THE INCENTIVES TO LEARN

1. THE INCENTIVES TO LEARN Time to Reconceptualise, Recontextualise and Integrate?

2. The Policy Goal of Participation Across the developed world, policy aims for higher levels of participation and achievement by: • Young people in initial E&T • Adults in continuing education, CPD and lifelong learning

3. And the Key to This Is…... The key to achieving this goal is to improve the incentives to engage in learning. But to do that, we have first to: • know what the various incentives are • how they interact • what force they exert • and how they might be altered.

4. And the Bad News Is……. Knowledge and understanding of the incentives to learn, as they act upon individuals, is: • very partial (we know a lot more about some factors than others) • fragmented and non-holistic

5. The Dominant Model of Rates of Return Analyses In the UK, the dominant perspective on incentives for individuals has been garnered via a small army of economists doing what they term Rates of Return (RoR) analyses on investment in skills (nearly always proxied by qualifications). In many instances they are not real RoRs, as there are no meaningful figures for the original investment - they are calculations that show the average wage premia that particular qualifications attract in the labour market.

6. RoRs Have Been Done For: • Different qualification types (academic/vocational, different vocational awards, etc). • Different levels of qualification • Gender/Ethicity/Parental social class, etc • Occupation • Sector • Region of the country

7. Problems with RoR • Averages can be misleading. The dispersion around the average wage return can be vast. • Backward looking - it tells us what the wage return was, not what it might be now and in the future. • Descriptive device - rarely able to explain what causes the effect, nor why it is the size it is.

8. And Some More Problems • RoR has nothing to say about the return to skill relative to that from other forms of investment (in many cases, UK adults could get a better return on a given sum invested in acquiring low level vocational qualifications by putting the money in a savings account). • Uni-causal and often blind to other factors that may be impacting on the wage returns to individuals (e.g. occupational labour market, height, appearance, psychological traits, etc)

9. Despite This, Some Clear Findings Have Emerged • Average returns to academic qualifications are, at each level, higher than to vocational awards. • The higher the award, the higher the average return. • Many low-level vocational awards have either very low, no or even negative wage effects. Participation in many lower level vocational courses is thus actually irrational if anticipated wage returns are the sole criteria for participation.

10. Time to Move Beyond RoR The central thesis of this presentation is that RoR analyses are, in the UK at least, reaching the limits of what they can, on their own, tell us. We need to think more holistically about the different incentives that are acting on individuals’ choices about investing in learning.

11. A Framework for Thinking About Incentives? What follows is one (evolving and incomplete) attempt to develop a framework to map, analyse, explain (and possibly think about how to alter) the incentives to learn. It engages with ‘theories of the middle range’ It aims to provide a focal point for a more integrative analysis of different streams of data on a range of economic, social and cultural structures and forces.

12. Incentive Generation Through: The PULL of opportunities, both to learn and to utilise that learning, for pleasure (intrinsic reward), to benefit others (altruistic reward), or (financial) gain. The PUSH of resources, expectations and social relationships which enable and sustain learning - e.g. educational institutions, teachers, courses, libraries, systems of student financial and pastoral support, and also cultural and social expectations and encouragement (e.g. well-educated parents who help a child to learn through support, exhortation and example).

13. Incentive Generation Sequence RESOURCE PUSH AND OPPORTUNITY PULL | Leading to | INCENTIVES OF VARYING FORCE | Leading to | EFFECTS OF VARYING STRENGTH

14. A Typology of Incentives Type 1 Incentives: generated within the E&T system, producing intrinsic rewards through the act of learning. Develop and sustain positive attitudes towards participation and progression. Type 2 Incentives: generated in wider society and the labour market, and the rewards they create are external to the learning process itself.

15. Examples of Type 1 Incentives • Curriculum design and pedagogic styles that increase the intrinsic interest of learning. • Forms of assessment that are designed to encourage further participation rather than ration access to the next level. • Institutional cultures in schools and colleges that nurture potential and celebrate achievement.

