21/8/2014: Shanghai Academic Rankings 2014: Ireland

Earlier this week, I promised to update historical track record of Irish Universities performance in Shanghai Academic Ranking of World Universities. The latest (2014) results are here: http://www.shanghairanking.com/ARWU2014.html

Summary of all Irish Universities rankings by 'neighbourhood':

Top-ranked TCD:

Second best-ranked UCD:

Third best-ranked UCC:

Historical evolution of Irish rankings:

Draw your own conclusions...

Economics 02/02/2010: Minimum Wage Blues

For those of you who missed my last Sunday Times article, here is an unedited version.

Last week, this newspaper reported about the successful Competition Authority probe into a price fixing cartel involving a number of car dealers. Of course, price fixing is illegal in Ireland. Illegal, that is, unless the perpetrator of it is the State. For proof, look no further than the price of unskilled labour – the minimum wage rate.

The end result of this law – a product of collusion between the Government and the Unions – is two-fold.

First, like any other collusive arrangement, the minimum wage leads to a long-term deterioration in the employment creation in the economy. Economists commonly link this to the deterioration in our overall competitiveness.

Second, minimum wage distorts incentives and choices of employers and employees. Over time, investment in skills, knowledge and aptitude fall for minimum wage recipients and lower-skilled, marginally more expensive employees, while businesses are incentivized to substitute their hours of work with physical capital. The age-old fear of machines displacing people is, thus, a logical denouement of the minimum wage.


The fact that the minimum wage laws reduce overall country competitiveness in the sectors heavily reliant on unskilled and low-skilled labour is undeniable. Ireland no longer registers meaningful contributions to its economy from mobile low-wage sectors. Only those lower skills activities that are captive by their nature – such as local protection services – remain here. However, the effects of the minimum wage on workers themselves are far less understood.

There is plenty of evidence that minimum wages lead to reduced employment of the lower-skilled and younger workers. Less known is the fact that minimum wage distorts education decisions of the young. Recent research from the Michigan State University shows that states that raised their minimum wage experienced increased unemployment amongst the low-skill teenagers who had previously dropped out of school. Higher-skill teenagers were more likely to get jobs, increasing their early exits from education. In other words, those who were best suited for early employment could not get a job, while those who were best suited for continued education were incentivised to drop out.

In the long run, minimum wage also shifts resources within various sectors of economic activity. Data for Ireland clearly shows that since introduction of the minimum wage here, traditionally labour-intensive sectors have seen their labour share of productivity decline, while capital share of value added has expanded. In some, labour productivity actually fell in absolute terms. These are the sectors, including hotel and restaurant services, construction, traditional manufacturing sectors, retail services and real estate activities and other, where minimum wage covers a larger overall proportion of the workforce. In contrast, other labour-intensive sectors, where wage structure was not dependent on minimum wage constraints, such as modern manufacturing, financial and professional services and wholesale and logistics services, have registered an above-average increase in overall share of value added attributable to skills and labour inputs. This trend, present in the data since introduction of the minimum wage, was not there prior to 2000.

And Ireland is hardly unique here. A study from the University of California recently showed that employers have reduced employment of the less skilled and increased employment of higher skilled workers with an emphasis on formal job training credentials in the wake of increases in minimum wage rates. For anyone concerned with the plight of the disadvantaged youths, these findings should ring the alarm bells.

Often, proponents of minimum wage laws argue that some studies have found little effect of the minimum wages on aggregate level unemployment. The problem, of course, is that such arguments neglect the issue of movement of people in and out of the labour force. While minimum wage hikes lead to higher average wages paid to those in employment, workers who lose their jobs often drop out of the labour force. As such, their numbers simply disappear off the unemployment count.

Hardly a right-wing liberal, Paul Samuelson, winner of the 1970 Nobel prize in economics had the following to say about the proposals to raise minimum wage: "What good does it do a …youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

This is a non-trivial observation, because it reveals one of the most damaging effects of the minimum wage laws in the modern economy. Nobel Prize winner Professor Gary S. Becker, suggested back in the 1970s that minimum wage acts as a dis-incentive for firms to invest in training of its lower-skilled employees. A recent pan-European study confirmed this to be the case across the EU, including Ireland.

The result of this is the creation of a two-tier economy, whereby those with no general and firm-specific skills remain at the very bottom of the economic hierarchy, while those with above-average skills are moving further and further up the skills chain. The companies, over time, respond to this separation by either choosing to invest more into machinery and technologies that can displace lower-skilled workers or by focusing their production processes on accumulating high quality staff.

