The State of Economics

Speech

Notes

The State of Economics Jacqui Dwyer Head of Information Department Address to The Economic Society of Australia Sydney – 28 May 2024 Thank you for having me join you today to talk about the state of economics. ¹
Economics is an important discipline because economic decisions can have far-reaching consequences for
the welfare of individuals and society. In fact, the Nobel Laureate, George Stigler, described economics
as one of a group of disciplines that most people should have a ‘modicum’ of knowledge about
– or rather, some level of literacy. ² He argued that literacy in some disciplines is
required because their vocabulary and logic are so pervasive in our lives that ordinary people must use
them without recourse to expert advice. ³ So if a discipline is worth most people knowing something about, how do we check its health? And how do we
encourage public engagement with it? The Australian Mathematical Sciences Institute (AMSI) has, for some
years, conducted a comprehensive ‘state of the discipline’ assessment of mathematics. ⁴ It takes
detailed snapshots of the learning, teaching, utilisation, research and application of mathematics in
Australia. Today, I borrow from its approach to discuss the economics landscape and propose the idea of
us as a profession looking more closely, and regularly, at the state of economics. We are already aware of the consequential fall in the size and diversity of the economics student
population. To look at the economics discipline in a structured way, we might ask the following set of
questions: Who studies economics? What is the pipeline of potential economics graduates? How are economics skills rewarded by the labour market? What is the level of economic literacy in the community? What are the developments in economic thought and research? Today I will talk to the first four of these questions, looking through the prism of the RBA’s public
education program – presenting a high-level summary of our observations about the landscape of
economics education and economic literacy. Who studies economics? A person’s initial exposure to the formal teaching of economics is often at high school. Some of
those students will continue to study economics at university, while others will come to the discipline
after their high school careers with no prior exposure. The number of students who choose economics at
high school and university – as well as the characteristics of these students and those who teach
them – has important bearing on the state of the discipline. Economics at high school When I first presented to this group five years ago, the RBA had only recently become aware of the
dramatic fall in economics enrolments at high school. It was a surprise; most of us in this forum had
studied economics when it was a popular and widely offered subject. As shown in Graph 1, enrolments
in Year 12 economics remain around 70 per cent lower than in the early 1990s – with
the size of this fall now a stylised fact of the landscape for economics enrolments. Most of the fall
occurred during the mid-1990s, with enrolments then drifting down before persisting at relatively low
levels for the past decade. ⁵ Graph 1 Also nationally, we were alerted to the stark fall in female participation (Graph 2). Whereas in the
early 1990s, male and female students accounted for roughly equal shares of economics enrolments in Year
12, female participation has steadily fallen so that males now outnumber females by two to one. Graph 2 In a federated education system, it is actually not straightforward to drill down into the drivers of
these national outcomes; each state has different authorities responsible for the collection of education
data and they do so in different ways. Consequently, we often focus on New South Wales to gain deeper
insights into the economics discipline because the NSW Education Standards Authority (NESA) has a
particularly rich dataset. ⁶ New South Wales also has the largest body of economics
students, so tends to shape the national results. Looking at the Year 12 economics enrolments data for New South Wales, there is the same pattern of
decline as is the case nationally, but we can also see the displacement of economics by business studies
following its introduction in the early 1990s, along with a resurgence of business studies in recent
years (Graph 3). To help understand the drivers of this, my colleagues Livermore and Major surveyed
high school students, while Parsons and You surveyed teachers, on their ideas and perceptions of both
disciplines. ⁷ These RBA surveys revealed that business studies is
perceived as easier to learn and easier to teach than economics (with fewer concepts to explain and more
readily available content), while also being considered highly employable. Economics, on the other hand,
is perceived as difficult to learn and difficult to teach (with more concepts to explain and too little
relevant Australian content) and having an unclear career path. Furthermore, students generally think
that economics is less interesting than business studies, have little desire to know more about it and
believe it has a higher workload. These negative perceptions dominate students’ recognition that
economics can be used for the good of society. In short, students think it is a risk to study economics. Graph 3 The perceptions of economics and the revealed preference for business studies has had bearing on the
decision of schools to offer economics. As shown in the first quadrant of Graph 4, in the early
1990s, economics was offered in almost every school in New South Wales – government,
non-government, religious, secular, country, city. There has since been a steady fall in the offering of
the subject and this has been most pronounced among government schools, of which only
30 per cent these days offer economics. This has been consequential. Government schools are
mainly co-educational and they accept students from all backgrounds. So when fewer government schools
offer economics, it weighs on diversity. It has contributed to the fall in female participation, with
outcomes in New South Wales mirroring those nationally. But it has also contributed to a fall in
participation by students from less advantaged backgrounds (as measured by the socio-economic status of
their school). ⁸ This fall has been offset by increased participation
from students from advantaged backgrounds – a shift that has accelerated over the past few years.
