1. Introduction

Abstract

This chapter outlines the purpose and scope of the report, the third in a series of OECD country reviews on the labour market relevance and outcomes of higher education. It presents the assessment framework used to examine the alignment of higher education and the labour market in the four US states participating in the review – Ohio, Texas, Virginia and Washington. Finally, it presents the structure of the report.

    

1.1. Purpose of the report

Higher education is a critical feature of knowledge-based economies and innovative societies. Through it, graduates acquire the knowledge, skills, and values that assist them in leading productive careers and engaged civic lives.

Policy makers look to the higher education institutions in their jurisdictions to fulfil various objectives. These include effective teaching to prepare future citizens and workers; high quality research; and engagement with enterprises, community organisations and the public sector. Students, families, employers and governments all expect that higher education equips learners with the knowledge and skills they need to lead productive and remunerative working lives, and to contribute to the economic prosperity and social well-being of the countries in which they work.

Across the OECD, workers with a higher education credential continue, on average, to enjoy robust earning premiums compared to those who complete only upper secondary education. However, many graduates have difficulty obtaining so-called “graduate jobs”, or employment in fields for which they were trained. Policy makers are not only concerned about the current alignment of higher education systems to labour markets; they are increasingly uneasy about the future of work and its implications for education.

The digitalisation of the economy has created and eliminated occupations, polarised wage distributions, changed workers’ tasks, and reshaped the relationships among workers, and between workers and employers. It has also changed the skills that are used in jobs, and the skills that are sought-after and rewarded by employers. The transformation of the workplace challenges higher education institutions to rethink the knowledge and skills that graduates need, while the polarisation of employment raises concerns about modest returns on investment for higher education graduates, in whose education substantial public (and often private) investments have been made.

Moreover, exogenous shocks transform the labour market in ways that cannot be predicted. The COVID-19 pandemic, which emerged as this report went into publication, is a prime example of such shock. While its profound impact on economies and labour markets is becoming apparent, the duration of the crisis and the ways in which industries and businesses may recover is unknown (Rothwell and Van Drie, 2020[1]). This leaves open questions regarding the knowledge and skills that workers will need in the aftermath of the pandemic, and reinforces the importance of strengthening the responsiveness of higher education systems.

To address these issues, the OECD’s Directorate for Education and Skills launched a project on the labour market relevance and outcomes of higher education. This project involves four strands of work, outlined in Box 1.1. Through in-depth reviews of countries or sub-national jurisdictions, the OECD provides policy makers with actionable recommendations on how higher education policies and organisations linking higher education to labour markets can be oriented to promote good labour market outcomes for higher education graduates today, and promote the successful adaptation of higher education systems to the ongoing transformation of work.

This report, supported by Lumina Foundation, examines the labour market relevance and outcomes of higher education in the states of Ohio, Texas, Virginia and Washington, following the assessment framework outlined in Section 1.2.

Box 1.1. The OECD project on the labour market relevance and outcomes of higher education

Initiated in 2017, the OECD project on the labour market relevance and outcomes of higher education explores how governments and institutions can improve the way higher education responds to current and future labour needs, through various strands of work:

• In-depth reviews of the relevance and outcomes of higher education provide policy makers with actionable recommendations on how higher education policies and organisations can be oriented to promote good labour market outcomes for today’s higher education graduates, and ensure that tomorrow’s higher education systems are aligned to the ongoing transformation of work. In addition to this review of Ohio, Texas, Virginia and Washington, in-depth reviews were completed in Norway and Mexico in 2018 and 2019, respectively.

• Focused reviews of the relevance and outcomes of higher education adopt a similar method, with a reduced scope in the policy areas examined. Such reviews are underway in Austria, Hungary, Portugal and Slovenia, to be completed in 2021.

• Thematic Working Papers explore emerging topics of interest to improve the labour market relevance and outcomes of higher education. Working Papers to be published in 2020 will examine the emergence of alternative credentials, the use of big data to understand employer skills demand, and labour market information and student choice.

• Peer learning events, starting in 2020, will aim to stimulate exchange about policy options and institutional practices that can improve the alignment between higher education provision and labour markets.