16. Discussion of Type 1 Incentives Endless waves of educational reform around making: • Curriculum • Pedagogy/teaching styles • Assessment and certification • Institutional structures • Technology produce stronger Type 1 incentives. In England, the evidence suggests that the limits of the PUSH that this can achieve have been reached (or indeed passed).

17. Examples of Type 2 Incentives • Wage returns to particular qualifications or skills. • Other benefits (intrinsic interest of job, opportunities for progression, travel, etc). • Social status from higher level occupation. • Licence to practice and mandatory CPD regulations • Cultural expectations within society or particular ethnic or class segments therein. • Non-economic benefits to do with enhanced satisfaction in other aspects of adult life - sporting, cultural, parental, etc.

18. Discussion of Type 2 Incentives Policy makers like to ‘make the case for training’ by pointing to a partial reading of RoR data, which shows graduates and others with relatively high level qualifications doing well on wages. But, in the highly de-regulated UK labour market, the PULL of Type 2 Incentives is often very weak for those entering lower end occupations. There is very little LtP regulation, wage returns to vocational qualifications are low/nil/negative and they often play a limited role in recruitment and selection.

19. A New Incentive Sub-Category Type 1b Incentives In recent times, in the UK, the failure of Type 2 incentives to prove strong enough to catalyse major increases in participation have led policy makers to introduce a range of subsidy-based incentives to act in lieu of signals from the labour market. They assume that Type 2 incentives cannot be changed, so substitutes are needed.

20. Type 1b - Popular with Employers Type 1b subsidy is encouraged by employers. The example of the STEM ‘shortage’. Rather than pay STEM graduates higher wages, or pay for bursaries themselves, employers want £620 million per year from government.

21. Problems with Type 1b Incentives • Complex and Expensive (particularly in paying for things that would have happened anyway - ‘deadweight’) • Partial - evidence suggests subsidy will encourage some children to stay on in education, but they fail to achieve anything. • Ephemeral - subsidising employers to train their adult workers fails to leave any ‘afterglow’. Subsidy may not alter attitudes towards investment in skill and when the tap is turned off, training ends.

22. Positive and Negative Incentives Both Type 1 & 2 incentives can generate either positive or negative effects. For example, the wage returns for an adult worker to getting a Level 3 qualification may be positive, but the time/quality of life costs of out of working hours learning produce a stronger negative incentive. Many people do not enjoy schooling, feel they ‘failed’ and this subsequently puts them off adult learning.

23. Incentive Coverage • Many Type 1 incentives are dependent upon course, teacher, and institution. • Incentives are mediated by individuals’ inate ability and preferences (e.g. many might wish to become a professional dancer, but not all will have the ability). • Unequal societies and polarised labour markets will tend to produce unequally structured and distributed Type 1 & 2 incentives.

24. Incentive Strength Some incentives are absolute - e.g. LtP regulation means the qualification is essential. In many OECD countries this incentive has a large impact on participation and achievement in initial E&T. Other Type 2 incentives vary greatly in their strength, and the tendency to use average RoRs disguises this. Large/Strong Incentives = academic, higher level, and elite institutions. Small/Weak Incentives = vocational, lower level, and low status institutions.

25. Incentive Strength Cont. In some cases the incentive strength will be large enough to over-ride narrow economic rationality. More follow journalism, and performing arts courses than can reasonably expect to gain employment in these occupations.

26. Incentive Duration The immediate impact of many Type 1 Incentives is transitory, but they can produce lasting positive dispositions towards the act of learning. Many Type 2 Incentives operate across an entire working lifetime, encouraging both engagement with initial E&T and also with continuing adult learning.

27. Complexity and Uncertainty Many Type 2 Incentives are complex and uncertain - e.g. the outcomes of acquiring a qualification vary according to: • Age • Gender • Type and level of qualification • Subject and occupation it is related to • Location in which learning takes place (workplace v. non-workplace) and status of learning provider and awarding body. • Who pays for it.