And we can see a fall in participation at non-metropolitan schools, such that it is now a rarity for
economics to be offered at schools outside the major cities. Graph 4 These developments at school are foundational to who is engaged with economics and who might choose
further study in economics at university. Economics at university At university, it is necessary to first establish what we mean by economics because it can be taken as a
degree, a major or a subject within many different degree programs. We rely on each university’s
judgment about how much economics counts as an economics enrolment when they report on this to the
Department of Education (DET). Using these data, Graph 5 shows that economics enrolments at
university flatlined for an extended period, though have picked up somewhat recently. ⁹ This
contrasts with growth in other fields of study, notably those that are business-oriented – just as
is the case at high school – along with STEM fields (science, technology, engineering and maths).
And, as at school, economics university is perceived as a risk to study, with an uncertain relevance and
less well-defined career path than other disciplines. Graph 5 Against a background of fairly stagnant enrolments in economics, many of the trends in diversity that we
have seen at school continue at university. Graph 6 shows us that there has always been a gap
between female and male participation in economics at university (unlike school where balance between
sexes once existed). This gap became progressively wider before efforts to increase female participation
saw it increase – but only back to a level where males outnumber females by nearly two to one. Even more pronounced than the decline in female participation is the loss of diversity in socio-economic
status (Graph 6). ¹⁰ The trend rise in participation by students of high
socio-economic status at high school continues into university, so that over 55 per cent of
economics students are from advantaged backgrounds, while those from disadvantaged backgrounds are a
distinct minority. In fact, economics has become a socially exclusive subject, with a higher share of
students from advantaged backgrounds than is the case for most other disciplines. Graph 6 Feeding into this profile of advantage is the fact that fewer universities are offering economics.
Furthermore, more than half of all enrolments in economics are at universities in metropolitan New South
Wales and the Australian Capital Territory, presenting geographical barriers to diversity. The fall in the size and diversity of the economics student population matters. The number of students who
study economics – both at school and university – influences the level of economic literacy
in society. And the diversity of those students influences the whole discipline, including approaches to
public policy. Diversity has bearing on the economic questions we ask, our approaches to answering them
and how we implement solutions to economic problems. For these reasons, we should be interested in the
pipeline of potential economics graduates. What is the pipeline of potential economics graduates? Studying economics at high school is not a prerequisite for doing so at university. Furthermore, interest
in economics at university is low, even for those who studied it in Year 12. Almost two-thirds of Year
12 economics students, and around 95 per cent of other Year 12 students, applying for
tertiary institutions in New South Wales and the Australian Capital Territory did not
preference an economics course for university (Graph 7). However, Lovicu has shown that the path
from school to university is an important one. ¹¹ The latest data from the Universities Admissions
Centre (UAC) indicate that of those students who study economics at school, only 7 per cent go
on to study economics at university. Yet these students account for around 60 per cent of
university enrolments in economics. ¹² Furthermore, the transition rate from school
economics to that at university has been consistently lower for female students over the past decade.
