STUDENT PERCEPTIONS OF THE RETURNS TO HIGHER EDUCATION IN THE CZECH REPUBLIC AND THE UNITED KINGDOM: EVIDENCE FROM ECONOMICS AND BUSINESS STUDIES

Kateřina Maršίková

John R Anchor

AbstractIn many countries the government has been the major paymaster of higher education. There are

differences between higher education systems in Europe. In the Czech Republic there is a free entry for students to public universities as well as a support of phenomenon of private universities with fee payments in last couple of years. By contrast in the UK the private sector remains very small and the "marketisation“ of higher education has taken place in the public universities via the introduction of tuition fees. Studies on investment in higher education worldwide have demonstrated both substantial private and social returns. In the vast majority of studies there are found positive returns although they differ according to level of education and for higher education are lower. Results of our survey identify a very close association between student perceptions of the private returns to higher education and the results of earlier studies which have measured the actual private returns.

Key wordsHigher education, private returns, Czech Republic, United Kingdom, perceptions.

1. Introduction

During the last forty years the number of students in higher education has expanded rapidly in the developed economies. In the UK, for instance, this has resulted in the proportion of 18 year olds attending university at some point in their life increasing from approximately 6 per cent in 1965 to over 40 per cent in 2005 [4]. The so called age participation rate is even higher in countries such as the United States and Japan [1]

Generally speaking participation rates are lower in the countries of Central and Eastern Europe. In the Czech Republic, for instance, the age participation rate is approximately 22 per cent – half the UK rate [2]. However this is accompanied by a more selective approach to University entry in which applicants are required to sit examinations which determine their acceptance or rejection by their preferred university. In the UK, University entrance is determined largely by grades achieved in the secondary (high) school leaving examinations.

A very large number of academic studies have demonstrated quite conclusively that there are both substantial private and social returns to higher – as well as primary and secondary - education [9]. As a consequence governments in the developed economies have long accepted that there is a very strong case for the public subsidisation of or investment in higher education. Indeed in many countries the government has been the major paymaster of higher education. That is to say, the costs of higher education have been borne by taxpayers for the most part. As the number of students in higher education has risen, so have the costs to taxpayers.

In countries where there is a consensus for a welfare state financed by higher levels of general taxation (e.g. in the Scandinavian countries), Universities have tended to remain free at the point of entry. This has also been the case in countries in which the age participation rate has remained below the OECD average (e.g. in the former COMECON countries of Central/Eastern Europe) and where therefore the costs associated with University funding have remained "affordable“ for the taxpayer. Indeed in countries such as the Czech Republic, public universities have remained free at the point of entry with student numbers capped and excess demand has been mopped up by encouraging the growth of a vigorous private sector.

By contrast in the UK the private sector remains very small and the "marketisation“ of higher education has taken place in the public universities via the introduction of tuition fees. These have been seen as a way of introducing a new funding stream to higher education to complement those from government, business, charities and community groups. Tuition fees for full time undergraduate students were first introduced in England and Wales in 1998 and were set at £1,000 per student per annum for all Bachelor degree courses ie. they were considered to represent just a contribution to the cost of a Bachelor’s degree – which could range from £4,000 per annum for a low cost subject in the arts and social sciences to £15,000 per annum for medicine. In the current year (2005-06) the fee, which is contingent on family income, is set at £1,175. In January 2005 the UK parliament voted to permit Universities to charge a fee of up to £3,000 per annum for all courses. However, the new fee regime which comes into force in September 2006, does not require the payment of an up front fee – rather it requires students to take out a loan to cover the cost of the fee. The loan is then repayable after graduation – but only once annual income exceeds £15,000. In other words this is a form of graduate tax, similar to that which was introduced in Australia in 1989 [5].