28. Participation Does Not = Achievement Many policy makers fail to apprehend that participation imposes costs, while not guaranteeing achievement. Too often the policy literature on E&T slides from participation to achievement to labour market outcome, while ignoring the risks. Perhaps those choosing not to participate realise/calculate they have a lower chance of achieving and are making a rational choice?

29. Complexity = Uncertainty Those at the lower end of the ability range/labour market often face the weakest and most uncertain Type 2 labour market incentives. For those who cannot aspire to enter Higher Education, the choices may be poor, and non-participation rational.

30. Pre-determined ‘Answers’ In the UK, policy is often based around a pre-determined conclusion - namely that more E&T for longer and to a higher level for more people is what is ‘needed’ and that all rational individuals will endorse this conclusion if given the right information. Incentives are implicitly and explicitly assumed to support this conclusion when, even in their own often narrowly constructed terms, they do not.

31. Grouping and Complementarity Incentives can reinforce or undermine one another. Good jobs produce strong incentives - pay levels, social status, progression & intrinsic interest. Bad jobs the opposite. In the UK, the geography of both good and bad jobs is becoming more concentrated. In areas where bad jobs are growing, the incentives to local people to invest in learning may be weakening. Boosting one incentive can reduce another. For example, expanding HE will reduce the range of labour market opportunities and incentives available to non-graduates. Win/win scenarios are quite hard to contrive.

32. Implications for Policy • A close analysis of existing incentives may not support the ‘happy ending’ that policy has already decided upon. • Choices that appear ‘bad’ to policy makers may be more rational than policy makers choose to believe. • A strong reliance on Type 1b Incentives is a good way to waste money. The real problems lie with cultural expectations, class structures, the shape of labour market and the lack of labour market regulation.

33. More Implications Because policy makers misread the incentive structure they set schools and colleges up to fail, expecting them to produce Type 1 incentives that can compensate for: • unemployment and poverty • lack of supportive parents and family life • poor housing • drug and alcohol abuse • limited local amenities • a local labour market that offers limited opportunities i.e. a PUSH to compensate for lack of PULL factors

34. A Polarised Labour Market = Polarised Incentives The larger the Higher Education sector, the smaller the range of good jobs open to non-graduates. If the ‘top half’ of young people go into HE and ‘graduate jobs’, what do the bottom half go into (and the bottom half of the bottom half)? In a world where the number of good jobs is finite, and the number of less good (low paid) jobs may either be stable or growing, there are real issues about the incentives on offer to those destined to enter such work.

35. Changing E&T May Not Alter Type 2 Incentives Much UK policy implicitly assumes that ceaseless ‘reform’ of the lower level vocational routes will, of itself, alter what is on offer in the labour market for those who follow these courses. Generally, this is not the case. The structure of labour market demand (and pay levels) does not change simply because there is a more highly qualified supply of labour available. Bad jobs persist, and someone has to do them.

36. Weak Type 1 & 2 Incentives for Those at the Bottom Not only are the Type 2 incentives often weak to those on lower level vocational tracks, the institutions and courses in which they participate receive relatively low funding and have relatively low status, and the course structures are often complex and constantly changing.

37. Incentives Allocate Talent So a Skewed Structure Is Bad News Too strong a set of incentives for one sector/occupation may lead to socially/economically undesirable side effects: I do think it is rather unattractive that so many young people, when contemplating careers, look at the compensation packages available in the City and think that these dominate almost any other type of career. It’s not a very attractive situation that such a high proportion of our talented young people naturally look at the City and think it is the only place to work in. Mervyn King, Governor of the Bank of England

38. A Future Research Agenda A demanding approach: • Need to gather many different kinds of data (some of which are hard to assign a numerical value to). • Need to construct a multi-factor model of decision making. • Need to understand that this model will not generate simple, single figure national averages.

39. Pathways to Progress? It seems reasonable to assume that better outcomes will be generated when: • There is a good understanding of how the whole incentive system works. • When Type 1 and 2 incentives are closely aligned and positive. The challenge for researchers is to map and analyse incentives to allow policy makers to move forwards.