This process drives the polarization of the overall Irish economy into what is known as ‘Modern’ and ‘Traditional’ sectors. It also drives deeper divisions amongst the lower-skilled and poorer workers by redistributing income within the lower earning segments of population. Some lower skilled get higher wages, others get permanent unemployment. In the US, a study by the National Bureau of Economic Research has shown that the 1997 hike in the federally mandated minimum wage has resulted in a 4.5 percent increase in the number of poor families.

But minimum wages do more damages than that. Generationally, it is the younger workers who tend to possess lower skills and have trouble signaling to the potential employers their latent abilities and aptitude. They also face higher unemployment rates, both at the times of growth and recession. For them, minimum wage laws create insurmountable barriers to escaping the twin trap of unskilled unemployment.

On the one hand, high minimum wage will increase the risk to the employer from hiring a wrong person, thus reducing the incentives to take on younger workers with unproven skills or performance records. On the other hand, the same workers need to gain access to positions which provide extensive on-the-job training in order to progress within the company. Even more importantly for the lower-skilled workers’ future, they need job environment that supports acquisition of generic skills and aptitude that can be transferred to other employers. Both of these investments are severely constrained by the presence of the minimum wage laws. The severity of this constraint is proportional to the gap between the minimum wage level and the average productivity of the workers seeking entry-level employment.

In other words, given the choice between hiring a young unskilled person for €8.65 per hour and a worker with more experience for the same rate, employers will always choose the latter. In times of robust growth, this might matter little, as other employment opportunities are abundant. Today, the picture is different.

Based on a comprehensive survey of minimum wage studies in the US, a 10 percent increase in the minimum wage tends to reduce employment of young workers by 1-2 percent during the times of abundant jobs creation. It is safe to assume that the rate is double in the times of tight labour markets.

Between 2006 and mid 2007, Irish minimum wage rose from €7.65 to €8.65 per hour, implying an associated decrease in employment of the younger workers of 1.3-2.6%, or up to 4,800 individuals amongst those under 25 years of age. Translated into the period of rising unemployment, the elevated rates of minimum wages in Ireland today are likely to be responsible for keeping up to 10,000 younger workers outside gainful employment.


In the end the problem with the minimum wage laws is that they always attempt to influence the supply and demand, just as any price fixing cartel would intend to do. The truth is, in such cases, invariably, the laws of supply and demand win – to the detriment of the most vulnerable and the youngest in our society. For their sake, it is time to rethink our minimum wage laws, before a new permanent class of young, unemployed and unemployable becomes a reality of Ireland’s post-crisis economy.


Box-out:

This week, Standard & Poor's has finally thrown in the towel and cut the ratings of the Irish banks’ bonds. While the news that our banking system stability overall is ranked alongside that of Slovakia and Korea galvanized business news desks attention, two interesting parts of the S&P analysis largely escaped the media. S&P explicitly provides the proof that the Banks Guarantee and Nama jointly underwrite a bailout of the Irish banks’ bondholders. Absent the two measures, AIB bonds would be rated BB/Negative/C+, while Bank of Ireland bonds would be at BB+/Negative/BB-. If not for taxpayers’ cash, bonds of our three largest banks sold to the public would require a health warning, stronger than the one posted on a packet of cigarettes. Only IL&P would stay above the waterline with BBB-/Negative/B absent state intervention. This, of course, would only be achievable assuming that the company’s life insurance business will continue to underwrite its banking branch – an idea that should be alien to anyone with an ounce of sense. In a separate comment, S&P also directly linked the poor prognosis for Irish banking sector to our sick economy. Of course this contrasts Government optimism around Nama. Remember – Nama promises to restore credit flows via ‘repairing’ banks balance sheets. S&P says that the balance sheets will remain sick after Nama as there is no real support for credit quality improvements coming from our weak economy. You decide whom you believe – Government’s contrived ‘supply will restore demand’ argument or S&P’s view that ‘weak demand will drag down supply’.

Economics 29/01/2010: News from the Knowledge Economy Front

Newsflash from Ireland's Knowledge Economy Front - our troops, led by heroic fighter for Knowledge, Batt O' "Modern Science" Keeffe, are now engaged in an orderly strategic retreat into the Darker Ages. Casualties are so far minimal - 228 scientific journals that Batt could not read.

