Unemployment, expected returns, and the demand for university education in Ontario: some empirical results

Abstract

This article presents the results of empirical analysis of the influence of labour market factors on the private demand for university education in Ontario. Contrary to a widely held belief, the analysis indicates that the effect of youth unemployment upon enrolment demand is very weak. High unemployment, by itself, does not appear to drive youths into universities.

On the other hand, expected earnings upon completion of a degree is shown to have a strong positive impact upon enrolment demand, particularly for post-graduate students.

A 10 percent increase in the expected earnings of persons with post graduate degrees relative to persons with only bachelor's degrees is associated with more than a 20 percent increase in post-graduate enrolment. These findings are subject to qualifications regarding certain weaknesses in the data, as well as the usual problems of making inferences about expectation behaviour from ex post data.

One important policy implication of this study is that attempts to use educational spending as a contra-cyclical device may not be successful unless students are given extra inducement to enrol when unemployment is high. Second, the apparent responsiveness of enrolment demand to changes in earnings expectations of degree holders underscores the importance of providing good up-to-date information on earnings prospects. It should be emphasized, however, that this study dealt only with aggregate (undergraduate or postgraduate) enrolment, and further research is needed to examine the responsiveness of specific program and subject choices to variation in occupational earnings prospects.

Moreover, the responsiveness of student enrolment decisions to prospective earnings is only one of several factors — though a very important one — which must be taken into account in deciding upon the role of manpower considerations in educational planning.