ÖйúAƬ

I would like an opportunity to explain the possible problem in the Dearing report as far as the calculation of returns on ÖйúAƬ is concerned. My views were reported last week ("'Flawed' Dearing logic dictates education policy", THES, May 28). The issue lies with Report 7 (a background research paper to Dearing) that estimated returns to ÖйúAƬ in the UK.

The problem with Report 7 is that it assumes that the extra value to the firm of employing a graduate is measured in terms of the extra cost to the firm of that graduate (so there is no net benefit to the firm from employing an extra graduate). Standard economic theory states that the firm will employ up to the point at which the extra value of a worker to the firm equals the extra cost of that worker to the firm. The problem arises if this is also taken to reflect the conditions to the firm from employing graduates in general. If it is, as in Report 7, then by assumption, the firm gets no net benefit from entering into the market for graduates. Only the graduate will benefit in the form of higher earnings.

Consequently, Report 7 assumes away the benefits to employers from employing graduates. This leaves open the question of the extent to which employers actually do benefit. This may be difficult to measure, but the answer is that we should try harder to measure these benefits, not assume them away in the first place. Many of Dearing's conclusions on ÖйúAƬ are based on the idea that those who benefit should also contribute. Consequently, business may have been let off lightly in this respect.

It is worth revisiting the Dearing report on the Web at ncihe. The relevant chapters are 6 (especially 6. to 6.33) and 18 (especially 18.12 to 18.16). Report 7 is also available at that address.

Neil Kay Professor of economics University of Strathclyde