Consequently, our diminishing and increasingly homogeneous pool of high school economics students
dominates university enrolments and thereby those who go on to become economists or use economics in the
workplace. Graph 7 How are economics skills rewarded by the labour market? Given that economics is perceived by many students as having a less certain career path – indeed,
being less employable than business studies – let’s look at how the study of economics is
rewarded by the labour market. Bishop and Guttmann literally asked the question ‘does it pay to
study economics?’. ¹³ The answer is ‘yes’. Part of the answer
relates to the types of jobs one can obtain with an economics degree. Another part relates to the skills
that are developed through studying economics and what employers are prepared to pay for them. Bishop and Guttman have updated their core findings using data from the 2021 Census. Graph 8 shows
that, among 82 different fields of study, economics allows for one of the most diverse ranges of
employment destinations, both in terms of industry and occupation. An economics graduate may be employed
as an economist in a variety of industries, or their economic skills may be relevant to employment in a
variety of occupations. Graph 8 How are these skills valued? Graph 9 shows the average earnings of an economics graduate compared
with those of other disciplines. They are only eclipsed by those who studied engineering (up from the
third-highest ranking at the previous census). Bishop and Guttmann looked at 10 specific skills
acquired in different fields of study and modelled the ‘skill premium’ for these different
skills, finding that the earnings outcomes for economics graduates largely reflected the return to
economics knowledge, mathematical skills and analytical skills. So, with a wide range of employment destinations and relatively high pay, there is much to recommend the
study of economics. And yet it is not unreasonable for students to feel uncertainty about where economics
can take them. Despite having higher earnings on average, the unemployment rate of economics graduates is
higher than some disciplines (such as health, education and business), particularly at the time of
graduation, suggesting some difficulty in obtaining an initial job in the field. ¹⁴
However, the unemployment rate for economics graduates is similar to some those in STEM fields such as
science and information technology. Graph 9 What is the level of economic literacy in the community? Against the background of the falling size and diversity of the economics student population – and a
more general ‘image problem’ of the discipline – an important question is whether this
has bearing on economic literacy in society. It is hoped that those who study economics acquire some
level of economic literacy. And for those who don’t study economics, engagement with economic news
can also be associated with the ‘modicum’ of knowledge that matters for economic literacy.
Those who are economically literate make more informed economic choices, better understand the world
around them and can influence public discourse and the actions of government. They can also contribute to
the effectiveness of public policy by aligning their expectations or behaviour with it. But there is no
settled definition of economic literacy, so measuring it is difficult. This contrasts with defining and
measuring financial literacy, which is a mature field academically, ¹⁵ and there are authorities that
are responsible for supporting financial literacy in the community. ¹⁶ As part of our work in the public education program, McCowage and I recently proposed a working definition
of economic literacy that lends itself to practical efforts to assess economic literacy, and we invited
others to contribute to a debate on this definition. ¹⁷ To summarise, someone is economically
literate if years after they have been taught, they can apply essential principles of economics to
situations in their lives and have a basic understanding of core topics that explain their economic
environment. The RBA then conducted a survey of 3,000 Australian adults that included five questions based on
those used in long-running tests of economic literacy in the United States. ¹⁸
These questions were about: the relationship between a recession and unemployment the relationship between inflation and purchasing power the relationship between investment and output growth the relationship between interest rates and decisions to spend or borrow the monetary policy response to a recession. We gave each respondent a literacy ‘score’ (of between 0 and 5) based on how many of the
five questions that were answered correctly. ¹⁹ So this was far from a comprehensive assessment of
economic literacy, but our first foray into the area for Australian adults. ²⁰ I’ll highlight the key findings. We found that around 80 per cent of respondents correctly
answered the questions about the relationship between a recession and unemployment, and about the effect
