THE INCENTIVES TO THE INCENTIVES TO LEARNLEARN

Time to Reconceptualise, Time to Reconceptualise, Recontextualise and Recontextualise and

Integrate?Integrate?

The Policy Goal of ParticipationThe Policy Goal of Participation

Across the developed world, policy Across the developed world, policy aims for higher levels of participation aims for higher levels of participation and achievement by:and achievement by:

Young people in initial E&TYoung people in initial E&T

Adults in continuing education, CPD and Adults in continuing education, CPD and lifelong learninglifelong learning

And the Key to This Is…...And the Key to This Is…...

The key to achieving this goal is to The key to achieving this goal is to improve the incentives to engage in improve the incentives to engage in learning.learning.

But to do that, we have first toBut to do that, we have first to: : know what the various incentives areknow what the various incentives are how they interacthow they interact what force they exert what force they exert and how they might be altered.and how they might be altered.

And the Bad News Is…….And the Bad News Is…….

Knowledge and understanding of the Knowledge and understanding of the incentives to learn, as they act upon incentives to learn, as they act upon individuals, is:individuals, is:

very partial (we know a lot more very partial (we know a lot more about some factors than others)about some factors than others)

fragmented and non-holisticfragmented and non-holistic

The Dominant Model of Rates of The Dominant Model of Rates of Return AnalysesReturn Analyses

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

RoRs Have Been Done For:RoRs Have Been Done For:

Different qualification types Different qualification types (academic/vocational, different vocational (academic/vocational, different vocational awards, etc).awards, etc).

Different levels of qualificationDifferent levels of qualification Gender/Ethicity/Parental social class, etcGender/Ethicity/Parental social class, etc OccupationOccupation SectorSector Region of the countryRegion of the country

Problems with RoRProblems with RoR

Averages can be misleading. The dispersion Averages can be misleading. The dispersion around the average wage return can be vast.around the average wage return can be vast.

Backward looking - it tells us what the wage Backward looking - it tells us what the wage return was, not what it might be now and in the return was, not what it might be now and in the future.future.

Descriptive device - rarely able to explain what Descriptive device - rarely able to explain what causes the effect, nor why it is the size it is. causes the effect, nor why it is the size it is.

And Some More ProblemsAnd Some More Problems RoR has nothing to say about the return to skill RoR has nothing to say about the return to skill

relative to that from other forms of investment (in relative to that from other forms of investment (in many cases, UK adults could get a better return many cases, UK adults could get a better return on a given sum invested in acquiring low level on a given sum invested in acquiring low level vocational qualifications by putting the money in vocational qualifications by putting the money in a savings account).a savings account).

Uni-causal and often blind to other factors that Uni-causal and often blind to other factors that may be impacting on the wage returns to may be impacting on the wage returns to individuals (e.g. occupational labour market, individuals (e.g. occupational labour market, height, appearance, psychological traits, etc)height, appearance, psychological traits, etc)

Despite This, Some Clear Despite This, Some Clear Findings Have EmergedFindings Have Emerged

Average returns to academic qualifications Average returns to academic qualifications are, at each level, higher than to vocational are, at each level, higher than to vocational awards. awards.

The higher the award, the higher the average The higher the award, the higher the average return.return.

Many low-level vocational awards have either Many low-level vocational awards have either very low, no or even negative wage effects. very low, no or even negative wage effects. Participation in many lower level vocational Participation in many lower level vocational courses is thus actually irrational if courses is thus actually irrational if anticipated wage returns are the sole criteria anticipated wage returns are the sole criteria for participation.for participation.

Time to Move Beyond RoRTime to Move Beyond RoR

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

A Framework for Thinking A Framework for Thinking About Incentives?About Incentives?

What follows is one (evolving and incomplete) What follows is one (evolving and incomplete) attempt to develop a framework to map, analyse, attempt to develop a framework to map, analyse, explain (and possibly think about how to alter) explain (and possibly think about how to alter) the incentives to learn.the incentives to learn.

It engages with ‘theories of the middle range’It engages with ‘theories of the middle range’

It aims to provide a focal point for a more It aims to provide a focal point for a more integrative analysis of different streams of data integrative analysis of different streams of data on a range of economic, social and cultural on a range of economic, social and cultural structures and forces.structures and forces.