The introduction of fees within UK higher education has been advocated by their proponents for two reasons. First of all, as was noted above, by the need to finance the increasing costs associated with higher education. The second argument, however, relates to considerations of equity or social justice. It is argued that it is not equitable for the costs of higher education to be borne by the general taxpayer when in fact the private benefits of higher education are earned disproportionately by the sons and daughters of the middle and upper middle classes and even in cases where is not true, those private beneficiaries go on to earn substantially more than the average member of the population. For example, it is argued, why should the refuse collector subsidise a future doctor? [4]

Whatever the answer to some of these distributional questions, it is clear that eventually the law of diminishing returns may set in. That is to say once fees reach a certain level – even deferred fees – they may act as a disincentive to participation in higher education. Irrespective of whether or not there are actual private returns to higher education, if the perceived returns are considered to be outweighed by the costs (of the repayment of fees), participation in higher education may decline. Therefore from a public policy perspective it may be important to be able to track students perceptions of the returns to higher education over time. This study attempts to obtain data on students‘ perceptions concerning the return to their higher education studies in three Czech Higher Education Institutions and one British University, The study is unusual in focusing on the question of perceptions. Most studies in this area have attempted to measure actual returns.

2. Background

The literature on the returns to investment in education is now substantial [19]. It has examined all levels of education - primary, secondary, and higher. These issues have been explored at both micro and macro levels. [9], [13]. Micro level approaches have generally been concerned to evaluate the returns which individuals and society as a whole obtain from investment in higher education, whether this investment is public or private in origin [3], [14], [17], [22], [23]. The returns which individuals obtain are generally referred to as private returns. The returns which society as a whole obtains are generally referred to as social returns. Macro level studies, by contrast, have been concerned with the relationship between investment in education – by both private and public funders – and its pay off in terms of economic growth. [13]

These studies – both micro and macro – have been undertaken in a variety of countries and have sometimes focused on development type issues in so called less developed countries. [12], [14]. In other cases, advanced economies have been the focus of investigation. In both contexts it is important that finite resources are allocated efficiently and effectively and therefore this has often led to a strong policy orientation in these studies [15].

Most studies of returns to education at the macro level have demonstrated a positive association between investment and outcomes [9].

The same is true for studies at the micro level although there are significant differences between the returns obtained from different levels and types of education with most studies showing higher levels of returns for primary education than for secondary education [7], [10]. The returns to higher education are

generally even lower. In each case, however, there are positive returns found in the vast majority of studies.

The rates of return at each level of education have been found to vary by gender with females generally experiencing higher rates of return than males at all levels [9], [14], [17]. More recently there has also been research on the returns to higher education by subject studied. This has highlighted great variations in the returns. In the case of some subjects, there may even be negative returns [18].

During the last fifteen years, there has been a growth of interest in the returns to higher education by policy makers in particular. This has been due to increasing difficulty in funding higher education as student numbers have expanded [1]. The fact that there are often substantial private returns to higher education has been used as a reason to shift the burden of funding higher education away from the tax payer and to the student – or sometimes to the graduate [6]. In some countries there has also been a debate about whether or not “too many” graduates are being produced – some of whom are ending up in “non graduate” jobs [10].

According to the theory of human capital, the choice of level of education, its length and field of study depends on returns to this investment [8]. People will decide to invest money in education if their investment is profitable, ie if they are likely to gain at least the same amount of money as they invest/spend.

This study falls very clearly into the micro level category and attempts to evaluate the returns to higher education which are perceived by students at three Czech economics faculties and one UK business school. (Broadly speaking those two types of institutions are equivalent in status and form, although they are not identical in terms of curriculum. Generally Czech students have a greater amount of economics, accounting, mathematics and information systems in their curriculum than their British counterparts).

3. Survey of Expected Earnings at Czech and British Universities

During the 2004-2005 academic year, a survey of earnings expectations was undertaken of first year students at three Czech economics faculties (Hospodářská fakulta Liberec, Vysoká škola ekonomická Praha and Fakulta ekonomicko- správní, Pardubice) and of the Huddersfield University Business School (HUBS). The survey was undertaken with the support of GA ČR 402/04/0039 from the Grants Agency of the Ministry of Education of the Czech Republic. First year students were surveyed because their decision to enter higher education had been a recent one [13].

The questionnaire began with general questions relating to gender and age in an attempt to diversify the data. In the second part the students were asked about their expectations of income immediately after graduation in their first job and then after 10 years of work experience, at a minimum, average and maximum level. They were also asked about the level of earnings they would expect if they had only secondary-level education. The average earning estimates are the only ones presented in this paper.

