Are graduate economists still fit for employment?

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I am giving a talk next week at the Australian Conference of Economists. The topic is: Are graduate economists still fit for employment. My thoughts below. Comments very welcome – particularly if you think I am wrong!

This topic requires three initial questions:

  • What graduates;
  • What employment; and
  • Were graduate economists ever fit for it?

Most graduate economists do not work as specialist economists. This is of course standard for many tertiary qualifications in Australia. Most law graduates do not work as specialist lawyers. I suspect that most accounting graduates do not work (for long) as specialist accountants. And so on. Undergraduate education is about helping students learn how to critically analyse questions, concepts and issues, and how to go about answering those questions. Most undergraduate education is not the provision of a narrow set of technical tools but about helping students acquire broader analytic skills.

In contrast, many students with a Masters or a PhD in economics will work as economists, whether in business, government or universities. Students with graduate training in economics need a range of technical skills that build on their undergraduate education.

So, in order to answer the question, the first thing I need to do is specialise.

What graduates?

I am going to concentrate on the large number of undergraduates who come out of our universities with either an economics major in their undergraduate studies or a substantial exposure to economics. I am not going to consider graduate studies in economics.

What employment?

Most undergraduate majors in economics will initially work in general management/administrative positions in business or government. However, from that start they will move into a variety of different areas, often including (non-economics) graduate study. So I am going to consider whether or not our undergraduate courses do a good job in training students who will move into a wide range of employment where their core activities will not involve specialised tasks in economics.

Were graduate economists ever fit for it?

Were students who graduate in economics ever fit for this type of general employment? That is obviously a judgement call. But there is some evidence that the answer was – and remains – that they are well trained.

We have increasing numbers of students who get some exposure to economics – and find jobs. There is a perception that the number of economics majors has fallen but this seems to be based on data from the 1990s that showed a fall in the relative number of economics undergraduate majors but a rise in the absolute number.

For example:

Figure 2 reveals that relative to 1989, the year 1999 has witnessed: (1) an increase of 71 per cent in the overall undergraduate enrolment index …, while undergraduate economics enrolment … has increased only by about 11 per cent (Alauddin, M., Valadkhani, A., Causes and Implications of the Decline of the Economics Majors: A Focus on Australia, Journal of Economic and Social Policy, 7(2), 2003, 68-90.)

The view that economics is losing its popularity also seems to be based on the exclusion of degrees titled ‘Commerce’ or ‘Business’ from some studies, despite these titles becoming increasingly popular for programs where students can do an economics major.

There has been a significant increase in enrolments in Management and Commerce programs at Australian universities. In 2010 there were 22,273 domestic Bachelor Pass graduates in Management and Commerce courses from Australian universities (DEEWR statistics – there were another 26,993 international students – but I will just look at domestic students here). The rate of increase of domestic enrolments in all Management and Commerce programs from 1999 to 2010 was about 31% (and an amazing 350% for international students). If the domestic increase is has been slightly more in graduate than undergraduate courses, then currently we are graduating about 6,000 more Management and Commerce pass-level students each year compared with a decade ago.

In brief, it is almost certain that we are training more economics majors than ever before and they are finding jobs. We are definitely training more pass-level graduates with some economics training than ever before and they are finding jobs. So in that sense, student and employer choice shows us that economics graduates (and Management and Commerce graduates in general) are fit for something.

What does an employer graduate value in an undergraduate economics major?

Clearly economics graduates are fit for employment. But that is not the interesting question. After all, do we really care what employers think or what our graduates think is the value of their education?

It makes little sense to ask if ‘employers’ get value from an undergraduate economics degree. In economics we start by considering consumer choice and look at consumers’ surplus. For undergraduate education, the student is the consumer. To focus on the employer is wrong-headed.

In particular, what an employer wants may be different from what a graduate wants. A first employer may want a graduate that has narrow technical skills that can be ‘put to work’ with little additional on-the-job training. The employer might know that the turnover rate for new graduates is high so he or she does not make a long-term investment in a new graduate. To base our education programs on satisfying such an employer, in my opinion, is undesirable.