1.2. Scope of the report

Higher education in this report refers to levels 4 through 8 of the 2011 International Standard Classification of Education (ISCED), as explained in the Reader’s Guide. Given the breadth and complexity of higher education in the United States, the following choices were made to focus the analysis:

• Choice of states: While the federal government in the United States has a role in specific areas of higher education policy, as discussed in Chapter 2, state governments bear the main responsibility for the operation of higher education institutions in their state. As a result, the OECD and Lumina Foundation, in consultation with the U.S. Department of Education, jointly decided to focus the analysis at the state level, and identified four states that would offer useful insights for a broad range of states across the country. The four states were identified based on their geographic and economic diversity, their relatively large public sector of higher education, and their prior engagement with Lumina Foundation initiatives focusing on graduate outcomes and the alignment between higher education and the labour market.

• Levels of education: The report focuses on sub-baccalaureate and baccalaureate levels, which include post-secondary (sub-baccalaureate) certificates, associate’s degrees and bachelor’s programmes, which account for the majority of entrants to the US labour market.

• Control of institutions: The report takes note of both public and private higher education in setting the context of its analysis, but its diagnoses and recommendations focus on public higher education. Public higher education institutions enrol, on average, close to 80% of undergraduate students in the United States (NCES, 2019[2]). In addition, state governments bear responsibility for the legal and financial bases of public higher education institutions, and the policy instruments at their disposal centre principally on public institutions.

The analysis presented in this report is based upon an assessment framework with two principal features. First, it examines the labour market outcomes of graduates, primarily their employment rates and earnings, to shed light on the alignment between higher education provision and the labour market. Informed by this diagnostic, its second focus is to identify policy options that that hold promise for improving the alignment of higher education and the labour market. Each state chapter examines key state policies, ranging from institutional funding to the provision of labour market information, identifying strengths, and highlighting policy options that might strengthen labour market alignment.

1.3. Assessment framework

Overarching context

A wide set of factors influences the actions of employers, higher education institutions, students and graduates, and the labour market outcomes that their choices yield. These include contextual factors, very often outside of the control of public authorities; and policies, standards and activities put in place by public authorities or, in some cases, non-governmental bodies such as social partners or sector associations to steer labour market relevance and outcomes.

The relationships through which contextual factors and steering policies may influence the behaviours of higher education institutions, employers, students and graduates and, hence, labour market outcomes are illustrated in Figure 1.1.

Relevant contextual factors include institutional and cultural norms affecting study and employment choices, and global trends in technology and trade that affect demand for different types of skills. Such factors largely condition the policy reform capacity of governments. For instance, low rates of labour market participation among female higher education graduates of childbearing ages may result from a gendered division of responsibility for childcare, workplace practices, and low levels of social support for family responsibilities, rather than by a misalignment between their skills and the needs of the labour market.

Steering policies and factors, over which governments typically have a far greater degree of control, can be categorised into three main groups. Through higher education and skills policies, governments can provide information to institutions and learners about labour market needs, organise data systems to monitor graduate outcomes, and require that institutions disclose information about these outcomes. They can use funding methodologies that encourage institutions to adjust study places in response to labour market demands, and establish qualification frameworks and quality assurance systems that build trust in the qualifications awarded by institutions.

Co-ordinating bodies and non-governmental organisations also play an important role in influencing the behaviours of actors in the system, and in connecting education to the world of work. These organisations – professional or employer associations, rectors’ conferences, and, in some systems, non-governmental accreditation bodies – can help institutions recognise career-relevant competencies; assess and validate graduates’ competencies; incorporate skills standards expected by specific professions or industries in study programmes; and promote quality standards that support labour market relevance.

In addition to higher education and skills policies, a wide range of public policies can influence labour market outcomes, either directly or indirectly. For example, employment and tax policies affect hiring policies, employment conditions, and earnings, as well as social policies, may determine the level of social protections that are available to workers. Also, immigration policies govern the entry of skilled workers into the economy, and the recognition of foreign qualifications may be determined by either education or labour policies, ultimately influencing the total supply of skills.

Figure 1.1. Factors affecting outcomes for graduates and employers

Examination of labour market outcomes

OECD reviews of labour market relevance and outcomes examine labour market outcomes experienced by higher education graduates and employers in the participating country or jurisdiction, to broadly assess the alignment between the supply and demand of graduate skills. A system where the higher education system is well articulated with the labour market allows both graduates and employers to obtain positive outcomes, as outlined in Table 1.1.