The gender structure of respondents can be found in Tab. 1 below. In all three Czech universities there was a majority of female respondents (in Pardubice 83 %); only in Huddersfield was there a majority of male respondents.

Tab. 1: Structure of respondents according to gender

Huddersfield % Liberec % Pardubice % Prague %

Gender of respondents

Male 103 60 40 35 36 17 84 41Female 68 40 76 65 175 83 121 59Total 171 100 116 100 211 100 205 100

Source: own calculations

Students completed the questionnaire in Czech (Prague, Pardubice and Liberec) or English (Huddersfield) and altogether there were 703 respondents. shows the average age of all the respondents who were surveyed. The average age of the students ranged between 19 and 21 years with the students at Prague School of Economics having the highest average age.

Figure 1: Age structure of respondents

Source: own calculations

4. Survey Results

Tables 2 and 3 and Figures 2 and 3 show the results for all the categories of Czech and British students. At all the universities the students expect a big increase in salary after 10 years of work experience. Students at Huddersfield expect nearly four times higher income than students at Prague and Liberec University and nearly five times more than students of Pardubice University.

Tab. 2: Comparison of Results in Expected earnings (in CZK/month)

Huddersfield LiberecCZK/month

Pardubice CZK/month

PragueCZK/month

Czech Rep.Average

CZK/monthGBP/year CZK/monthUniversity degree

Graduates 20630 75640 19209 15814 19829 18284

University degree 10 years of experience

34864 127835 30578 26239 37601 31473

Secondary education 13452 49320 12045 10036 12678 11586Secondary education

10 years of experience 19521 71580 18293 15388 21606 18429

Source: own calculations

Table 3 presents the same results in GBP per annum. For all calculations the avarage exchange rate used was 44 CZK/1 GBP [30.06.2005]

Tab. 3: Comparison of Results in Expected earnings (in GBP/year)

Huddersfield Liberec Pardubice PragueUniversity degree - Graduates 20630 5239 4313 5408

University degree – 10 years of experience 34864 8339 7156 10255Secondary education 13452 3285 2737 3458

Secondary education - 10 years of experience 19521 4989 4197 5893Source: own calculations

In the case of perceptions of earnings following with a secondary school education only, the same tendency can be observed in the differences between the expectations of Czech and British students. It is

clear that students with the Prague economic university degree are expecting to be in positions which are paid better than the average in both countries, in view of the fact that the average Czech salary is approximately £5,000 per annum whereas in the UK it is approximately £21,000 per annum.

Figure 2: Comparison of Expected earnings (in CZK/month)

Source: own calculations

Figure 3: Comparison of Expected earnings (in GBP/year)

Source: own calculations

A comparison between the averages at the three Czech faculties is also of interest. The results at the University of Pardubice are influenced also by the structure of the respondents. Respondents from the University in Pardubice were 83% female. Since male earnings exceed female earnings in both countries, this is probably also the reason why expected earnings in all categories are significantly lower in the case of Pardubice.

5. Calculation of Perceived Private Rates of Return

For the calculation of perceived returns from an additional educational qualification (economic university degree) the following short-cut method can be used:

(1)

where AEi = average gross income of people with a university degree, AE i = average gross income of people with secondary level education, k = coefficient equal 1, S = number of years spent at university, r s

= percentage perceived change in salary per additional year of HE study [13].

At Huddersfield University a masters degree equates to 90 ECTS credits, which means three semesters for full time students after a bachelors degree of six semesters. Therefore for the calculation of rates of return for Huddersfield University, S = 4.5 years (nine semesters). The Czech masters degree for full time students takes 10 semesters. Therefore for the calculation of rates of return at Czech universities, S = 5.0 years. It should be noted that only a minority of British students will progress to a Masters degree. By contrast the majority of students will do so in the Czech Republic. However this does not affect the methodology.

Czech Universities – Perceived Private Rates of Return of Graduates

18284 – 11586/1*5*11586 = 6698/57930 =11,56 % (2)

Huddersfield University – Perceived Private Rates of Return of Graduates

75640 – 4932/1 *4.5 *49320= 11,86 % (3)

The rate of returns were calculated as an average of the results given in Table 5 (in CZK/month). The results indicate that the rate of returns from the expected earnings of graduates are very similar for the Czech and British samples.