So the real question is – are we providing skills to undergraduates that the undergraduates themselves value?

What can we provide our graduates?

To work out what undergraduates value we have to look at their choice. More domestic undergraduates are doing economics majors than ever before. Our ‘share’ of total business students appears to be going down but in terms of absolute numbers, economics appears to be doing well as a discipline.

If more students are choosing other majors in the Commerce and Management area should economists be concerned? Probably not. So long as an undergraduate economics degree provides skills that significant groups of students are likely to value in the future then we are looking pretty good. There is a lot more choice in undergraduate Management and Commerce degrees now than, say, 30 years ago, so it is not surprising that students are spreading over these options. Our colleagues at university are also providing programs that they think will be interesting and valuable for students. Economics has no monopoly on wisdom, even in Business and Economics Faculties.

So the real issue is:

  • What valuable skills can economics provide to undergraduates; and
  • Is economics under competitive threat from other courses offering these same valuable skills in a more interesting way?

First, because most economics majors will not go into jobs where they are economists, the skills that will be valuable to them will be generic skills. This should be a strength of economics. Learning economics is about learning how to apply formal analytical reasoning to issues in business and government. Economics is based on the simple paradigm of hypothesis-assumptions-analysis-predictions-testing. Most students would only ever see this approach to analysing problems in science classes (if they do any). Economics has the huge advantage of showing students how to take a formal approach to analysing problems and how to apply formal analysis to issues that arise in every day life. Whether considering the effects of Coles lowering the price of milk, the consequences of the RBA lowering interest rates, or analysing the effectiveness of a marketing campaign by knowing what questions to ask and what data is needed, training in economics helps students answer real-world questions using an analytical approach that is absent from many other areas of business study and is usually associated with abstract problems in science.

Second, what is truly amazing is that economics appears to retain a monopoly on providing this set of valuable tools to students within business and social science majors. Other majors in business undergraduate degrees appear to avoid presenting a formal analytical approach. Thus undergraduate courses in finance seem to rarely go back to first principles. Marketing courses, which should be filled with formal data analysis, appear to avoid this analysis. Even politics courses, where formal analysis using game theory should be grist for the mill, appear to avoid these tools at the undergraduate level.

So my first conclusion is simple. Economics at undergraduate level can provide students with an introduction to formal analytical reasoning as applied to business and social problems. This training is valuable for students (and employers) as it provides a set of portable and flexible tools for analysis. And for some reason, economics appears to have a monopoly on teaching this set of tools at the undergraduate level, at least in business and the social sciences. We appear to face little competitive threat.

Where is undergraduate economics failing?

Given this upbeat evaluation, why do economists seem to believe that something is wrong? I will highlight three reasons:

  • Formal analysis is not the same as mathematics – but far too many economists who teach our undergraduates don’t seem to realise this.
  • There is a view that students find economics too hard and that we need to avoid formal analysis as it scares the students.
  • There is a view that undergraduate economics majors are ‘too narrow’ and that we need to include broader perspectives.

I will argue that each of these views is wrong and dangerous to economics education. Indeed, I will argue that the forces undermining the perception of the value of undergraduate economics majors are derived from the views of academic economists themselves. Put simply, in terms of university economists, we are our own worst enemies.

Mathematics

Formal analytical reasoning can be presented verbally, through diagrams, or mathematically. Unfortunately some people who teach undergraduate economics appear to believe that if an argument is not presented mathematically then it is not rigourous. While the use of mathematical techniques can aid analytical reasoning, in particular by forcing economists to make their assumptions clear, for most of our undergraduates the mathematical presentation of economic ideas is the least important of the three alternative presentation styles.

This view appears to reflect that university academics are themselves highly mathematically trained. You cannot get a PhD in economics without a lot of maths. So unsurprisingly, PhD graduates in economics believe mathematics is of primary importance. And it is for research – but not undergraduate teaching.