The assessment not only considers whether there is overall alignment (for example, the average outcomes experienced by graduates), but also examines where misalignment occurs (for example, poor outcomes may be concentrated among certain socio-economic groups, graduates from specific fields or types of institutions, or in specific economic sectors).

Table 1.1. Desired outcomes for graduates and employers
Graduates	Employers
Enhanced employment prospects (compared to those without higher education) The opportunity to use the skills acquired during higher education A wage premium that reflects the additional skills acquired through higher education A positive rate of return on their investment that rewards them for the costs of study (and, where necessary, service debts incurred during study) A capacity for learning at work and adapting to the changing demands of working life	A supply of graduates that is sufficient to meet current demand Reliable and sufficiently transparent signalling of skills to permit employers to identify candidates fitted to their needs Graduates with high quality skills and a developed capacity for learning and growth, responding to changing demands of work Mechanisms to facilitate a future supply of graduates able to respond to changing technologies and skills needs, and changes in working life Workers have good access to opportunities to refresh and update their advanced knowledge and skills

In this review, three sources of evidence are used:

• state and national data analysed using descriptive statistics;

• stakeholder input received during fact-finding visits (see Annex A for the OECD team’s schedule and aggregated workshop survey results);

• academic research and published policy analysis.

Three indicators of graduate outcomes in the labour market are consistently available across OECD countries, and thus provide an opportunity for comparative analysis. These include employment, median annual earnings, and graduate earnings premiums. Graduate earnings premiums are calculated as the difference between median earnings of higher education and upper secondary graduates, and may be disaggregated by level (undergraduate vs. postgraduate), field of study, or demography (e.g. male vs. female).

In assessing the alignment of higher education systems and labour markets, we do not match the stock of graduates by study field to projected occupational openings. This would duplicate the supply-demand analyses conducted by states, and replicate the limitations of matching analysis: employers are often looking for a skills profile rather than a specific study field, and many graduates, especially bachelor’s graduates, either study in a field for which a matching occupation cannot be observed, or work outside of the occupation for which they trained (see for instance Goldman and Carew (2018[3])).

Research has demonstrated that there is a causal relationship between higher education attainment and earnings, which is not just the result of the selection of high-ability students entering into higher education (Zimmerman, 2014[4]; Ost, Pan and Webber, 2018[5]). Earnings premiums are useful indicators that permit comparisons across jurisdictions (within the United States and among OECD countries), and disaggregation into key populations of interest. They are also a policy-relevant indicator: real differences in employment and earnings provide governments, students and families with important input into decision-making. Higher education graduate labour market outcomes, viewed in comparison to upper secondary graduate outcomes, are summarised and compared to the US average and that of other key OECD countries in the comparative scoreboard (see Chapter 3).

Nonetheless, descriptive analyses of employment and earnings among higher education graduates and those who have completed only upper secondary education, when based upon state-level data, are subject to four types of limitations:

1. 1. Wage premiums overestimate the effect of higher education on earnings due to selection bias. On average, higher education graduates earn more than secondary graduates. Wage premiums of higher education graduates result, in part, from skills they acquire in their studies, or the educational “treatment” to which they have been exposed. However, wage premiums also result from “selection effects” – students who enter and successfully complete higher education are not a random sample of learners, but a selected group with abilities different to the population at large. Researchers who aim to estimate the unique effects of education on earnings address this issue through a variety of statistical methods, such as propensity score matching to compare individuals with similar backgrounds and academic ability. See for instance ERDC (2018[6]), Minaya and Scott-Clayton (2017[7]), Hoxby (2018[8]).

2. 2. Average wage premiums may underestimate earnings among graduates of flagship institutions and Science, Technology, Engineering and Mathematics (STEM) programmes. Where graduate premiums are calculated using linked state administrative data from education and labour market information systems, they will typically fail to capture an important number of graduates who leave the state to obtain higher wage opportunities, most often graduates of flagship institutions and STEM programmes, and therefore underestimate wages for both (Foote and Stange, 2019[9]).

3. 3. Wage premiums do not reflect the societal or public benefits of higher education study. Employment rates, earnings, and wage premiums measure the private benefits of higher education to graduates, but do not provide evidence of the public benefits resulting from graduate skill acquisition. For this reason, some suggest that graduate employment in “social services” (e.g. education), which have lower earnings but contribute to meeting social needs, be taken into account (Minaya and Scott-Clayton, 2017[7]).