Czech Universities – Perceived Private Rate of Returns - 10 years of Experience

31473 – 18429/5*18429 = 13044/92145 = 14,16% (4)

Huddersfield University – Perceived Private Rate of Returns - 10 years of Experience

127835 - 71580 /1 *4.5 *71580 = 17,46% (5)

The data of earning expectations after 10 years of employment provide more divergent results, with Huddersfield being 3 % higher than in the case of Czech universities. Therefore the medium term benefits of a university education are perceived to be higher in the UK than they are in the Czech Republic.

6. Discussion

The results of the surveys of Czech and British students are very similar, especially in relation to expected returns immediately after graduation. The expected private rate of returns to their studies after 10 years of work experience diverge to a greater extent. Nevertheless they are still reasonably similar ie. they are of the same order of magnitude. Moreover, they are very similar to the results of earlier studies which measure actual private rates of return [9]. This study is of course measuring students’ perceptions of future private rates of return to their University studies, rather than actual returns. Nevertheless, it is interesting that the results are so similar to earlier studies of the private returns to higher (tertiary) education. This tends to suggest that students of business and economics are reasonably well informed about their future earnings prospects. Intuitively, this seems plausible since a large number of such students are probably motivated by vocational, rather than purely academic, considerations in the choice of their university degree programme.

The results of the survey of parental earnings indicate a significant gender effect. This is a line with previous surveys of graduate earnings and indeed of earnings generally. The reasons for this effect are beyond the scope of this paper. However, they are generally considered to relate to the tendency for women to enter more lowly paid sections of the workforce and/or occupations and to spend fewer years in the workforce, as well as to possible discriminatory and/or “glass ceilings” effects [21, chapter 6]

The fact that the Czech samples included a higher proportion of females than the UK sample may mean that the difference between the Czech and UK results is more marked than it would be if the two samples had identical gender breakdowns. However, it should not be assumed automatically that this is the case since it would depend on whether or not there are any gender specific differences between perceptions and actual private returns to higher education. That is to say are female respondents more likely to assess correctly or incorrectly the actual returns to their higher education studies? It is not at all clear why this should be the case since information is available equally to both genders. Therefore, it seems plausible to assume that both genders are equally realistic about their future earnings potential and that any gender specific effects on actual returns are factored into their thinking. Therefore, although the UK sample might be expected to have disproportionate earnings potential as a result of its male bias, there is no reason to believe that the perceptions of future earnings are further inflated by this sampling issue.

Nevertheless there are clearly gender specific effects at work in this research. In the Czech samples, for instance it is noteworthy that the highest proportion of female students of the three Czech Universities was at Pardubice. This may lead to a disproportionate reduction in its students‘ perceptions of future earnings.

7. Further research

It is recommended that attempts are made to replicate the results of this research by obtaining further samples. These could be in the Czech Republic, the UK or in other countries. Indeed it is suggested that it would be positively beneficial to extend the geographical scope of this study of student perceptions of the financial returns to higher education. Although the results of this study show a striking similarity between student perceptions in the Czech Republic and the UK this does not automatically mean that the same will be true in other countries.

It is recommended that the gender issue, which is discussed above, is subject to further analysis. This could be done by further analysis of the existing sample and/or by the obtaining of new samples.

It would be useful to conduct a time series analysis of student perceptions of the private returns to higher education, given the growing interest in the possibility that the actual returns may be declining as the number of graduates increases. However it should be noted that this is itself a finely nuanced debate in view of the fact that the nature of graduate employment is itself changing as is the structure of employment itself [21]

8. Conclusions

The results of this study identify a very close association between student perceptions of the private returns to higher education and the results of earlier studies which have measured the actual private returns. This itself is noteworthy and not necessarily to be expected a priori. In view of the fact that it is student perceptions of the returns which is likely to influence the demand for higher education – at least in vocationally orientated areas such as economics and business studies - this has significant policy implications. In particular, it means that policy makers would be well advised to try to track changes in such perceptions – not only amongst university students but also amongst high school leavers. Although there may not be a direct relationship between such perceptions and reality, such perceptions may be a useful proxy indicator of the demand for higher education at any particular point in time.

