Why subsidize STEM education?

Nature ran a column by Colin Macilwain under the headline “Driving students into science is a fool’s errand.” Here’s the subhead:

If programmes to bolster STEM education are effective, they distort the labour market; if they aren’t, they’re a waste of money.

(In case you don’t know, STEM = “Science, Technology, Engineering, Mathematics”.)

The key part of the argument:

Government promotion of science careers ultimately damages science and engineering, by inflating supply and depressing demand for scientists and engineers in the employment market.

Start by asking why no such government-backed programmes exist to pull children into being lawyers or accountants. The obvious answer is that there is no need: young people can see the prospects in these fields for themselves. As a result, places to study these subjects tend to be fiercely competitive. But in many science and engineering disciplines, college places are ten-a-penny after decades of sustained government efforts to render them more attractive.

The dynamic at work here isn’t complicated. By cajoling more children to enter science and engineering — as the United Kingdom also does by rigging university-funding rules to provide more support for STEM than other subjects — the state increases STEM student numbers, floods the market with STEM graduates, reduces competition for their services and cuts their wages. And that suits the keenest proponents of STEM education programmes — industrial employers and their legion of lobbyists — absolutely fine.

In short, if we let the free market handle everything, won’t it lead to the optimal number of STEM graduates?

Although my worst grade in college was in Econ 101, I understand the general argument that letting markets freely set prices leads to optimal allocation of resources. I also know that there are a bunch of exceptions to this rule.

In discussions of education, the usual exception people talk about is positive externalities. The general principle is uncontroversial: when an action has benefits that accrue to someone other than the actor, the usual supply-and-demand argument doesn’t properly account for those benefits, and the socially optimal amount of that action is larger than what the market will naturally lead to. You get some benefit from vaccinating your kid against whooping cough, but so do your neighbors. Even if the cost of the vaccine isn’t worth it to your family, it may be worth it to society. The solution is to subsidize or legally require vaccinations.

(Of course there are also negative externalities, the classic examples being pollution and traffic congestion. In those cases, the actor doesn’t bear the full cost of the action, so to attain the socially optimal outcome the government must tax or regulate.)

We don’t leave education up to the free market — we legally mandate it and publicly fund it — at least in part because of the belief that education has positive externalities. People who can read are better citizens, which benefits us all.

Sometimes (e.g., in Wikipedia, but I’ve also seen it a bunch of other places), people say that a positive externality of education is that it makes people more productive workers:

Increased education of individuals can lead to broader society benefits in the form of greater economic productivity, lower unemployment rate, greater household mobility and higher rates of political participation.

Italics added. Presumably if you want to counter Macilwain’s argument with an externality-based argument, you’d emphasize that sort of thing.

Maybe I’m betraying my ignorance of economics, but I don’t understand how those two (high productivity and low unemployment) are externalities. It seems to me that those should be priced into the free-market calculation. That is, if STEM graduates have high productivity, they’ll command high salaries. This benefit accrues to the STEM graduate, so it’s not an externality, and the classical free-market economics argument should hold. I’m pretty sure that’s what Macilwain woulds say, and I don’t think he’s wrong about that.

I actually don’t think that positive externalities are the best argument in favor of programs to encourage STEM education. The real reasons, it seems to me, have to do with the sorts of things behavioral economists like to talk about.

Old-fashioned economics, including the argument that the free market optimally allocates resources, is based on a model in which individuals act rationally to optimize their own self-interest. If an engineering degree will lead to the greatest possible happiness later in life, then you’ll choose to get an engineering degree. If not, not.

Behavioral economics is based on the obvious observation that people don’t really act in their own rational self-interest all the time. I think that the best argument in favor of programs to steer students toward STEM education is based on this observation. Some students might not realize that a STEM career is a good option (or even a possible option) for them, especially early on in their education. If that’s true, then the free market will underproduce STEM graduates (compared to the socially optimal level), and we should find ways to bump up the numbers.


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Ted Bunn

I am chair of the physics department at the University of Richmond. In addition to teaching a variety of undergraduate physics courses, I work on a variety of research projects in cosmology, the study of the origin, structure, and evolution of the Universe. University of Richmond undergraduates are involved in all aspects of this research. If you want to know more about my research, ask me!

2 thoughts on “Why subsidize STEM education?”

  1. I don’t really see the reason to focus on STEM. As you say, education is required and/or funded at most places. Obviously, someone makes the decision how many students should be able to study medicine and how many, say, Egyptology. (This might be different in the States, where there is much private education; presumably the small number of jobs keep the number of Egyptologists down.) If society has a shortage of people with a certain skill, then that should be encourgaged, and vice versa. The market might not be able to do so. One might think that if something is in demand, then salaries will go up, causing some people to enter the field who wouldn’t have otherwise. (This can be bad, of course: the “wrong” people enter the field.) However, by the time a student hits the job market, salaries might have dropped back down.

  2. Ted–

    I live in North Carolina (originally from New York State) and if I follow your argument, I think you’re saying that the “free market” (if there is such a thing–since it is legal creation of the state) will be adequate to “allocate” STEM majors into appropriate jobs and the market will “reward” STEM graduates with higher salaries as they are relatively scarce.

    In the U.S. we currently have a bizarre mix of “pro-free market” politicians, both at the national and state levels, who favor “state” mandated incentives for STEM graduates because it will “fill” more jobs in the understaffed “technical” markets created by the global economy.

    But this is nuts. If these politicians are “free market” believers, which they claim, then mandating “state incentives” for STEM goes against their core beliefs and does indeed distort the labor market.

    The true free-market believers here think the liberal arts/artsy fartsy types are “evil liberals” (in the U.S. sense–left of center) and will vote for Democrats–ergo they must be “disincentivized.” That is a purely ideological belief–and again is “intervention” in the market which supposedly they don’t believe in.

    That’s it for now. Coming to you from the nutty U.S.

    George DeMarse

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