4. 4. Wage premiums do not provide a full view of costs and benefits for graduates, for which calculations of private internal rates of return are required. To fully assess the private benefits of a graduate’s higher education investment, the costs of education (direct outlays and opportunity costs) and debt (and loan servicing costs) incurred must be taken into account. Because the project does not have microdata upon which to base those calculations, average debt levels are reported in the study to put wage premiums in perspective. The OECD provides international comparisons of the net private and public returns of higher education (2019, p. 96[10]). However, these calculations do not take into account the cost of loan servicing and default, which can increase costs for both graduates and governments in countries where loans play a key role in financing higher education, such as the United States.

Assessing policies that support the alignment of higher education and the labour market

While recognising the influence of contextual factors and policies in other fields, this report aims to identify where existing policies are not working as well might be expected, and to indicate policy alternatives that may yield improved alignment of higher education and the labour market.

The link between public policy choices and labour market alignment and outcomes is uncertain. Programme evaluations in higher education systems and experimental or quasi-experimental analyses of policy interventions are not systematic. Both require access to microdata and timeframes beyond the scope of this project. Nonetheless, shared experience across the higher education systems of OECD member countries and peer-reviewed research provide a useful basis for identifying policy design choices that can support a good alignment between skills supply and demand. These policy areas are outlined in Table 1.2.

The extent to which it makes sense to consider each of these policy areas individually in a given jurisdiction depends largely on the legal framework in which higher education operates, the level of institutional autonomy, and the existing policy environment.

Table 1.2. Policies and mechanisms contributing to stronger alignment between higher education and the labour market
Higher education system features/policy areas	Examples of key characteristics and mechanisms
Strategic planning and co-ordination mechanisms help ensure the higher education system delivers programmes that respond to labour market needs, both current and projected.	Mechanisms provide state authorities with the ability to orient higher education institutions towards labour market relevant provision. Mechanism exist to ensure ongoing co-ordination between employers, higher education institutions and relevant government agencies to ensure the current and future responsiveness of higher education to the labour market.
Educational offerings, including curricula and programme content, as well as programme duration and delivery mode, respond flexibly to current and likely future demand for knowledge and skills, including through programmes aimed at existing workers.	The range of programmes (field, professional vs academic focus, duration) is appropriate in light of skills demands from the labour market and likely future labour market demand. Wide access is available to labour market relevant higher education (e.g. in all geographical locations, for students of all socio-economic backgrounds, for individuals currently in the labour force). Sufficient places are provided in programmes with high labour market demand. Where professional and industry standards exist, curricula and assessment incorporate these into the design of programmes. Public policies monitor/reward the development of study programmes containing high quality work-based learning opportunities, at both undergraduate and postgraduate levels. Research or innovation funding bodies provide targeted financial assistance to support doctoral research undertaken in firms or public sector organisations.
Policies governing staff profile and time use support a focus on developing labour market relevant knowledge and skills.	Where public policies establish standards of recruitment and qualification, staff are required to have undertaken pedagogical training (in doctoral programmes or through standalone training). Where public policies establish standards of recruitment and qualification, staff teaching professional subjects are required/incentivized to have recent/ongoing professional experience in the sector in which they teach. Government funding and quality assurance policies encourage higher education institutions to engage competent and relevant staff, support staff exchanges and mobility between higher education institutions and industry or non-profit and public organisations; and to adopt staff workload and performance assessment policies that reward instructor time invested in professionally-focused learning (e.g. supervision of work-based learning).
Pathways, student supports and learning environment: financial and non-financial supports encourage students to develop labour market relevant knowledge and skills and to obtain labour market relevant credentials.	Public policies facilitate clear pathways allowing students to enter higher education and to move flexibly and efficiently between higher education sectors and institutions (e.g. through credit transfer and recognition of prior learning). Student financial support policies help students with financial need to access and complete higher education. Public policies encourage the design and delivery of study programmes and student services adapted to learner schedules and needs, and of student supports that promote completion of credentials and help students identify relevant career options.
Quality assurance and accreditation processes ensure that educational credentials are of good quality and trusted by employers.	Quality assurance and accreditation processes provide a minimum guarantee of quality and the conditions for skills acquisition by students. These processes assess steps taken by providers to ensure and enhance the labour market relevance of their provision.
Public funding to institutions of higher education takes into account the (real or projected) career prospects of graduates to encourage labour market relevant provision as part of a diversified mix of higher education study options.	The system used to allocate public funding (and/or regulate tuition fees) supports the provision of labour market relevant skills and of sufficient places in programmes with high labour market demand. Various mechanisms exists for this purpose (incentives, requirement for disclosing graduates outcomes, linking outcomes to funding) and are designed to support improved outcomes without generating unintended effects. Where they exist, external controls on the numbers of study places available do not lead to undersupply of certain skills to the labour market.
Reliable and accessible information is widely available about employers’ skills needs, the labour market outcomes of graduates and the skills possessed by graduates from different programmes, and is effectively used for decision-making by policy makers, higher education institutions, students, graduates and employers.	Mechanisms exist to monitor and analyse current and future knowledge and skills requirements and trends, which are used by policy makers and higher education institutions as an input to strategic planning of the educational offer. User-friendly sources and tools provide relevant information tailored to various types of users (e.g. current students, graduates, employers, academic and administrative higher education staff, and staff involved in student counselling and career guidance). Evidence exists of various users making use of these information sources and tools in study choice and skills development decisions.
Effective signalling mechanisms exist to help employers understand the skills that graduates from different programmes should possess, and to help graduates convey the skills they have obtained in higher education.	Higher education institutions have tools in place that clarify the skills content of qualifications. Wider mechanisms, such as national qualifications framework or credential inventories, facilitate the understanding of the skills conveyed by different higher education qualifications, and their relevance to labour market needs.

