The holidays are over, NCEA results are out, and school leavers are finalising their plans for the coming year – including for tertiary education. In this article, we argue that there’s more to be done in the tertiary sector than simply providing one year’s free tertiary education. We outline that the Government’s problem definition for fees-free misses the mark. Although there is scope to improve the effectiveness of the policy, we argue a national skills strategy should be next on the government’s list.

In announcing the fees-free policy, the Government stated in a Cabinet Paper late last year that

Our policy objectives [are] making tertiary education more affordable, removing barriers to participation (particularly for those who have not previously studied at tertiary level), and assisting more people to acquire the skills they need for work.

Infometrics economist Paul Barkle highlighted in December how the first two objectives outlined in the Cabinet Paper won’t be met by the fees-free policy. This article focuses on the third objective – getting more workers with the skills they need to work – and why fees-free doesn’t address this objective.

The real problem the Government should be trying to address is how the tertiary education system is meeting the needs of businesses. It isn’t that the education system is delivering a low number of skilled graduates, it’s that it isn’t supplying skilled graduates in the right areas to improve long-term prosperity.

Fees-free will create or exacerbate a whole raft of unintended problems in the system. These unintended problems include qualification creep, labour market mismatches, and pushing people into areas where they are not going to excel – all of which further waters down the link between education outputs and labour market needs.

Qualification creep is the inflation of the qualifications required to perform a specific job. For example, the job that previously required a level 4 qualification now requiring someone with a Bachelor degree with no real change in the actual role performed. This inflation of needed skills can be borne out of having an influx of new graduates, meaning firms seek out those with higher qualifications as a way of filtering out applicants. Qualification creep isn’t necessarily bad if productivity in these roles increases. Unfortunately, in the New Zealand context productivity growth in recent years has been quite poor. Incentivising more young people to enter tertiary education without signalling the qualifications in demand is likely to only exacerbate qualification creep.

Too many graduates are produced in some areas (think architects and lawyers) and too few in others (think nurses, science school teachers, and construction workers). Sure, we are incentivising tertiary education programmes to be more aligned with future employer demand through, for example, a focus on STEM graduates. However, there is still quite some way to go.

Under the current system, providers seek any student to maximise revenue with no regard for the overall demand in occupations or skills. This revenue grab undermines New Zealand’s ambition to increase productivity and boost output. Until the different tertiary education sub-sectors (universities, polytechnics and private training providers) work together to provide a suite of specific and tailored education options, the effectiveness of New Zealand’s tertiary education system will continue to be limited.

Tertiary education shouldn’t necessarily be the implied next step in life, especially a University education. A third of school leavers enrol at a university the year after leaving school, while a further 27% enrol in sub degree qualifications. A variety of reasons contribute to why others do not go on to further study – including underperformance at school, being unclear about their future, or what job opportunities they can access. Others are clear about what they want to do post school that doesn’t include further study.

Incentivising young people to enter tertiary education, particularly university, when they have no clear idea about their future, is likely to result in poor outcomes. A lack of direction decreases the likelihood of succeeding [1]. Guided pathways that provide a roadmap for where courses lead is a key factor in increasing completions.

A comprehensive national skills strategy is needed to address the increased divide between what the labour market needs, and what it can currently access (i.e., the Government’s third objective).

In one of the best outputs while in opposition, the Labour Party’s Future of Work report also supported such a move. Recommendation E12 outlined that the Government “develop a New Zealand Skills Strategy for the 21st century.”

The strategy would determine the kinds of skills New Zealand needs to focus on producing, and then matching this skills production to job opportunities. This skills matching would ensure both prosperous jobs for workers, and labour market supply for firms to continue expanding and innovating.

Targeting is important: a national skills strategy would finally begin to address the problem of skills mismatches. The strategy would clarify the skills graduates need to get jobs, identify where future capacity in the market will be, and allow government to identify shortage areas and signal need through greater incentives for those skills.

Such a strategy would require significant buy-in from a range of agencies and the business sector. It would also take a few years to comprehensively pull together and start to implement. However, it would allow the tertiary education system to become nimble, focused on skills provision and that incentivised different pathways depending on forecast employment and skills demand and wider need.

The Government has announced that the first-year fees free tertiary education policy will be reviewed by the end of 2018 to develop implementation in later years. Until a national skills strategy is in place, the Government needs to look at revising the fees-free scheme to allow for better targeting and outcomes. These objectives could be met by bonded training schemes, grants recognising in-demand skills identified already, and transferable skills pilots to allow for broader qualifications to be gained.

Various forms of bonding policies have been floated – these serve to pre-determine short-term graduate supply. Bonding also secures graduates with employment in a relevant field, providing a coherent pathway and streamlining employment for graduates. At the same time, grants for those studying in-demand skills is a classic enticement option – provide a cash incentive and more people will look at the area as an option in the hope of getting an immediate return from it. Finally, piloting greater transferable skills courses would expand the ability for graduates to fill a range of roles in the labour market, depending on shifting demand. This would reduce overspecialisation, and provide space for manoeuvring in the uncertain labour market we face in the future.

For this to happen though, Labour needs to accept that the fees-free policy is not the lifeline New Zealand’s education system needs. There are options to strengthen New Zealand’s education system into the future – the ball in in the Government’s court to carry them out.

Co-written by Brad Olsen and Shaun Twaddle .

Disclosure: Brad Olsen is a member of the External Advisory Group advising NZQA on the New Zealand Qualifications Framework (NZQF) Review 2018.

[1] Bailey, Thomas R., Shanna Jaggars, and Paul Davis Jenkins. "What we know about guided pathways." (2015). https://ccrc.tc.columbia.edu/media/k2/attachments/What-We-Know-Guided-Pathways.pdf