Incentive Generation Incentive Generation Through:Through:

The PULLThe PULL of opportunities, both to learn and to utilise of opportunities, both to learn and to utilise that learning, for pleasure (intrinsic reward), to that learning, for pleasure (intrinsic reward), to benefit others (altruistic reward), or (financial) gain.benefit others (altruistic reward), or (financial) gain.

The PUSHThe PUSH of resources, expectations and social of resources, expectations and social relationships which enable and sustain learning - relationships which enable and sustain learning - e.g. educational institutions, teachers, courses, e.g. educational institutions, teachers, courses, libraries, systems of student financial and pastoral libraries, systems of student financial and pastoral support, and also cultural and social expectations support, and also cultural and social expectations and encouragement (e.g. well-educated parents and encouragement (e.g. well-educated parents who help a child to learn through support, who help a child to learn through support, exhortation and example).exhortation and example).

Incentive Generation SequenceIncentive Generation Sequence

RESOURCE PUSH AND OPPORTUNITY RESOURCE PUSH AND OPPORTUNITY PULLPULL

||Leading toLeading to

||INCENTIVES OF VARYING FORCEINCENTIVES OF VARYING FORCE

||Leading toLeading to

||EFFECTS OF VARYING STRENGTHEFFECTS OF VARYING STRENGTH

A Typology of IncentivesA Typology of Incentives

Type 1 Incentives:Type 1 Incentives: generated within the E&T generated within the E&T system, producing intrinsic rewards through system, producing intrinsic rewards through the act of learning. Develop and sustain the act of learning. Develop and sustain positive attitudes towards participation and positive attitudes towards participation and progression.progression.

Type 2 Incentives:Type 2 Incentives: generated in wider society generated in wider society and the labour market, and the rewards they and the labour market, and the rewards they create are external to the learning process create are external to the learning process itself.itself.

Examples of Type 1 Examples of Type 1 IncentivesIncentives

Curriculum design and pedagogic styles that Curriculum design and pedagogic styles that increase the intrinsic interest of learning.increase the intrinsic interest of learning.

Forms of assessment that are designed to Forms of assessment that are designed to encourage further participation rather than ration encourage further participation rather than ration access to the next level.access to the next level.

Institutional cultures in schools and colleges that Institutional cultures in schools and colleges that nurture potential and celebrate achievement.nurture potential and celebrate achievement.

Discussion of Type 1 IncentivesDiscussion of Type 1 Incentives

Endless waves of educational reform around Endless waves of educational reform around making:making:

CurriculumCurriculum Pedagogy/teaching stylesPedagogy/teaching styles Assessment and certificationAssessment and certification Institutional structuresInstitutional structures TechnologyTechnologyproduce stronger Type 1 incentives. In England, the produce stronger Type 1 incentives. In England, the

evidence suggests that the limits of the PUSH evidence suggests that the limits of the PUSH that this can achieve have been reached (or that this can achieve have been reached (or indeed passed).indeed passed).

Examples of Type 2 Examples of Type 2 IncentivesIncentives

Wage returns to particular qualifications or skills.Wage returns to particular qualifications or skills. Other benefits (intrinsic interest of job, Other benefits (intrinsic interest of job,

opportunities for progression, travel, etc).opportunities for progression, travel, etc). Social status from higher level occupation.Social status from higher level occupation. Licence to practice and mandatory CPD Licence to practice and mandatory CPD

regulations regulations Cultural expectations within society or particular Cultural expectations within society or particular

ethnic or class segments therein.ethnic or class segments therein. Non-economic benefits to do with enhanced Non-economic benefits to do with enhanced

satisfaction in other aspects of adult life - satisfaction in other aspects of adult life - sporting, cultural, parental, etc.sporting, cultural, parental, etc.

Discussion of Type 2 IncentivesDiscussion of Type 2 Incentives

Policy makers like to ‘make the case for training’ by Policy makers like to ‘make the case for training’ by pointing to a partial reading of RoR data, which pointing to a partial reading of RoR data, which shows graduates and others with relatively high shows graduates and others with relatively high level qualifications doing well on wages.level qualifications doing well on wages.