1.4. Structure of the report

This report is organised into seven chapters. Chapter 2 provides an overview of the labour market in the United States, and the role of the federal government in setting the policy framework within which US states and their higher education institutions operate to deliver education programmes. Chapter 3 provides a synthesis of insights generated through the state-specific analyses, and key policy examples from jurisdictions across the OECD. The four subsequent chapters provide an in-depth analysis of the higher education labour market relevance and outcomes in Ohio, Texas, Virginia and Washington, respectively. Annex A provides a summary of stakeholder engagement during the review, while Annex B provides information about the data sources used in the report’s comparative tables provided in Chapter 3.

Each state chapter explores the alignment between higher education and the labour market in a similar fashion. The chapters first explore the alignment of the higher education system to labour market demands based on a set of labour market indicators. The second part of each chapter provides an examination of current higher education policies to identify ways in which they may be either contributing to or hampering the relevance of higher education provision and graduate outcomes, and what policy actions state authorities may consider to strengthen the alignment of the higher education system and the labour market. The policy areas discussed across the four states include: the strategic planning and co-ordination of higher education; higher education programmes, pathways and student supports; funding to institutions and students; and information about skills needs, the labour market outcomes of graduates and the skills content of higher education qualifications.

References

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[9] Foote, A. and K. Stange (2019), Attrition from Administrative Data: Problems and Solutions with an Application to Higher Education, U.S. Census Bureau, University of Michigan and NBER, https://conference.nber.org/conf_papers/f131000.pdf (accessed on 13 March 2020).

[3] Goldman, C. and D. Carew (2018), “Using workforce data to plan higher education degree programmes”, in The Handbook on the Politics of Higher Education, Brendan Cantwell, Hamish Coate, Roger King.

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[10] OECD (2019), Education at a Glance 2019: OECD Indicators, OECD Publishing, Paris, https://www.oecd-ilibrary.org/docserver/f8d7880d-en.pdf?expires=1568316502&id=id&accname=ocid84004878&checksum=FEF13445781E06CE49671ADC97573E5B (accessed on 12 September 2019).

[5] Ost, B., W. Pan and D. Webber (2018), The Returns to College Persistence for Marginal Students: Regression Discontinuity Evidence from University Dismissal Policies, https://www.journals.uchicago.edu/doi/full/10.1086/696204 (accessed on 20 May 2019).

[1] Rothwell, J. and H. Van Drie (2020), The effect of COVID-19 and disease suppression policies on labor markets: A preliminary analysis of the data, Brookings Institution, https://www.brookings.edu/research/the-effect-of-covid-19-and-disease-suppression-policies-on-labor-markets-a-preliminary-analysis-of-the-data/?utm_campaign=Economic%20Studies&utm_medium=email&utm_content=87636981&utm_source=hs_email (accessed on 14 May 2020).

[4] Zimmerman, S. (2014), The Returns to College Admission for Academically Marginal Students, https://doi.org/10.1086/676661.