As was reported by me earlier (here), Ireland's knowledge economics have suffered a fresh wound on our Government's hasty retreat from the world of the 21st century research back to the depth of the 19th century paper-based studies. Here's the latest dispatch:

"You will be aware that the current round of IReL funding came to an end in December 2009. The IUA Librarians' Group is engaged in positive discussions with the HEA and others to secure funding for IReL for 2010 onwards but it is likely that this will be at significantly reduced levels. Due to increasing publisher costs and other factors it is necessary for some IReL resources to be cancelled even if IReL funding were to be maintained at pre-2010 levels. Arising from this, and in the first of what will probably be a number of cancellation processes, the resources listed below will shortly become unavailable through IReL. To download the full list of journals and other resources, please click here."

I would encourage you going to the link and checking out the premier academic titles that will no longer be available on-time, on-demand via electronic libraries.

As one senior research academic commented on this: "What sort of insane gibbering passes for our education and research policy?"

As I was informed by the sources close to the DofEducation - as a compensation for unnecessarily complicated scientific titles lost, the Government will supply our Universities with the latest edition of Gaelic translation of the EU Treaties - after all, our Brussels-based Irish language translators are:

• costing us some 5 times the amount it would take to restore our library services back to the 21st century standard, and
• have no readers for their output anywhere on the planet Earth...
  

Economics 23/01/2010: Knowledge economy infrastructure

Some interesting data from a study "Broadband Infrastructure and Economic Growth" by Nina Czernich, Oliver Falck, Tobias Kretschmer and Ludger Woessmann, CESIfo Working Paper 2861 published in December last year that provides good comparatives for Ireland relative to the peers in terms of what I would call rudimentary 'Knowledge Economy' infrastructure -

• the relationship between physical capital and knowledge-related capital (broadband penetration and education); and
• the relationship between GDP per capita and the above

all taken over a long period of time (1996-2008).

First, broadly, the findings of the study itself: "We estimate the effect of broadband infrastructure, which enables high-speed internet, on economic growth in the panel of OECD countries in 1996-2007. Our instrumental-variable model ... [shows] voice-telephony and cable-TV networks predict maximum broadband penetration. We find that a 10 percentage-point increase in broadband penetration raises annual per-capita growth by 0.9-1.5 percentage points. ...We verify that our instruments predict broadband penetration but not diffusion of contemporaneous technologies like mobile telephony and computers."

Interesting - a 10% increase in broadband penetration ups the growth rate by 0.9-1.5%. In other words, to get a 10% increase in GDP per capita out of a 10% rise in broadband penetration requires 6.4-10.7 years. Not a bad return. The problem here is that, of course, the starting levels from which this effect is measured are low, so the law of diminishing marginal returns has to kick in somewhere.

I took their data and run through some of it in a very crude way to see if I can glimpse other interesting aspects. Here are the results.
Maximal (for the period GDP per capita, PPP-adjusted) with 2 standard-deviation 'candles' around it. Notice two broadly defined groups of countries: Overperformers (including Ireland) and Underperformers. Now, I know - I shouldn't be using GDP here, but I am not about to make a statement about the actual 'wealth' or 'riches' of Ireland, so GDP will do.

Next, take a look at scatter plot relating GDP per capita to two measures of communications sector performance: broadband penetration for 2008 (the end score, if you want) and starting point measure (voice telephony penetration back in 1996).
It looks like GDP per capita in the end is much more responsive to increases in broadband penetration than to the starting position. In other words, economies with low legacy stock of communications seem to be catching up through broadband penetration improvements. Is this suggesting that a country can leapfrog weak communications sector legacy by jumping straight into broadband age? Well, sort of. The problem here is that we do not separate out the twin effects of growth in broadband penetration (much higher for countries doing leapfrogging) and simultaneous growth in voice telephony penetration (also likely to be much higher for countries doing leapfrogging).

A very revealing chart next:
Let us take physical capital as a share of GDP and compare its effects on overall GDP per capita, against the same effect being induced by education. What is unambiguous is that countries with higher physical capital base share of GDP tend to have lower GDP per capita. How come? Because they are physical capital-intensive, i.e their production is stuck in the late industrial age. Countries with higher education are more labour-intensive and especially skilled-labour intensive, and thus have higher GDP per capita.

Note Ireland. It is relatively poor in physical capital per GDP and yet relatively rich in GDP per capita. Why? Because we do have a modern economy - an economy where value is added through human capital side (of course this happens much more on the side of MNCs, where transfer pricing is used to import, artificially, human capital-intensive value-added, but it also happens in services economy, in our IFSC, etc). And yet, our education measure is far from being impressive.