But, in the highly de-regulated UK labour market, But, in the highly de-regulated UK labour market, the PULL of Type 2 Incentives is often very weak the PULL of Type 2 Incentives is often very weak for those entering lower end occupations. There for those entering lower end occupations. There is very little LtP regulation, wage returns to is very little LtP regulation, wage returns to vocational qualifications are low/nil/negative and vocational qualifications are low/nil/negative and they often play a limited role in recruitment and they often play a limited role in recruitment and selection. selection.

A New Incentive Sub-A New Incentive Sub-CategoryCategory

Type 1b IncentivesType 1b Incentives

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

Type 1b - Popular with Type 1b - Popular with EmployersEmployers

Type 1b subsidy is encouraged by Type 1b subsidy is encouraged by employers.employers.

The example of the STEM ‘shortage’.The example of the STEM ‘shortage’.

Rather than pay STEM graduates Rather than pay STEM graduates higher wages, or pay for bursaries higher wages, or pay for bursaries themselves, employers want £620 themselves, employers want £620 million per year from government.million per year from government.

Problems with Type 1b Problems with Type 1b IncentivesIncentives

Complex and Expensive Complex and Expensive (particularly in paying for (particularly in paying for things that would have happened anyway - things that would have happened anyway - ‘deadweight’)‘deadweight’)

PartialPartial - evidence suggests subsidy will encourage - evidence suggests subsidy will encourage some children to stay on in education, but they fail some children to stay on in education, but they fail to achieve anything.to achieve anything.

EphemeralEphemeral - subsidising employers to train their - subsidising employers to train their adult workers fails to leave any ‘afterglow’. Subsidy adult workers fails to leave any ‘afterglow’. Subsidy may not alter attitudes towards investment in skill may not alter attitudes towards investment in skill and when the tap is turned off, training ends.and when the tap is turned off, training ends.

Positive and Negative IncentivesPositive and Negative Incentives

Both Type 1 & 2 incentives can generate either Both Type 1 & 2 incentives can generate either positive or negative effects. positive or negative effects.

For example, the wage returns for an adult worker For example, the wage returns for an adult worker to getting a Level 3 qualification may be positive, to getting a Level 3 qualification may be positive, but the time/quality of life costs of out of working but the time/quality of life costs of out of working hours learning produce a stronger negative hours learning produce a stronger negative incentive.incentive.

Many people do not enjoy schooling, feel they Many people do not enjoy schooling, feel they ‘failed’ and this subsequently puts them off adult ‘failed’ and this subsequently puts them off adult learning.learning.

Incentive CoverageIncentive Coverage

Many Type 1 incentives are dependent upon Many Type 1 incentives are dependent upon course, teacher, and institution.course, teacher, and institution.

Incentives are mediated by individuals’ inate Incentives are mediated by individuals’ inate ability and preferences (e.g. many might wish to ability and preferences (e.g. many might wish to become a professional dancer, but not all will become a professional dancer, but not all will have the ability).have the ability).

Unequal societies and polarised labour markets Unequal societies and polarised labour markets will tend to produce unequally structured and will tend to produce unequally structured and distributed Type 1 & 2 incentives.distributed Type 1 & 2 incentives.

Incentive StrengthIncentive Strength

Some incentives are absolute - e.g. LtP regulation Some incentives are absolute - e.g. LtP regulation means the qualification is essential. In many OECD means the qualification is essential. In many OECD countries this incentive has a large impact on countries this incentive has a large impact on participation and achievement in initial E&T.participation and achievement in initial E&T.

Other Type 2 incentives vary greatly in their strength, Other Type 2 incentives vary greatly in their strength, and the tendency to use average RoRs disguises and the tendency to use average RoRs disguises this. this.

Large/Strong IncentivesLarge/Strong Incentives = academic, higher level, = academic, higher level, and elite institutions.and elite institutions.

Small/Weak IncentivesSmall/Weak Incentives = vocational, lower level, and = vocational, lower level, and low status institutions.low status institutions.

Incentive Strength Cont.Incentive Strength Cont.

In some cases the incentive strength In some cases the incentive strength will be large enough to over-ride will be large enough to over-ride narrow economic rationality.narrow economic rationality.

