I decided to try and dig a little deeper on the issue of the sustainability of post-secondary education spending in Canada by looking at the numbers in real per capita terms and by province. As I mentioned in my earlier post, while fiscal sustainability is a term generally used in the health care policy debate, it can be applied to government programs in general as well as post-secondary education in particular. If real per capita government spending is rising faster than GDP then one may argue that there is a potential long-term sustainability problem. Of course, it can also reveal that there is simply a very strong preference for the particular expenditure category in question if it is rising faster than GDP.
I've decided to focus on only one province to keep things fairly simple. An examination of the Statistics Canada data on post-secondary education spending for Ontario reveals some interesting trends.
For Ontario, I've calculated average annual growth rates of real per capita GDP (in 2002 constant dollars), real per capita tuition revenues and real per capita post-secondary education (deflated using the All items CPI 2002=100) by available category for the period 1990 to 2009 and plotted them in a bar chart (Fig 1). In addition, I created pie charts showing the composition of these post-secondary expenditures in 1990 and 2009 (Figs 2 & 3) to show how composition has evolved over time. A draw-back to this data source is that it is for all post-secondary education with no decomposition into universities and community colleges. In addition , it would be nice to get some additional detail on exactly what is included in the student support and other post-secondary education categories but there is so much to do and so little time.
Generally speaking, real per capita spending on post-secondary education in Ontario has risen faster than the growth rate of the economy which would suggest that future sustainability of the sector may be a concern. Yet, the growth rate of spending has been outstripped by the growth rate of tuition revenue. Real per capita tuition revenues over the period 1990 to 2009 grew at an annual average rate of 6.4 percent while the comparable figure for total post-secondary expenditure was 2.4 percent. However, tuition revenue rising faster than spending still does not a sustainable system make because tuition does not cover all post-secondary expenditures – the rest is made up with provincial grant funding and other revenues. In 1990 the tuition share of total post-secondary spending in Ontario was 13 percent and it rose to 29 percent by 2009. Students are bearing a greater burden of their university education and the burden has risen faster than the economy's general productivity as measured by real per capita GDP but it is not enough to cover all the costs of the sector.
The other interesting thing about Figure 1 is that of the five categories provided for post-secondary spending by these Statistics Canada numbers, the one with the lowest growth rate was "Education" at 1.41 percent while the two highest were "Debt charges" and "Student Support" 8.6 and 6.6 percent respectively. Next came "Administration" at 3.5 percent and then the "Other Post-Secondary Education Expenditures" at 3.4 percent. What this suggests is that of all the categories of spending on post-secondary education, the traditional academic function has been the most sustainable with the expenditure growth largely being driven by student support, administration, debt charges and other spending.
This in turn has affected composition. (See Figures 2 & 3). In 1990, the education component accounts for 57 percent of post-secondary education spending in Ontario whereas by 2009 it is down to 46 percent. Administration's share has risen from 17 to 21 percent, student support from 3 to 5.7 percent, debt charges from about one-half of one percent to 1.5 percent and the other category from 22 to 27 percent.
Obviously,there needs to be an examination of what exactly the priorities of the post-secondary education sector in Ontario are? Despite frequent calls for a greater emphasis on educating undergraduates, it would appear that there has been a shift away from the academic side. The trend to large classes in many Ontario universities and colleges appears to have freed up resources – some of which were redirected to student support as compensation – but the rest which went to debt charges incurred from capital projects, administration and other spending not directly tied to instruction. In the case of debt charges, the result could have been worse in terms of its effect if interest rates during this period had been higher. Despite the large amount of debt incurred, the share of expenditure accounted for by debt charges has yet to become too onerous despite the high growth rate of the catgeory. While all of this spending can be viewed as generally unsustainable, it would appear obvious where restraint will need to be exercised the most.
What about all the other provinces? Well, take a look below at Figure 4. Here I have plotted the average annual real per capita growth rates for all the provinces for the four largest post-secondary education spending categories. In all the provinces, administration growth outstrips the education category except for Manitoba and New Brunswick. As for student support and other post-secondary education, the real per capita growth rates here outstrip the education category in all provinces except Nova Scotia. The highest real per capita growth rates in the education catgeory belong to Nova Scotia and New Brunswick – each at 3.1 percent. The lowest belong to Alberta and British Columbia. Indeed, the average annual real per capita growth rate over the period 1990 to 2009 for Alberta's education category is 0 percent while the administration category has managed to grow at 2.6 percent. The patterns that characterize the evolution of post-secondary education in Ontario do seem to be applicable across most of the country.
