A Crisis of Government Intervention

Statistics Canada reposts that Canada’s youth unemployment rate that includes citizens between the ages of 15 to 24 reached approximately 14% in February 2014, which is over twice the national unemployment rate¹. With average student debts found to be $26,000 by a 2013 Bank of Montreal study², Canadian university graduates are struggling to find work and pay off their debts, let alone realize a return on investment.

The question that remains is how Canadian youth can be so misguided and what can be done to solve this issue? This piece argues that tuition subsidy is the root cause of the university graduate employment crisis and that the elimination of this government intervention will solve the issue. Canada’s bleak job market has been driven by an oversupply of university graduates. Statistics Canada reports that from 1990 to 2007, the number of Canadian university graduates entering the workforce has increased by approximately 50%³. This oversupply can be attributed to artificially low tuition prices that disable price signals. Youth cannot conduct true cost analysis and are being lured into attending university due to the low prices and mirage of job opportunities. Price signal breakdown is causing increased enrollment of students that would be better served pursuing other options. Aysegul Sahin’s 2004 US Federal Reserve study supports this reality, concluding that subsidizing tuition increases the amount of less able and less motivated students enrolled⁴. George Leefe of the John W. Pope Center for Higher Education Policy argues that these student’s degrees offer few benefits, since they graduate with low-grade credentials and few job prospects in a swamped market⁵.

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Sahin also found that tuition prices positively correlate with student motivation. The Fraser Institute’s Hugh Macintyre maintains that subsidized tuition lowers students’ motivation⁶. Macintyre asserts that Canadian students often lose focus of the risk of not achieving a return on their investment and lower their efforts accordingly. The influx of unmotivated students is hurting Canadian universities’ ability to compete internationally. This trend is expressed as again Canada failed to place among the World Economic Forum’s top 10 ranking of the countries with the most competitive post-secondary institutions⁷. Higher tuition prices would increase the value that students place upon their education and the outcome necessary to pay off their investment. The removal of tuition subsidy will free price signals to motivate and improve the caliber of Canadian university students. Canadian universities’ stagnation can also be attributed to the funding system itself. A 2009 Statistics Canada report revealed that the average Canadian university generates only a tenth of its revenues from tuition fees⁸. According to Statistics Canada, the majority of universities’ funding comes from government subsidies and other activities, such as residence fees. These sources of revenue account for half and a quarter of universities’ funding respectively. Benjamin Levin from the University of Manitoba argues that the current funding arrangement motivates Canadian universities to focus on government lobbying rather than innovation⁹. With only a fraction of revenues derived from tuition fees, Canadian universities have no incentive to improve in order to maintain operations. This stagnation hurts Canada’s ability to compete and innovate in a global market. Prominent liberal theorist Clark Kerr argues that higher education plays a key role in social mobility¹⁰. Iglika Ivanova, of the Canadian Centre for Policy Alternatives, parallels this claim and warns that tuition subsidy is necessary to avoid barriers for youth from lower-income families¹¹. Ivanova argues that university access is essential, given that post-secondary education is increasingly becoming a requirement for many Canadian jobs. However, post-secondary educations should not be a necessity for many jobs that were formerly held by non-university educated employees, such as retail sales. A 2006 Statistics Canada report shows that one in four of millennial university graduates were employed in jobs that did not require their skills¹². Subsidies should be eliminated to lower the number of university graduates flooding the market and the number of low-skilled jobs that now require university degrees. Moreover, tuition prices do not significantly affect enrollment among motivated and dedicated youth. Claudia Hepburn, of the Fraser Institute, revealed that the implementation of higher tuition in Australia did not affect the participation of relatively poor families¹³. In fact, higher tuition may actually benefit the disadvantaged and motivated students who strive to attend university. These students will still be free to pursue Bachelor degrees, as they will have access to government loans. Higher tuition will encourage these students to work harder, build their work experience, and apply for scholarships. Higher tuition coupled with a streamlined graduating class, will enhance the value of a university degree the students will improve students’ chances of securing post-graduate employment and a return on their investment. Canadian government funding condemns motivated and misguided youth alike to a flooded market with few job prospects. Tuition subsidies must be eliminated to lower the unemployment rates suffered by Canadian university graduates. Works Cited

1. Canada. Statistics Canada. The Labor Force Characteristics by Age and Sex – Seasonally Adjusted. Retrieved March 15, 2014.
2. Manson, Gary. 2013. “University students: another day smarter but deeper in debt.” The Globe and Mail, September 6. Retrieved March 1, 2014.
3. Canada. Statistics Canada. Trends on University Graduation, 1992 to 2007. Retrieved March 2, 2014.
4. United States of America. Federal Reserve Bank of New York. 2004. The Incentive Effect of Subsidies on Student Effort. Retrieved March 2, 2014.
5. Macintyre, Hugh. 2012. “The impact of artificially low tuition.” The Fraser Institute. Retrieved February 21, 2014.
6. Macintyre, Hugh. 2012. “The impact of artificially low tuition.” The Fraser Institute. Retrieved February 21, 2014.
7. Grant, Tavia. 2013. “When it comes to competitiveness, Canada can’t compete.” The Globe and Mail, September 4. Retrieved February 28, 2013.
8. Canada. Statistics Canada. University and College Revenue, by Province and Territory</a>. Retrieved March 1, 2014.
9. Levin, Benjamin. 1990. “Tuition Fees and University Accessibility.” Canadian Public Policy 16: 51-59. Retrieved February 21, 2014.
10. Kerr, Clark. 1983. The Future of Industrial Societies: Convergence or Continuing Diversity? Cambridge, Mass: Harvard University Press.
11. Ivanova, Iglika. 2012. “Paid in Full: Who Pays for University Education in BC?” The Canadian Centre for Policy Alternatives. Retrieved February 21, 2014.
12. Kolm, Josh. 2013. “Why are so many of Canada’s young people out of work?” CBC News, June 21. Retrieved March 1, 2014.
13. Hepburn, Claudia. 2003. “Tuition Woes.” The Fraser Institute. Retrieved February 21, 2014.