The gap between our unimpressive levels of education and the levels of education consistent with the 'average' OECD pattern of relationship between education and GDP per capita, to me, clearly shows the importance of transfer pricing in our GDP figures. This gap is captured here by, in effect, showing that our capital and human capital stocks cannot support our GDP fully!

Here is more detailed view of our physical capital stock relative to our education (human capital stock).
Ouch. We are an outlier precisely in the direction suggested by the gap identified above. Note that moving to a 'Sweet Spot' of highly productive economies with significant rates of utilization of human capital requires both - more physical capital formation and even more education. Also note just how inefficient is the stock of education in the upper 'bubble' group of countries that includes all Nordics, Japan and France. These countries are simply not being able to derive the same returns to education in terms of GDP per capita as the 'Sweet Spot' nations.

So here is a question no one is asking - is there such a thing too much of education? Is there an inverted U-curve for the relationship between education and income, whereby too smart for its onw good society leads to suboptimal levels of growth? After all, since the 1990s we are seeing an emerging trend in the developed world whereby the new generations of slackers are increasingly composed of highly educated people...

This is not an argument out of the blue - take example of a potentially 'too livable city' concepts discussed in a brilliant article here. Can the same happen to the 'too-knowledgeable-economy'?

Ok, couple more charts on the same point. Broadband penetration is positively correlated with capital formation... Hmmm. This might reflect the fact that higher stock of capital imply better infrastructure through which broadband can be delivered. The relationship is not very strong, though.

And there is an even weaker, and negative, relationship between education and physical capital. This negative coefficient of correlation does suggest, though, that we are in the early stages of the process whereby physical capital takes second seat to human capital in characterising modern economy. If so - good news for 'Knowledge' economists out there - machines do not possess knowledge. People do. But it is also bad news to all social engineers out there who still think technocratic management of economy/society is possible. Knowledge requires heterogeneity and creativity. And these are antitheses of planning and policy-driven controls and incentives.

Far from being dead, the age of Friedmans' Freedom to Choose is only dawning!

And the final point: education and broadband infrastructure are much more strongly (almost 4:1) positively correlated with each other than they are with physical capital.
This, of course, can be interpreted as a warning to the folks interested in restricting the freedom of people to communicate. If China, and other countries that impose controls on internet, want to have a 'Knowledge'-intensive, modern economy, they will have to deliver real (i.e. free of political ideologies and biases) education and meaningful (i.e. free of political 'bottlenecks') knowledge infrastructure (in this case, broadband).

If they don't, the risk is they will end up being physical capital giants - countries where the world does its 'dirty work' of mass manufacturing widgets...

Economics 20/07/2009: Education Plan

For those who missed my Sunday Times article last, here is the unedited version. For more on education premium in Ireland see my Long Run Economics blog here.


Remember the wave of protests hitting the streets over the withdrawal of the automatic entitlement to the senior citizens’ health cards – a benefit worth some €2,500 per annum for a well-to-do family of two? As the Government studies this month’s report on the options for the reintroduction of third-level fees, the prospect of taking out some €5,700-7,300 from the already stretched middle classes has to be an equivalent of a nightmare in our Ministers’ heads. Unlike the elderly, these are the same families hit hard by Minister Lenihan’s tax war on Ireland Inc.

Politics aside, this level of radical pain therapy would be warranted were it to deliver improved quality of education. Alas, the plan is so fundamentally flawed that one must wonder if serious economic impact assessment of its proposals was even attempted.

The Department of Education report suggests, as a clearly preferred option, setting fixed fees of €5,715 for arts and humanities students and €7,272 for nursing and engineering. While these differentials somewhat reflect the variation in capital between the two broad categories of programmes, these are hardly sufficient to establish proper pricing of education. Neither do they recognise the differences in the costs of non-capital inputs, such as faculty salaries.

In other words, the idea of fixed, uniform pricing independent of quality or institution’s ability to attract top internationally competitive students and faculty is about as daft as charging a single price for all cars. Do this, and within years you’ll get an overpriced mediocre labour force.

Two features of the Irish market for education amplify this negative effect of fixed pricing.

The first feature is extreme over-proliferation of third level institutions. In normal circumstances, when price reflects quality differences between competitors, the markets regulate the new entries and the survival of the incumbent colleges, institutes and universities. But absent pricing mechanism and with politically motivated education expenditure allocations you get a competition driven by the race to increase numbers of degrees awarded. A race to excellence is replaced by a race to graduation and grades inflation. Do we, as a nation, want certified mediocrity for the indigenous labour force? If not, we should allow our universities to charge a market rate for their services.