Pass degree graduates in economics will spend most of their lives interacting with people who have little if any formal mathematical training. While they themselves may be excellent mathematicians, if they can only present economic ideas and concepts using mathematics then they will be unable to communicate with those around them. In order to effectively communicate the economic ideas that they have gained from university education and to effectively apply those ideas and concepts to what ever problems they face, they will need strong verbal presentation skills and will need to be able to both verbally and diagrammatically present rigourous economic thinking.

Over emphasising mathematics, particularly in core first, second and third year economics units, reduces the value of those units to the students. We should not be surprised if fewer students then enrol in those units.

Difficulty

It is sometimes argued the economics as a discipline would be more popular at universities if it was not so difficult. If only we reduced its analytical content then, according to this view, students would flock into our courses. In my opinion this view is clearly wrong.

Economics could be taught in a way that involved weak analytical reasoning. We could being vague in presenting our assumptions and we could lack rigour in determining how those assumptions lead to specific predictions. We could also ignore data and simply assume there our results hold regardless of the real world. All of that would make economics ‘easier’. It would also destroy the underlying value of an economics undergraduate education.

Why do lecturers have this view? Well possibly one reasons is that academic promotion depends very little on teaching. Good researchers get promoted and understandably academic economists understand the opportunity cost of teaching. Teaching a rigorous, innovative and engaging course is harder than teaching an easy, chatty course. And it takes up more research time.

However, ‘dumbing down’ undergraduate economics courses damages the discipline. The key factor that differentiates economics from other business and social science disciplines is it single-minded emphasis an analytical rigour. Students who complete economics majors do so because they see value in learning that intellectual rigour. To throw out that rigour would make us less, not more, competitive.

Breadth

The disciples of breadth in undergraduate economics education come from all parts the discipline. They come from the mathematical end of microeconomics, and wish to see the elegant theorems of Arrow and Debreu presented to their students. They come from the heterodox economists who wish to see their students exposed to more varied economic schools of thought. They come from behavioural economics who want to show the students the exceptions, and from experimental economics, who want to emphasise a research technique rather than the traditional analytical approach. All of these concepts are important for economic research, which is why researchers in these fields want to push these ideas. They are not, however, important for undergraduate economics.

The objective of a successful undergraduate economics program is not shovelling as much information in front of the students as fast as possible. There are key analytical tools that provide the basis of economic thinking. It is these tools that need to be taught and taught again in undergraduate economics.  Critical ideas that often appear simple but can be difficult to apply  – such as opportunity cost, comparative advantage, national accounts, and the relation between inflation and the money supply (to name but a few) – need to be understood backwards and forwards by pass degree graduates. They need to understand the ideas, how to apply them and what their limitations are. There are numerous ways to teach these basic skills. But it is the fundamental tools that should drive the curriculum not our own academic biases.

These tools will change and expand over time. For example, today, the idea that an economics graduate could finish a three-year pass degree with no exposure to game theory or asymmetric information is absurd. But of course, 30 years ago, that was standard. However as a discipline we need to be careful how rapidly we include new techniques and methods in our undergraduate courses. We need to remember that the aim is not to train researchers but rather to train intelligent thinking graduates.

What should a ‘good’ graduate in economics know?

In my view, what the students need from core economics courses is to develop strong economic ‘intuition’. This is the ability to consider a problem that they have not faced before and rapidly bring two or three different economics approaches to bear on the problem. There are two requirements for this:

  1. Emphasise the assumptions. Economic models are built on particular assumptions. The models are (by definition) abstractions from the real world and no one model is correct in all (or even most) situations. Graduates need to understand the role of assumptions in modelling, and how to carefully choose the best models to apply in different circumstances. In simple terms, an economics undergraduate degree provides students with a set of ‘tools’ called economic models that they can apply. But they need to understand how these tools work and when to use them.
  2. Emphasise the applications. Never introduce a new piece of theory unless you can immediately present at least three different real world applications of that theory. There are two reasons for this. First, by seeing different applications of the theory, students see how to use the theory in the types of situations that they will face post-university. Second, if you are unable to think of three different practical applications of the theory then you need to question whether or not your undergraduates need to be taught this theory. Teaching one theory has an opportunity cost – you teach fewer other theories or teach other theories in less depth. If the theory is of interest to researchers only, teach it to researchers, not undergraduates.