References[1] ANONYMOUS. The Brains Business: A survey of higher education, The Economist, 10 September

2005a, ISSN 9 77013 061152[2] ANONYMOUS. From Marx to Marketing, The Economist, 5 November, 2005b, p 50. ISSN 9 77013

061152[3] ARROZOLA, M., DE HEVIA, J., RISVEŇO, M. & SANZ, J.F. Returns to Education in Spain: Some

Evidence on the Endogeneity of Schooling, Education Economics, 2003, vol.11, pp 293-304. ISSN 0964-5292

[4] BARR, N. The White Paper on Student Loans, Journal of Social Policy, 1989, vol. 18, No. 3, July pp 409-417. ISSN 1469-7823

[5] BARR, N. Alternative Funding Sources for Higher Education, The Economic Journal, 1993, vol.103, pp 718-728 (May). ISSN 0013-0133

[6] BARR, N., CRAWFORD, I. Financing Higher Education: Answers from the UK, Routledge, Abingdon, Oxfordshire, UK: 2005. ISBN 0-415-34857-9

[7] BARR, N., CRAWFORD, I. Funding Higher Education in an Age of Expansion, Education Economics, 1998, 6, No. 1, pp 45-70. ISSN 0964-5292

[8] BECKER,G. S. Human Capital: a theoretical and empirical analysis with special reference to ecucation, University of Cicago Press, Illinois: 1993. ISBN 022-604-1204

[9] BLUNDELL, R., DEARDEN, L., MEGHIR C., SIANESI, B. Human Capital Investment: the Returns from Education and Training to the Individual, the Firm and the Economy, Fiscal Studies, 1999, 20, No 1, pp 1-23. ISSN 0143-5671

[10] CLARE, J. A degree counts for less on job market, Daily Telegraph, 2005, 28 October , p1.[11] DURAISAMY, P. Changes in returns to education in India, 1983-94, Economics of Education

Review, 2002, vol. 21, pp 609-622. ISSN 0272-7757[12] GLEWWE, P. The Reference of Standard Estimates of Rates of Return to Schooling for Education

Policy: a Critical Assessment, Journal of Development Economics, 1996, vol. 51, pp 267-290. ISSN 0304-3878

[13] HLÍNOVÁ, M., MARŠÍKOVÁ, K., URBÁNEK, V. Lidský kapitál a očekávaná návratnost investice do vysokoškolského vzdělávání v České republice a v zemích Evropské unie, In Syntetická závěrečná studie výzkumného projektu GA ČR, 2005. Liberec: Technická univerzita v Liberci. ISBN 80-7372-024-8

[14] KRUGER, A., B., LINDAHL, L. Education for Growth: Why and for Whom?, Journal of Economic Literature, 2001, XXXIX, pp 1101-1136 (December). ISSN 0022-0515

[15] MAANI, S.,A. Private and Social Rates of Return to Secondary and Higher Education in New Zealand: Evidence from the 1991 census, The Australian Economic Review, 1996, 1st Quarter, pp 82-100. ISSN 0004-9018

[16] MACHIN, S., STEVENS, M. The Assessment: Education, Oxford Review of Economic Policy, 2004, vol. 20, pp 157-172 (No. 2). ISSN 0266-903X

[17] MCMAHONE, W., W., BOEDIONO , Universal Basic Education: an Overall Strategy of Investment Priorities for Economic Growth, Economics of Education Review, 1992, vol. 11, No. 2, pp 137-151. ISSN 0272-7757

[18] NONNEMAN, W., CORTENS, I. A note on the rate of return to investment in education in Belgium, Applied Economics Letters, 1997, vol. 4, pp167-171. ISSN 1350-4851

[19] O’LEARY, N., C., SLOANE, P., J. The Return to a University Education in Great Britain, National Institute Economic Review, 2005, No 193, July, pp 75-88. ISSN 0027-9501

[20] PSACHARAPOULOS, G., PATRINOS, H., A. Returns to Investment in Education: a Further Update, Education Economics, 2004, vol. 12, pp 111-134 (August). ISSN 0964-5292

