SEB weekly commentary: the choice of field of study changes the economy

Today institutions of higher education publish their admission results. The choice of field of the applicants will also affect the well-being of society as a whole. The State is taking an increasing active role in forming the preferences of young persons, but there is hope that it pays off for the Estonian economy in the long term.

Many secondary school graduates have been anticipating July 17th. This is when several institutions of higher education publish their admission results. Besides the obvious personal importance, the choice of field of these young persons is also one of the most important factors influencing the economic environment, well-being and competitiveness of the country. Michael E. Porter claims that an educated population has no importance in modern international competition because it is present in many of them. But countries can overtake the competition by concentrating on the preferential development of certain fields. This is why in recent years Estonia has guided the choices of young people more strongly towards the fields of exact and natural sciences and technology, with particular focus on IT and engineering.

How has the State tried to influence the choice of field?

In previous years the State has tried to shape the choices of young people primarily through state-commissioned education from institutions of higher education, setting the number of graduates for a particular field of study. Unfortunately, the goals were often too ambitious and the schools failed to find enough interested students. Lately, instead of secondary school graduates the State has tried to influence younger students, combining both gentle and more drastic measures. This includes support for activities related to exact and natural sciences, sponsored science programming on TV (e.g. Rakett 69), but also a compulsory state examination in mathematics, which is a prerequisite for studying in technical fields. The latest innovation of the State to encourage students to apply for technical and technological fields is a EUR 160 grant, which students of the 86 "smart" fields of study can apply for in the new academic year.

How have admission numbers changed?

Due to changes in the population pyramid the number of admissions in institutions of higher education has been declining since 2008. The number of young people who entered higher education last autumn was 6000 less than 10 years ago. At the same time the negative demographic trend has not influenced all fields of study equally. For instance, the number of students of computer sciences has remained almost the same, while the number of admissions for social and behavioural sciences has fallen by nearly three times. Among all admitted students for higher education the number of first-year students in the IT field has nearly doubled. The popularity of technical fields, which include several fields of engineering, has grown more slowly but it still covers 8 per cent of all admitted students.

Are the fields preferred by the State worthwhile for young people?

Science and technology may sound fancy, but the pay that these professions offer is also very important for employees. In recent years the Ministry of Education, the Tax and Customs Board, and the Statistical Office have worked together to publish data regarding the pay of graduates, which helps to answer that question. At least for graduates of computer sciences and technical fields incomes are very good. In 2013 graduates of these fields earned EUR 1683 and 1413 respectively, which is significantly above the average pay of graduates of institutions of higher education (EUR 1162). Graduates in the fields of transport services (logistics) as well as law and security (mainly public defence) also earned a higher salary (in Estonian terms) of above EUR 1400. On the other hand, physical natural sciences and biosciences, which also fall under exact and natural sciences and therefore are preferred by the State, were significantly below most other fields in terms of average pay.

Is favouring certain fields of study worthwhile for Estonia?

Depending on the view of the world, State intervention in the choice of fields is seen differently. People who prefer wider State intervention in economic affairs find that the current system is too gentle, that the State should clearly say what should be studied and also provide jobs. Yet a convinced liberal believes that the State should in no way intervene in the decision-making of individuals and let the market rectify everything. As always, the truth probably lies somewhere in between. In trying to offer free higher education without regulating it we end up with lots of people who take up other professions due to a lack of work in their chosen field. The latter is not always bad, but when a doctor can become a good civil servant, the opposite scenario is impossible due to the qualification barrier. This way society may lose professionals who will help to increase the State's wealth the most. As a counter-argument to intervention we see that contrary to Michael Porter's recommendation to find one's niche, a large number of countries are "smartly" specialising in exactly the same areas. Also, training a large number of qualified engineers does not guarantee their contribution into Estonia's economy as there are few attractive industrial enterprises here and the contest for bright minds is global. But considering the added value that successful IT and industrial enterprises bring to Estonia, it seems that the State's gamble is worth it.


Mihkel Nestor
Economic analyst, SEB
 

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