Claude Montmarquette CIRANO and Université de Montréal

1. Post-Secondary Educational Institutions’ Adjustment to Labour Market Changes: Major Concerns and Key Research Issues Claude Montmarquette CIRANO and Université de Montréal Paper Presented at the November 8, 2005Forum of Labour Market Ministers, Information Working Group This presentation is based on a issue paper, Post-Secondary Educational Institutions’ Adjustment to Labour Market Changes: Major Concerns and Key Research Issues by Claude Montmarquette and David Boisclair, Sponsored by the HRSD-IC-SSRHC Skills Research Initiative, 2004.

2. Contents of the Paper • Introduction • Labour Market Role of PSE Institutions • The Market for PSE • Adjusting PSE Supply to the Labour Market • Adequacy of PSE Institutions’ Adjustment to Labour Market Needs • Student Choices Issues • Conclusion • Summary of Research Issues and Priorities

3. Intro / Motivations • Minimize Impacts of Labour Shortages • Improve Understanding of Linkages Between Canadian PSE and Labour Market • Use Available Resources Optimally • Help Defining a Relevant Research Agenda

4. “Base-Case”: No PSE Institutions • Training provided by (and within) firms • No need for adjustment • Automatic • Firms train as need for new skills arises • Firms signal their needs to (would-be) workers, who respond directly to training offers BUT: Although arrangements not unheard of (for specific and general) training, still fairly uncommon.

5. Benchmark: Market-Based PSE • Students receive signals from firms and acquire training accordingly • Students pay full price of their training (foregone earnings and tuition) • Price paid reflects cost of training provided (differentiatedtuition)

6. Benchmark: Market-Based PSE (2) • Existence of externalities to PSE: unclear (even then, important private benefits) • Provision of appropriate info must be ensured • ICLP necessary to support students financially (no collateral)

7. Discrepancy: Market vs Actual PSE • Confusion between price mechanism (efficiency) & income support (equity) • Prevalence of political mkt over labour mkt • Individual students may lose from ∆⁻ efficiency associated with public funding

8. Discrepancy: Market vs Actual PSE • Currently: limited incentives for PSE to adjust to labour mkt. Depends upon: • Quality of student signalling (⇒ Quality of info) • Level of competition between institutions • Potentially important institutional barriers to adjustment (hiring, budgetconstraints, unionized labour force...) • Uncertainty about the demand

9. Adequacy of Adjustment • Question: How “well” do PSE institutions adjust? • How is adjustment to be measured? What does “well” mean? • Multiple dimensions: level of completers, returns to PSE, career path success, observed shortages (difficult), matching employment/graduation... • Breakdown by institution type, by field/sector. • Examples: • “Over(and under-)education” • Matching of labour mkt and PSE production trends • Educational and labour marketssegmentation • Limitation of data (e.g. latter cases) • Need for more / better longitudinal and micro-data

10. Student Choices • Students carry signals from labour mkt to PSE • Crucial question! • Important: Understanding the role of labour market signals in students’ educational choices • Indications so far: importance of expected earnings • Role and quality of info available • Uncertainty of returns on training – strategies: • Livelihood insurance (specific) • General training as insurance • ICLPs as ex post insurance

11. Main Research Areas Proposed • Disentanglement of the roles in PSE of price and income support mechanisms • Identification / description of institutional barriers to PSE adjustment, and consequences • Dimensions of PSE adjustment’s adequacy • Determinants of students’ educational / career choices • Determinants of firms-sponsored training and circumstances of employer/student adjustment