Worthwhile Canadian Initiative 
I think I answered my own question, and thought I’d share. When I saw that Ontario’s per capita GDP grew by less than 1% per year on average for the past twenty, my jaw dropped. I don’t have much data handy, but I do have the labour productivity numbers. Since 1997, Ontario’s real value-added per hour of work grew at an average annual rate of 1.3%. If the participation rate, and average hours worked, are also falling, then the GDP/capita numbers are believable. Anyway, am I the only one shocked at this poor performance? Education spending is growing faster but is it not translating into productivity growth? Should we spend more on education in response? Or, taxes to pay for education are inhibiting growth?
Lots of good stuff in the post, sorry if this comment is out of left field.
One of the tricks over this period is that participation rates have grown, so you could have spending on PSE exceeding the growth of GDP and still have per student spending fall – which I think is interesting if you’re looking at productivity growth – are we really spending more on teaching students or are we merely short-changing increasing numbers?
Keep in mind a large chunk of students educated in Ontario do not find jobs or do not find them in Ontario.
Please excuse this question: did admin go from 17 to 21% or from 22 to 27%? I can’t see the colour on the legend.
17 to 21
Trevor hit a key point.
From my experience at various employers the problem is not people, nor their education, the problem is money and management. Management is unwilling to invest in productivity increases because they feel the rate of return from such improvements is insufficient and the risk with such projects is to great.
They do not want to invest additional capital. We have a management and capital problem, not an education one.
You cannot increase productivity without capital investment and training. Both are shortchanged at present, in my opinion.
“When I saw that Ontario’s per capita GDP grew by less than 1% per year on average for the past twenty, my jaw dropped.”
I guess the obvious question is why anyone would think that increasing spending on post-secondary education would affect productivity? Sure, if post-secondary education developed valuable skills in students, that might increase productivity. And while I’m quite happy to concede that a post-secondary education CAN impart valuable skills in students (and not just technical skills, but general skills such as critical thinking, and the ability to think and write coherently), I have my doubts about whether that is the actual experience of many Ontario graduates (and, indeed, whether many Ontario university students actually have any interest in acquiring those skills, or whether they’re just in university for the piece of paper that says they went to university).
Moreover, over-education might well hamper productivity (or, at least, per capital GDP growth). Take my grandmother, as an example. She was an elementary school teacher back in the day. She had a high school education and attended 1 year of normal school (what is now the equivalent of teacher’s college). If my grandmother were a teacher today, she’d have a 4 year university education, 1-2 years of teachers college (depending on the province) and, in all likelihood, a masters degree of some sort. And I’ll wager that her students would be no better educated than they were 70 years ago (indeed, given the recent fads among the educrats, the odds are good they be less well educated than they would have been 70 years ago). The adverse productivity effects of over-education in this context should be obvious, today’s teachers devote 5-8 years of their lives (and considerable public and private resources) in otherwise unproductive activity (i.e., being educated) without any long-term benefit for society as a whole (i.e., they aren’t materially better teachers).
And while I pick on teachers, I suspect that is probably true of many sectors in our economy where employers insist that people obtain the credentials of a university education, when the skills acquired at university (if any) aren’t really required to do the work being asked of them (or are skills, like the ability to write a coherent letter to your boss, that 70 years ago would have been acquired in high school). No wonder per capita GDP stagnates, when an ever increasing chunk of young workers devote an every increasing chunk of their lives and their resources to (economically) unproductive activities ( no doubt, a university education can be life-enriching and entertaining without being economically productive – but few people try to justify a post-secondary education, much less public funding for it, on the basis that its a consumption good).
What the hell is “Other Post-Secondary Education Expenses”? Given the amount it costs, this would be good to know.
Hey Livio,
Did you get all your data from StatsCan? I want to try and replicate what you’ve done, just for practice.
Is excel a good way to work with the numbers?? What program would you suggest?
“What the hell is “Other Post-Secondary Education Expenses”? Given the amount it costs, this would be good to know. ”
I was thinking it might include research spending.
Simon:
All of the variables came from Statscan. I used Excel. Please send me an e-mail and I can send you the Excel file. Cheers. Livio.
Jim:
I would like to know what is in this category also. I also thought it might be some aspect of spending related to infrastructure and support perhaps for the research and teaching side but I really do not know.