Forget the budget. It’s about demographics
The combination of being in a recession and on the cusp of major demographic change is about to cause some serious problems for Canadian universities. For faculty and administrators who have only known the relative munificence of the post-2000 period, what is coming down the pipeline from governments is going to be a very big shock.
To outline the problem: the American economy, to which we Canadians are inextricably linked, is no longer in freefall, but is operating substantially below the level it has for the past 20 years. Without a recovery in the U.S., prospects for sustained Canadian growth are poor. Unfortunately, with U.S. unemployment sitting at 10 per cent and a deficit at 10 per cent of GDP, any consumer-led recovery still seems some ways off.
The slow-down affects Canadian governments and their budgets quite significantly. Ontario is by far the worst off. The Maritimes, Quebec, and Manitoba don't have as many short-term problems as Ontario, but they do have large existing stocks of debt and so can't borrow into this recession quite as easily as other provinces. Newfoundland will be fine if the price of oil rebounds and in trouble if it doesn't. These difficulties in government finances are going to have profound effects on the ability of governments to keep spending on higher education. The best possible outcome over the next four years in these provinces is a freeze on post-secondary spending. The worst-case scenarios involve cuts of 10 to 15 per cent over the next three years.
But though short-term budget woes consume our immediate attention, it's worth keeping an eye on the medium- and longer-term impacts of demographics, because they will have a major effect on how governments and individuals pay for education.
Many provinces face declining youth cohorts and hence a declining need for higher education; all provinces face a serious problem with respect to escalating health costs stemming from the retirement of the baby boomers. In 2006, there were slightly more Canadians aged 15-24 than there were aged 65 and over (4.4 million to 4.3 million). According to Statistics Canada's medium-growth projection, the size of the 15-24 bracket will fluctuate a bit between 4 and 4.3 million, but the numbers of over-65s will balloon to 6.8 million by 2021 and to 9.1 million by 2031.
There's room here for multiple interpretations of this data.
The most positive spin you can put on it is that there actually is very little likelihood that post-secondary education enrolments overall are likely to decline. The prime 20-24 age category might drop by 6 per cent over the next decade, but expected increases in the percentage of youth attending PSE will likely make up for it. There may be some geographic shifts in where those students reside - the Greater Toronto Area, for instance, will see youth numbers grow while much of the rest of the country declines - but the overall numbers won't decline. As a result of student numbers staying the same, optimists might say, income from government (which is usually tied to student numbers in some way) won't change either.
The negative (and probably more realistic) spin is that costs relating to an aging population - essentially, health care - are going to overwhelm provincial budgets as the proportion of the population over 65 balloons. The population aged 15-65 is going to stay very stable over the next two decades while the proportion of over 65s more than doubles. Even leaving aside the enormous cost implications for the health-care budget and the relentless squeeze that will put on every other budget item, what's going to be occupying the minds of politicians is how to keep this enormous voting bloc of wrinkly boomers happy. Spending money on higher education might have won boomers' votes when their children were in school, but it's harder to imagine that being the case after they've graduated. Even with unchanged enrolments, the relative position of higher education on the nation's policy agenda is sure to fall.
So where does that leave universities? They'll probably have to be more reliant on tuition dollars. But this isn't as simple a fix as it may seem. Over the past fifteen years, rising tuition fees and debt loads have been accommodated in part through giving graduates lower taxes and higher spending power in the years after they graduate. If demographic change results in higher taxes to pay for increased medicare costs, the next generation is going to be hit with a double whammy - paying both higher tuition fees and higher taxes. This will reduce the private benefit of education and hence act as a serious disincentive to education.
That's won't be the only thing reducing the benefit of higher education. Demographic change also means tighter labour markets. Wages for the less skilled are going to increase as we arrive at the point of zero labour-force growth in 2016. This will raise the opportunity-cost of higher education, thus putting more downward pressure on enrolments.
Simply put, if institutions are going to charge higher fees, they are going to have to work a lot harder at ensuring that their degrees and diplomas actually confer real benefit on each student. If they don't, then the long-term trend toward greater participation, which otherwise might have sustained enrolments during a slight demographic downturn, could go into reverse as more people decide the benefit conferred by a degree isn't worth the cost and the risk.
Currently, most Canadian institutions are pushing themselves to become increasingly research-intensive and are funding this push by skimming money off undergraduate education to put it into graduate education. But demographic changes could make this a very risky path; having undergraduates pay more for an increasingly debased product while the net value of the product is falling is a big ask.
Simply put, the rising value of work and the increasing demands for student dollars are going to force most institutions to pay a lot more attention to their undergraduate programs. They'll have to demonstrate much more clearly how their education actually increases employability and earnings. They are going to have to start paying attention to how curriculum affects outcomes, and how outcomes relate to productivity. And they are going to have to spend a lot more time and energy on the overall undergraduate experience.
Institutions that come to this realization early and start working hard on this problem now will be much better able to charge top dollar when the reductions in public funding start. In eastern Canada, schools like Mount Allison and St. FX could be early beneficiaries of this change. In Ontario, Queen's and Western could be big winners as well, provided they give up trying to compete with the G5 in research in all but a few areas and really focus on undergraduates. In Western Canada, there's no obvious candidate, just a big market niche waiting to be filled.
Demographics are putting undergraduates back in the driver's seat. Reacting to that shift could be quite wrenching for universities. It promises to be an interesting decade.
Tagged with budget, students, pay, demographic, cutback, tuition, fees | Comments (9)
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