The second feature relates to the market for education. For all our talk about the knowledge economy Irish wages are driven primarily by tenure. Per latest CSO data, released last week, even at the peak of the boom in 2007, Irish workers collected low earnings premia per each additional year of investment in education compared to tenure. Chart illustrates. After-tax real annual earnings gains from moving from post-leaving cert level of education to a 3rd level non-degree education are lower than those from staying in the workforce. This is true for all types of potential students, with exception of mature female students. A picture is better for those planning to invest in a full 3rd level degree or higher, but even here the premium earned falls below the price to be charged under the proposed reform. That was before the latest decimation of jobs, wage rates and bonuses associated with the current recession.

In other words, given the labour market-enshrined system of tenure-driven rewards, education does not really pay in Ireland. Staying in the job does. This is likely to explain why on average more educated EU15 foreign nationals (excluding UK and Ireland) have earned some 9.6% less in hourly wages in 2007 than their Irish counterparts. For males, the same number was a whooping 14%. Per CSO data, not a single sector in Ireland yields an education premium in excess of the upper marginal tax rate other than our knowledge-thirsty public sector. And even there, only females earn such a premium.

This makes it even more crucial for the reform of education financing to be focused on long term objective of creating a functional market pricing of human capital – skills, schooling and aptitude. On a deeper level, such a reform should be linked with a rapid shift away from the system that rewards tenure and taxes heavily educational attainment and resultant skills. In other words, we need more after-tax wage inequality based on skills and educational attainment differentials before we can charge a real price of education. But at the level of education reform itself, we need a system of fees that differentiates between degrees of varying quality, incentivises student effort and merit.

The main mistake of the proposed fees system is that it sets singular pricing for all degrees independent of quality or the variations in the demand for specific degrees in the market place.

For example, if the country is experiencing a reduced supply of engineering and hard science personnel, as FAS and Forfas have asserted on so many occasions, surely we should witness a combination of lower fees (due to smaller demand for admissions from the potential students) and higher wages emerging. Under the latest Department of Education proposal, we will get exactly the opposite.

Similarly, if our two world-class institutions, TCD and UCD, were to offer their degrees at the exact same price as those offered by less internationally recognisable schools, this society will be underpaying for their services and overpaying for lower quality universities and schools. This is hardly a system that can be expected to yield economically and socially efficient outcomes.

Bizarrely, our education mandarins claimed in the report that allowing institutions to vary the price of admission can lead to some charging “excessively high fee rates, perhaps resting more on reputation than service”. This is economically illiterate and smacks of an outright manipulation of the market.

The second grave mistake is not to create a fully diversified and functional system of state-supported lending for tuition fees coverage and merit-based grants. Such a system, for obvious reasons, should be accessible only to the children of Irish citizens and long-term (8-10 years plus) residents. It should be coupled with a University-driven system of own merit grants open to all candidates to attract star applicants from abroad.

It should also work seamlessly with the means-tested system of supports. The much-lauded Australian option (or Option 3a in the report terminology) will simply not work for a small open economy like Ireland that is a temporary migration attractor within a much larger EU. Judging by the fact that the Department of Education expects the cost of running the scheme to be roughly equivalent to only 3-4% of the set up cost, I doubt they counted on the potential education tourism and skills drain to be of any significant magnitude.

And yet, our own Government expects some 150,000 Irish people to leave this country in the current recession alone. How many of these new emigrants will carry with them above average levels of education attainment is an open question. However, were we to have the proposed fees system in place today, the Government migration solution to the crisis could be washing away some €800-1,200mln in educational investment out of the country.

The last error of judgement by the Department of Education is to address the issue of fees separately from the overall financing of academia. Even assuming that our mandarins’ numbers stand up to scrutiny, there is no added certainty as to the future income for the academic institutions in this country. How much of the current funding will the fees replace? How will the fees revenue be distributed across various institutions? Who will be responsible for financing of uncompetitive institutions? All of these and other questions remain unasked. Which suggests that the fees reform will be nothing more than a plaster on a gapping wound that is our system of education.

Box-out: This month’s ECB Bulletin on the Euro area economy included an interesting model for estimating the sovereign bond spreads as a function of public debt to GDP ratio, public deficits, the volumes of bond financing required in the future, past yields and the measure of international financial markets’ willingness to accept investment risk. The original ECB estimation was based on the yields history for 10 Euro area countries, including Ireland. Recalibrated forward to reflect the expected changes in our fiscal position in years to come, this model predicts Irish bonds spreads over the German bund to increase by roughly 40-50% through 2013 assuming NAMA bonds are held off the public balance sheet and have no impact on the market demand for our bonds. Under less favourable conditions, with NAMA bonds entering public balance sheet and demand for Irish bonds falling to the level where the ECB becomes the sole purchaser of bond, market yields spreads can rise by some 200%. Drastic, but feasible.