Conclusion

Overall I think undergraduate economics education is reasonably healthy. We have a growing base of students and the main strength of our product – the teaching of formal analysis as applied to real world problems – appears to be less available in other undergraduate business and social science courses.

However, we face some challenges. Some of these are based in economics academics. Some of those who are teaching undergraduate economics seem to have forgotten that they are teaching generalists not specialists. They are teaching students who need to communicate verbally not mathematically. They are teaching a small set of skills very well, not a broad set of ideas very badly.

However, the biggest challenge lies in the structure of our universities. Teaching economics well is hard work. It is time consuming. And for most Australian academics, given the incentives that exist in our universities, it is a career disaster. When promotion depends on research not teaching, do not be surprised when academics devote as little time as possible to teaching and the teaching quality degrades. After all, it is just basic economics!

7 Responses to "Are graduate economists still fit for employment?"
  1. You say that most graduate economists don’t work as specialist economists, just as most law graduates don’t work as specialist lawyers. That’s true. But you go on to say that most graduates don’t do economic jobs, most law graduates don’t do legal jobs, etc. I think that’s false.

    Speaking as a public service employer of law, economics and accountancy graduates I can tell you that we don’t generally treat such degrees purely as evidence of a good brain and good learning skills (we look to arts and mathematics graduate, in different ways, for those). We actually also want some of the specific occupational skills – doing a CBA, designing a regulated market, modelling the effects of a new tax, drafting contracts, interpreting legislation, preparing a balance sheet, doing audits, etc.

    True, they’ll also be doing lots of general management/ administrative work in their careers and so they never get the the formal title of “economist”, “lawyer” or “accountant”, but I think you’re underrating the usefulness of specialist training in specific techniques.

  2. Great article – but reading this is an imperfect substitute for my non-attendance at your actual presentation next week. It was the non-core micro-based subjects in my degree (Melb Uni, 1997 to 2005) that were most interesting and provided more of the practical examples that have proven valuable in my career to date. (Competition and Strategy 1999 in particular!)

  3. In my undergrad economics degree, I often found the internet a more useful tool for getting a grasp of the content than my lectures. My teachers were far mathematically inclined than me, and as you say, used maths to explain things. I could do the maths, but with difficulty. My understanding of the underlying theory had to come first before I could reason out the equations.
    Ultimately I found my degree very interesting and rewarding. But I often think that was in spite of rather than because of the teaching. Luckily these days, there are so many resources for students to learn from it doesn’t really matter how their lecturers teach.

  4. I felt like leaving a comment even to necro this old post. I think economics is useless because there are no ‘core’ skills to be taught which can help you make a living. In other words you can’t make a living from economics undergraduate. It’s really an academic research discipline. Only those who do postgrad with excellent academic record e.g first class honors are considered for employment. Anything less is a waste of time. I am writing this here because I have wasted my life and time doing this. Terrible way to start a career. Now I am way behind my peers. Seriously just as bad as arts graduates, as humanities are a waste of time.

      • No.. even if I lied about my GPA it doesn’t change the fact the degree is useless. Everyone’s critical thinking skills are different and if I were working in government department in public policy I wouldn’t hire any of the econ grads because their views and ideals for society are terrible.

        As economics is a diverse field, I’m sure most people aren’t interested in the other half of the topics. Economics is still very much a specialised field with very few jobs. RBA/Government are the only real employers.

        Only like top 5% of economics graduates get employed the rest retrain.

  5. If one has good knowledge of economists then he can do so much, I am doing Forex trading, it’s extremely profitable work and there are a lot of advantages too. I am able to do it from any part of the world while having high class broker like OctaFX, it’s another help for me especially with their low spread of 0.2 pips, high leverage up to 1.500 and super smooth trading platform which allows me to trade very easily in this risky business.

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