The Decision to take up Adult Education: a Dynamic Programming Analysis

1. The Decision to take up Adult Education: a Dynamic Programming Analysis Justin van de Ven and Martin Weale National Institute of Economic and Social Research

2. Why don’t more people participate in life-long learning? • Educational upgrading leads to higher pay and better employment prospects. • We consider men upgrading from level 2 (qualifications above GSCE) to level 4 (higher education).

3. The Low Prevalence of Lifelong Learning

4. Earnings are Unpredictable Are the uncertain benefits from upgrading a deterrent?

5. The increase in earnings associated with upgrading is not statistically significant at a 5% level. • But the uncertainty surrounding the effects of upgrading suggest that 90% confidence limits for its individual effects in multiplying up earnings are 0.52 to 1.92. • A high chance of upgrading going wrong.

6. A Structural Analysis (i) • Welfare comes from consumption and leisure • Assume people maximise their expected life-time welfare but are risk-averse • £1 is better than equal chances of getting 50p or £1.50. • Life-long learning has costs in terms of fees and leisure time given up. • It yields uncertainty benefits in terms of better pay and employment prospects. • Is this uncertainty enough of a deterrent.

7. A Structural Analysis (ii) • Choose parameters to define welfare function so as to match observed consumption and labour supply decisions over the life-course as closely as possible. • Implies a reasonably strong degree of risk-aversion. • Earnings rise sharply for people in their 20s and more slowly to about 45; then fall off • But there is a strong random element.

8. A Structural Analysis (iii) • Simulate a panel of 10000 people moving through the life course. • At each age they can decide how much to spend and whether to work full-time, part-time or not at all. • They can also decide whether to upgrade their qualifications or not. Upgrading is possible only once. • Observe the number of people deciding to upgrade by age.

9. Costs of Education • University fees introduced at £1000 in 1998/9; currently £9000 • Many higher education sub-degree courses are much cheaper and take one or two years. • Full-time education makes full-time work impossible but does allow part-time work. • Part-time study is compatible with full-time work but leaves little spare time. • Assumed two years of full-time study or three years of part-time study.

10. Drop-out Rates • 15-17% of mature students drop out after the first year • Resumption rates are under 20% • 37% of part-time students under 30 dropped out and 34% of those aged 30+ • No information on failure; we explore the role of a subjective risk of failure.

11. Simulated Life-time Probabilities of Upgrading from Level 2 to Level 4 The observed probability is 5%

12. Simulated Life-time Probability of Upgrading from Level 3 to Level 4 The observed probability of upgrading is 18%

13. The Simulated Participation Profile 60% chance of failure; fees of £1000 p.a.

14. Conclusions • Risk is a factor affecting the take-up of life-long learning. • But both uncertainty about earnings and fees go only a part of the way to explaining low participation. • High subjective risks of failure are needed to account for observed participation rates.