How (not) to spin data

The latest press-release from CSO’s QNHS-based analysis of Q2 2002 – Q2 2008 data on educational attainment sounds self-congratulatory:

“In the second quarter of 2008, 29% of all persons aged 15-64 had attained a third level qualification. The proportion of people with a third level qualification increased steadily over the years since Q2 2002 when the comparable level was just over one fifth (22%). Excluding 15-24 year olds (the age group most likely to be still in education), just over one third (34%) of 25-64 year olds had a third level qualification, and this had also increased gradually annually since 2002 when the level was 25%. … The latest available figures for all EU member states showed that, in the second quarter of 2007, 30% of all 25-34 year olds had a third level qualification. The equivalent figure for Ireland was 44%, ranking the country second in the EU only to Cyprus (47%). The lowest levels of third level attainment were reported in Czech Republic (16%), Slovakia (18%), Italy (19%) and Austria (19%).”

There is more spin in these remarks than truth about the quality of our labour force. Here is why.

Based on the set of three main international rankings, Ireland’s third level education system ranks 22nd out of 38 countries, or 15th within EU27. Less than 20% of our entire crop of third level attendees and graduates come from the universities and institutes that make it into top 500 in the world rankings. Furthermore, CSO own data shows that only 18% of our 15-64 year olds have managed to actually complete a third year degree - a real measure of the ‘third-level qualification’ attainment.

This suggests that only ca 3.6% of our labour force had a real, internationally competitive educational qualification - i.e a Bachelor's degree or above. For comparison, the figure is closer to 9% in the US and 10% in the UK.

Figure 3 in the CSO report shows that Cyprus leads EU27 in the proportion of the labour force with third level qualification. Cyprus actually fails to rank amongst top 50 countries around the world for quality of its 3rd level education. Apart from Cyprus hardly constituting a worthy competitor for the 'knowledge' economy-bound Ireland Inc, virtually all of the countries named by CSO as being laggards to Ireland score better than Ireland in the university league tables. May it be the case that the CSO's (and EU's) methodology for measuring success in education is confusing quantity with quality?

A regression of the proportion of the 3rd level education attainment for 25-34 year olds on the proportion of early school dropouts shows a strongly negative relation between two variables:
For the entire set of countries (EU27): y = -0.2051x + 33.649 R2 = 0.0079
For small EU countries sub-sample: y = -0.2966x + 35.017 R2 = 0.0648
This is logical, as more drop outs should, in theory, imply fewer potential graduates. In both cases, Ireland and Cyprus come up as strong and influential outliers. Exactly the same happens when we look at the positive relationship between the proportion of the graduates with completed secondary education and those with third level qualification.

Now, considering the two equations above, two additional facts, not considered by the CSO, emerge as being of interest to the case of Ireland's education success. First note the difference in the intercepts between the two groups of countries. This suggests that an average small EU state has a higher share of the labour force with thrid level education. Second, the adverse impact of early school drop outs on educational attainment is stronger for smaller countries than for the larger states. In some ways, this again points to some problems with the CSO data, because, as it turns out, Ireland scores almost exactly the average for the smaller EU15 states in terms of the share of the population who failed to complete secondary education. So by both of these facts, Ireland is an outlier - an exception to the rule.

Hmmm… something is not quite right.

One possible explanation of this puzzle is that somehow Irish society is so polarized across the social demarcation lines that a substantial share of population has extremely poor graduation rates for secondary education, while another substantial sub-group has extremely high graduation rates for third level education. But this would not explain the case of Cyprus where income inequality is different in composition and magnitude from Ireland.

Another explanation is that Ireland, and possibly Cyprus, suffer from quality dillution in education at the third level, also known as 'dumbing down' of our universities. Much has been written and said in public about this matter, but the latest CSO numbers may be providing an indirect hint at the extent of the problem. If the vast majority of Irish Universities and third level institutions cannot reach top 500 in the world league tables, an army of the graduates (and, given the CSO methodology, an even bigger army of the 'near' graduates) they produce might just deliver the equivalent of the Chariman Mao's Great Leap Forward in education - massive boost in quantity, at a cost to quality.