More follow journalism, and performing More follow journalism, and performing arts courses than can reasonably arts courses than can reasonably expect to gain employment in these expect to gain employment in these occupations.occupations.

Incentive DurationIncentive Duration

The immediate impact of many Type 1 The immediate impact of many Type 1 Incentives is transitory, but they can Incentives is transitory, but they can produce lasting positive dispositions produce lasting positive dispositions towards the act of learning.towards the act of learning.

Many Type 2 Incentives operate across an Many Type 2 Incentives operate across an entire working lifetime, encouraging both entire working lifetime, encouraging both engagement with initial E&T and also with engagement with initial E&T and also with continuing adult learning.continuing adult learning.

Complexity and UncertaintyComplexity and Uncertainty

Many Type 2 Incentives are complex and uncertain - Many Type 2 Incentives are complex and uncertain - e.g. the outcomes of acquiring a qualification e.g. the outcomes of acquiring a qualification vary according to:vary according to:

AgeAge GenderGender Type and level of qualificationType and level of qualification Subject and occupation it is related toSubject and occupation it is related to Location in which learning takes place (workplace Location in which learning takes place (workplace

v. non-workplace) and status of learning provider v. non-workplace) and status of learning provider and awarding body.and awarding body.

Who pays for it.Who pays for it.

Participation Does Not = Participation Does Not = AchievementAchievement

Many policy makers fail to apprehend that Many policy makers fail to apprehend that participation imposes costs, while not participation imposes costs, while not guaranteeing achievement. Too often the policy guaranteeing achievement. Too often the policy literature on E&T slides from participation to literature on E&T slides from participation to achievement to labour market outcome, while achievement to labour market outcome, while ignoring the risks.ignoring the risks.

Perhaps those choosing not to participate Perhaps those choosing not to participate realise/calculate they have a lower chance of realise/calculate they have a lower chance of achieving and are making a rational choice?achieving and are making a rational choice?

Complexity = UncertaintyComplexity = Uncertainty

Those at the lower end of the ability Those at the lower end of the ability range/labour market often face the range/labour market often face the weakest and most uncertain Type 2 weakest and most uncertain Type 2 labour market incentives.labour market incentives.

For those who cannot aspire to enter For those who cannot aspire to enter Higher Education, the choices may Higher Education, the choices may be poor, and non-participation be poor, and non-participation rational.rational.

Pre-determined ‘Answers’Pre-determined ‘Answers’

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

Grouping and ComplementarityGrouping and Complementarity

Incentives can reinforce or undermine one another. Good jobs Incentives can reinforce or undermine one another. Good jobs produce strong incentives - pay levels, social status, produce strong incentives - pay levels, social status, progression & intrinsic interest. Bad jobs the opposite. In progression & intrinsic interest. Bad jobs the opposite. In the UK, the geography of both good and bad jobs is the UK, the geography of both good and bad jobs is becoming more concentrated. In areas where bad jobs are becoming more concentrated. In areas where bad jobs are growing, the incentives to local people to invest in learning growing, the incentives to local people to invest in learning may be weakening.may be weakening.

Boosting one incentive can reduce another. For example, Boosting one incentive can reduce another. For example, expanding HE will reduce the range of labour market expanding HE will reduce the range of labour market opportunities and incentives available to non-graduates. opportunities and incentives available to non-graduates.

Win/win scenarios are quite hard to contrive.Win/win scenarios are quite hard to contrive.

Implications for PolicyImplications for Policy A close analysis of existing incentives may not A close analysis of existing incentives may not

support the ‘happy ending’ that policy has support the ‘happy ending’ that policy has already decided upon.already decided upon.

Choices that appear ‘bad’ to policy makers may Choices that appear ‘bad’ to policy makers may be more rational than policy makers choose to be more rational than policy makers choose to believe.believe.

A strong reliance on Type 1b Incentives is a good A strong reliance on Type 1b Incentives is a good way to waste money. The real problems lie with way to waste money. The real problems lie with cultural expectations, class structures, the shape cultural expectations, class structures, the shape of labour market and the lack of labour market of labour market and the lack of labour market regulation.regulation.