[21] PSACHAROPOULOS, G., VELEZ, E. Returns to education during economic boom and recession: Mexico 1984, 1989 and 1992, Education Economics, 1996, vol. 4, pp 219-230 (December). ISSN 0964-5292

[22] PURCELL, K., ELIAS, P., DAVIES, R., WILTON, N. The Class of ‚‘99: A study of the early labour market experience of recent graduates, DfES Research Report No. 691, 2005. Department for Education and Skills, London. ISBN 1-84478-580-7

[23] SAKELLARIOU, C. Rates of Return to Investments in Form and Technical/Vocational Education in Singapore, Education Economics, 2003, vol. 11, 1, pp 73-87. ISSN 0964-5292

[24] WOLTER, S., C., WEBER, B., A. A new look at private rates of return to education in Switzerland, Education and Training, 1999, vol. 41, pp 366-372 (No. 8). ISSN 0040-0912

Authors’ Addresses

Ing. Kateřina Maršίková, PhDFaculty of EconomicsTechnical University of LiberecHalkova 6461 17 Liberec 1Czech Republic

katerina.marsikova@vslib.cz

John R Anchor, BSc (Hons), PhDHuddersfield University Business SchoolUniversity of HuddersfieldQueensgateHuddersfield HD1 3DHGreat Britain

j.r.anchor@hud.ac.uk

Shrnutí

Očekávání návratnosti investic do vysokoškolského vzdělávání u studentů vybraných ekonomických fakult v České republice a ve Velké Británii

V posledních letech vzrostl v rozvinutých zemích výrazně počet studentů na vysokých školách. Vysoké školství je však stále výrazně finančně podporováno vládou z peněz daňových poplatníků, a tak některé země již zavedly školné na veřejných vysokých školách a řada zemí o tomto kroku uvažuje. Systém vysokoškolského vzdělávání je v evropských zemích poměrně rozdílný. Nabídka oborů veřejných vysokých škol v České republice byla v posledním desetiletí rozšířena o řadu soukromých vysokých škol, kde studenti platí školné. Oproti tomu ve Velké Británii jsou soukromé školy raritou a vláda se rozhodla zavést placení školného na veřejných vysokých školách. Článek se zabývá otázkou vysokoškolského vzdělávání ve Velké Británii a v České republice a srovnává očekávanou návratnost investic do vysokoškolského vzdělávání u studentů vybraných fakult v těchto zemích. Srovnání je provedeno na základě výsledků dotazníkového šetření mezi studenty prvních ročníků ekonomických fakult - Hospodářské fakulty v Liberci, Vysoké školy ekonomické v Praze, Fakulty ekonomicko- správní v Pardubicích a Huddersfield University Business School (HUBS). Získané údaje jsou dále porovnány s empirickými studiemi provedenými v minulosti v zahraničí. Výsledky výzkumu na českých a britských fakultách jsou velmi podobné, především ve vztahu k očekávaným výdělkům absolventů ihned po ukončení vysoké školy bez praxe. Výše příjmů rodičů, kterou uvedli dotazovaní studenti, pak ukazuje na výrazný vliv pohlaví na rozdíl ve výši výdělku, tedy vyšší příjmy mužů než žen, což koresponduje s rozdílem ve výši odhadů mezi studentkami a studenty a také s reálnou situací výše příjmu na trhu práce v ČR i ve Velké Británii. Bylo by jistě vhodné a zajímavé v empirickém výzkumu pokračovat a dále ho rozšířit na ostatní evropské země, neboť podobnost výsledků odhadů českých a britských studentů neznamená, že tuto skutečnost lze automaticky očekávat v dalších zemích. Získané údaje také poukazují na obdobné výsledky provedeného průzkumu a dřívějších studií, které měřily skutečnou soukromou míru návratnosti (viz např. Psacharopoulos). To jistě stojí za pozornost a v oborech jako je ekonomie, kde očekávání studentů ovlivňují poptávku po tomto typu vzdělání, by tyto indikátory bylo vhodné sledovat a na základě nich rozhodovat o budoucím vývoji v oblasti vysokoškolského vzdělávání.

Klíčová slova

Vysokoškolské vzdělávání, soukromá návratnost, Česká republika, Velká Británie, očekávání.