of inflation on purchasing power (Graph 10). While we didn’t know what to expect, this was a
high share of correct responses – perhaps because these questions touch on lived experience and
include variables that are widely reported on. By contrast, the remaining questions had a low share of
correct answers, perhaps because they are about abstract macroeconomic concepts that have a less direct
effect on individuals or draw on pre-existing knowledge. Graph 10 We averaged the correct responses of each person to form a simple literacy score for Australian adults. We
only have a snapshot for this point in time, but we can look at scores for different social groups, and
these vary significantly (Graph 11). Males, older Australians, those with higher incomes, those with
degrees, those who have studied economics, those who were employed and those who were engaged with
economic news had higher average economic literacy scores. People who were aged 18 to 24 years,
unemployed or without a degree had the lowest economic literacy scores. Graph 11 In many respects, the different outcomes in economic literacy across demographic groups reflects the fall
in diversity we see in the economics student population. In the same survey that tested the economic literacy of Australian adults, we also asked respondents about
their engagement with economic news – and thereby economics. ²¹ It gets to where we have an
image problem, how we can advocate for the study of economics, and how we communicate economic matters to
the broader community. In the first instance, we know that there are distinct differences in the level of engagement with
economic news between males and females – consistent with differences in their participation in the
study of economics (Graph 12). The share of females who report that they ‘never or rarely’
read economic news is nearly twice that of males. And while around half of males report that they engage
with economics ‘every day’ or ‘every week’, only one-fifth of females report doing
so. Graph 12 Looking more closely at those who engage with economic news, we find that they include those who had
studied economics or finance in the past, those in the highest income quartile and those with degrees
(Graph 13). Young people also reported to be engaged with economic news, at least on a weekly basis
(a promising finding given their low measured levels of economic literacy). Those who least engaged with
economic news are the unemployed, females, those with low incomes, and those with lower levels of formal
education (including in economics). Graph 13 Reflecting on the state of economics Our leaders in economics today are the product of another era of economics education – one that has
since produced our current and unprecedented number of female leaders in economics. For the first time, a
woman is heading up the RBA, the Australian Government Department of Finance and the Productivity
Commission, and we have a raft of female chief economists. It is tempting to think that they are in the
vanguard of change and that others will follow and usher in a more inclusive discipline. But as I have
shown you, there are few followers. A previous era of economics education has produced current leading academics and a succession of prominent
agency heads from diverse socio-economic backgrounds – notably in the Treasury. But again, we have
few followers. So despite the importance of economics as a discipline, we have seen a significant fall in the size and
diversity of the economics student population, along with social divides in levels of economic literacy
and engagement with economic news. Exclusivity is becoming a hallmark of economics and yet a robust and
inclusive discipline can raise economic literacy, shape the future of economic thought and practice, and
improve the quality of both public discourse and public policy. As Stigler reminded us, people choose ‘to speak and vote on economic problems’. ²² This
alone is a compelling reason to regularly review the state of economics. In this endeavour, economic
scholars, educators and institutions all have a role to play. Thank you. Endnotes This talk summarises aspects of research and
analysis by the RBA’s public education program since it began in October 2016. I would like
to acknowledge all current and former members of the public education team. I would also like to
thank Stephanie Parsons in particular for her comments on this talk and Ryan Couston for his
assistance with data and graphs. ¹ Stigler GJ (1970), ‘The Case, If Any, for
Economic Literacy’, The Journal of Economic Education , 14(3),
pp 77–84. ² Stigler, n 2, p 78. ³ For the latest of seven reports on the state of
the mathematics discipline, see Wienk M (2020), The State of Mathematical Sciences 2020:
7th Discipline Profile of Mathematics and Statistics in Australia . Available at
<https://amsi.org.au/publications/the-state-of-mathematical-sciences-2020-7th-discipline-profile-of-mathematics-and-statistics-in-Australia>.
