bulk of the remainder from public subsidy.

In return, the investment plans allow the government, via the TEC, to individually nudge universities to better align with its strategic goals for tertiary education. In guidance for institutions on drawing up the next batch of investment plans, for 2022 onwards, the TEC reiterates its goal of eliminating disparities in achievement for Māori and Pasifika students.

Plus, on skills and employability, it tells providers that in justifying their course provision it wants to see “how you identify and quantify labour market needs”, and it calls for evidence that institutions have “engaged with…relevant industries and employers”, “are responding to your region’s specific needs and aspirations” and are “planning provision based on programmes that result in good post-study outcomes”.

In practice, however, successive governments have “avoided tying funding or enrolment numbers to outcomes”, said Roger Smyth, an independent consultant and former head of tertiary education policy in New Zealand’s Ministry of Education. Although the previous National-led coalition government was more focused on graduate employment outcomes, compiling new data on graduate earnings, “funding wasn’t shifted because of outcomes”, said Mr Smyth.

“The system is still very much demand-led,” he continued. “In fact, in most of the years between the end of the global financial crisis and the advent of the pandemic, almost all demand was funded.”

Chris Whelan, chief executive of Universities New Zealand, called it a “semi-demand-driven system”.

“New Zealand has some of the world’s best statistics for graduate outcomes – high levels of degree-level employment and very low levels of underemployment or unemployment,” he said.

The Tertiary Education Commission “is fairly even-handed and consistent in how it assesses the data”, Mr Whelan added. “No one wants unnecessary instability.”

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In Denmark, things are less harmonious. In 2014, the centrist Social Liberals, then part of a coalition government and in charge of the Ministry of Higher Education and Science, announced moves to cut student numbers in Denmark’s system of publicly funded higher education for courses with graduate unemployment rates deemed unacceptable. The move was a regulation rather than a law, and thus did not require parliamentary approval.

“Higher education has to relate more to the needs of the workforce,” said Sofie Carsten Nielsen, who was minister then.

After months of intense media and political debate, Denmark’s then prime minister, Helle Thorning-Schmidt of the Social Democrats, announced that the plan would be toned down and delayed, following opposition from Universities Denmark, which represents the nation’s eight universities.

The new regulations are yet to take effect “as university degrees take at least five years, and we need up to two years to collect data on employment patterns”, said Jesper Langergaard, director of Universities Denmark.

Data on employment will be collected on all business studies graduates, for example, and if at aggregate level their unemployment rate is 2 per cent higher than the average population of university graduates in seven of the past 10 years, the number of new students who can study business studies will be reduced.

“Thus, even if one university doesn’t have an issue with high unemployment, they will still be subject to regulation” on any course falling below the graduate unemployment threshold nationally, said Mr Langergaard.

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Universities Denmark’s “main point of criticism is that the regulation is mechanically skewed towards the demands of the past and has no regard for the demands of the future, and thus we might see a deficit in certain areas of knowledge in the future”, he added.

Graduate employment and unemployment figures are “increasingly found in funding models for universities across Europe”, said Enora Bennetot Pruvot, deputy director of the European University Association, which is comparing data gathered for those models by governments and regulators in 2019-20 with the situation in 2015, for a study to be published later this year.

From 2021, Finland’s Ministry of Education and Culture will allocate 4 per cent of universities’ funding using a metric on the “number of employed graduates and quality of employment”, up from 2 per cent in the previous funding model, she highlighted.

In Slovakia, government hopes of encouraging more participation in the labour market by bachelor’s graduates involve “setting up incentives not to continue towards MA degrees”; and if universities fail to meet those objectives, their funding is negatively impacted.

And in Scotland, the Scottish Funding Council reaches outcome agreements with universities and colleges setting out what they plan to deliver in return for public funding. Institutions are assessed on criteria including “learning with impact”, where the “core national measure for universities” is on graduate outcomes: the level of Scottish students reaching “positive destinations” – work, training or further study – and employed at “professional” level.

Meanwhile, in the US, there are long-standing traditions of states deploying performance-related funding for public universities, sometimes stretching back decades: a 2020 study of such funding measures put the number of states using them at 41.

While performance measures are not consistent across states, the number of students completing their degree is the most common; but other metrics also include the average wages of an institution’s graduates, according to the study.

What, then, are the arguments against any moves to use graduate employment metrics to selectively limit student funding?

Kate Purcell, emeritus professor in the Institute for Employment Research at the University of Warwick, directed Futuretrack, a longitudinal survey of students and graduates billed as “the most ambitious investigation of the relationship between higher education and employment ever undertaken”.

In terms of the picture in England, she said the first factor to consider was that “graduate-level employment” was “a rather slippery concept to define”.

“Changing occupational skills requirements have meant that the boundaries of ‘graduate jobs’ have changed radically over recent decades and continue to change, not simply in relation to the increased graduate supply,” Professor Purcell said.

Another factor was that “there isn’t one graduate labour market but many overlapping graduate labour markets, which means that access to jobs and earnings are more closely related to and dependent upon industry sector and the capacity of employers to pay than levels of academic or entrepreneurial achievements”, she continued. “Different regional opportunities and rates of pay are also important.”

The EUA has “consistently advised” against including in higher education funding models “metrics on which universities themselves have very little to no influence”, said Ms Pruvot, highlighting that graduate employment was linked to variables including “broader economic trends” in regional, national and international labour markets.

Rather than using such metrics for funding decisions, the EUA argues, “specific contracts between public authorities and universities, with support funding included”, could have more impact by fostering the creation of dedicated support for graduate employment in universities, she added. “There are various ways to engage with universities on this topic, and the ‘funding metric’ approach is a rather reductive one.” That ideal might sound closer to the relatively consensual and nuanced approach in New Zealand, rather than the hard metric approach forced through against university opposition in Denmark.

The entire concept of “graduate employability” is “ludicrous”, according to Professor Purcell. The capacity to get a “graduate job” depends not just on the knowledge or skills of graduates, but also “on the supply of jobs and on the ability and willingness of employers to create vacancies that provide career opportunities”, she added.

“The increasing fragmentation of employment…has led, along with other macroeconomic impacts, to a reduction in the supply of career opportunities.”

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While that may all be true, governments usually pull the levers closest to hand. It will always be easier for a minister to “get tough” with universities, with all that data on earnings and “graduate-level jobs” that apparently evidence their point, than it is for governments to understand the complexities of relationships between universities and labour markets, or to develop long-term strategies for changing the structure of economies.

john.morgan@timeshighereducation.com