More ImplicationsMore Implications

Because policy makers misread the incentive structure Because policy makers misread the incentive structure they set schools and colleges up to fail, expecting they set schools and colleges up to fail, expecting them to produce Type 1 incentives that can them to produce Type 1 incentives that can compensate for:compensate for:

unemployment and povertyunemployment and poverty lack of supportive parents and family lifelack of supportive parents and family life poor housingpoor housing drug and alcohol abusedrug and alcohol abuse limited local amenitieslimited local amenities a local labour market that offers limited opportunitiesa local labour market that offers limited opportunities

i.e. a PUSH to compensate for lack of PULL factorsi.e. a PUSH to compensate for lack of PULL factors

A Polarised Labour Market = A Polarised Labour Market = Polarised IncentivesPolarised Incentives

The larger the Higher Education sector, the smaller The larger the Higher Education sector, the smaller the range of good jobs open to non-graduates. If the range of good jobs open to non-graduates. If the ‘top half’ of young people go into HE and the ‘top half’ of young people go into HE and ‘graduate jobs’, what do the bottom half go into ‘graduate jobs’, what do the bottom half go into (and the bottom half of the bottom half)?(and the bottom half of the bottom half)?

In a world where the number of good jobs is finite, In a world where the number of good jobs is finite, and the number of less good (low paid) jobs may and the number of less good (low paid) jobs may either be stable or growing, there are real issues either be stable or growing, there are real issues about the incentives on offer to those destined to about the incentives on offer to those destined to enter such work.enter such work.

Changing E&T May Not Alter Changing E&T May Not Alter Type 2 IncentivesType 2 Incentives

Much UK policy implicitly assumes that ceaseless Much UK policy implicitly assumes that ceaseless ‘reform’ of the lower level vocational routes will, ‘reform’ of the lower level vocational routes will, of itself, alter what is on offer in the labour of itself, alter what is on offer in the labour market for those who follow these courses.market for those who follow these courses.

Generally, this is not the case. The structure of Generally, this is not the case. The structure of labour market demand (and pay levels) does not labour market demand (and pay levels) does not change simply because there is a more highly change simply because there is a more highly qualified supply of labour available. Bad jobs qualified supply of labour available. Bad jobs persist, and someone has to do them.persist, and someone has to do them.

Weak Type 1 & 2 Incentives for Weak Type 1 & 2 Incentives for Those at the BottomThose at the Bottom

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

Incentives Allocate Talent So a Incentives Allocate Talent So a Skewed Structure Is Bad NewsSkewed Structure Is Bad News

Too strong a set of incentives for one sector/occupation Too strong a set of incentives for one sector/occupation may lead to socially/economically undesirable side may lead to socially/economically undesirable side effects:effects:

I do think it is rather unattractive that so many young I do think it is rather unattractive that so many young people, when contemplating careers, look at the people, when contemplating careers, look at the compensation packages available in the City and think compensation packages available in the City and think that these dominate almost any other type of career. that these dominate almost any other type of career. It’s not a very attractive situation that such a high It’s not a very attractive situation that such a high proportion of our talented young people naturally look proportion of our talented young people naturally look at the City and think it is the only place to work in.at the City and think it is the only place to work in.

Mervyn King, Governor of the Bank of EnglandMervyn King, Governor of the Bank of England

A Future Research AgendaA Future Research Agenda

A demanding approach:A demanding approach: Need to gather many different kinds of data Need to gather many different kinds of data

(some of which are hard to assign a numerical (some of which are hard to assign a numerical value to).value to).

Need to construct a multi-factor model of Need to construct a multi-factor model of decision making.decision making.

Need to understand that this model will not Need to understand that this model will not generate simple, single figure national generate simple, single figure national averages.averages.

Pathways to Progress?Pathways to Progress?

It seems reasonable to assume that better It seems reasonable to assume that better outcomes will be generated when:outcomes will be generated when:

There is a good understanding of how the There is a good understanding of how the whole incentive system works.whole incentive system works.

When Type 1 and 2 incentives are closely When Type 1 and 2 incentives are closely aligned and positive.aligned and positive.

The challenge for researchers is to map and The challenge for researchers is to map and analyse incentives to allow policy makers analyse incentives to allow policy makers to move forwards.to move forwards.