⁴ Note that data referred to in the RBA’s
public education outputs are for mainland states. A ‘state of the discipline’ would
benefit from timely access to a consistent time series of enrolments data in all Australian
states and territories. ⁵ I would like to thank Adrienna Gellerfy from NESA
for her efforts in providing panel of school-level enrolments data for New South Wales that have
been central to the RBA’s analysis of the landscape for economics enrolments. ⁶ Specifically, Livermore and Major analysed the
results of a large-scale survey of NSW high school students (implemented on behalf of the RBA by
Ipsos) that examined students’ approaches to subject selection and their perceptions of
economics as a subject and as a discipline: see Livermore T and M Major (2020), ‘Why
Study (or Not Study) Economics? A Survey of High School Students’ , RBA Bulletin , June; Livermore T and M Major (2021), ‘What Is Driving Participation and Diversity
Trends in Economics? A Survey of High School Students’ , RBA Research Discussion
Paper No 2021-06. The survey is to be re-run in late 2024. Parsons and You provide insights into
the perceptions and needs of economics teachers involved with the RBA’s education program:
see Parsons S and C You (2021), ‘Supporting
Economics Teachers: Their Insights on Economics Education and the RBA’s Education
Program’ , RBA Teacher Reading; Parsons S and C You (2024), ‘An
Update on Supporting Economics Teachers’ , RBA Teacher Reading. ⁷ For our NSW schools’ data, socio-economic
status is measured by the Index of Community Socio-educational Advantage (ICSEA) score that is
calculated for schools by the Australian Curriculum, Assessment and Reporting Authority (ACARA).
Among other things, the ICSEA score gives emphasis to parental education and occupation, and
school location. ⁸ Note that results for Macquarie University are
excluded because it has a different approach to classifying its Economics enrolments. ⁹ At university we must rely on postcode as a
proxy for advantage, which is a less precise indicator than the ICSEA scores used for schools.
However, given that both postcode and ICSEA scores paint a similar picture of trends in diversity
at high school, we are confident of the signal that postcode provides for diversity at
university. ¹⁰ Lovicu G (2021), ‘The
Transition from High School to University Economics’ , RBA Bulletin ,
June. ¹¹ Thanks to Helen Tan from UAC for her provision
of detailed university admissions data and to Emma Chow for her extension of the original work
done in Lovicu, n 11. ¹² Bishop J and R Guttmann (2018), ‘Does It Pay
to Study Economics?’ , RBA Bulletin , September. ¹³ It may be that a postgraduate qualification is
more relevant for many economist roles, or that employers may not fully recognise the
applicability of the frameworks and skills acquired in the study of economics. ¹⁴ For recent research on financial literacy in
Australia, see Preston A (2020), ‘Financial Literacy in Australia: Insights from HILDA
Data’, Presentation at the UWA Public Policy Institute, March; Preston AC and RE Wright
(2019), ‘Understanding the Gender Gap in Financial Literacy: Evidence from Australia’, Economic Record , 95(S1), pp 1–29. ¹⁵ In Australia, the Commonwealth Treasury is
responsible for the National Financial Capability Strategy and the Australian Securities and
Investments Commission is responsible for provision of the services and tools associated with its
implementation. ¹⁶ McCowage M and J Dwyer (2022), ‘Economic
Literacy: What Is It and Why Is It Important?’ , RBA Bulletin , December.
¹⁷ Led by my colleagues Peter Rickards and
Madeleine McCowage, the RBA designed a survey that was implemented on our behalf by BIT. It has
supported various pieces of research, including McCowage M (2023), ‘Economic
Literacy in Australia: A First Look’ , RBA Bulletin , September. ¹⁸ Additionally, we asked them a factual question
about the RBA’s inflation target, though this was not included in the literacy score as it
was knowledge-based rather than explaining understanding of an economic concept. ¹⁹ In fact, we are not aware of other efforts to
measure economic literacy in Australia aside from a large-scale survey testing economic literacy
of Queensland high school students in 1998, also based on the Test of Economic Literacy (TEL):
Lietz P and D Kotte (2000), The Importance of Economic Literacy , Peter Lang GmbH,
Frankfurt. ²⁰ I want to thank Madeleine McCowage for her
unpublished work on this topic. ²¹ Stigler, n 2, p 82. ²²