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What scope for efficiency in higher education?

Dr Jill Johnes

11 December 2013

New research for government by two LUMS economists questions how far there is genuine scope for greater efficiency gains within the UK higher education sector.

Dr Jill Johnes and Professor Geraint Johnes of the Department of Economics were asked by the Department for Business, Innovation and Skills to develop economic models to show what particular factors affect the efficiency of the higher education sector – and how institutions strike a balance between their research and teaching activities.

With recent HE reforms having led to an increase in income for institutions, the Department for Business, Innovation and Skills was looking to understand more about the underlying factors that affect efficiency at different types of institutions and ensure that efficiency can continue to be maintained.

“We could see from previous research that the UK has a relatively efficient HE sector compared with other countries, but the comparisons within the UK itself were less clear,” explains Dr Johnes.

“Our new study provides further important evidence on the extent to which institutions are working to maximise the efficiency of their ‘front-line’ delivery. It also looks at the significance of factors such as cost structure and an organisation’s ‘mission’. The research is designed to help the government understand what impact recent reforms of HE funding are having on the efficiency of institutions and whether incentives are helping them become more efficient.″

Calculating efficiency

The two economists analysed the data on costs and outputs of universities in the English higher education sector over the eight years from 2003 to 2011. Outputs included the numbers of undergraduate and postgraduate students, the value of research income from HEFCE and from grants and contracts, and income from other ‘third-mission’ activity.

“We also looked at a number of other issues to see what effect they might have on costs,” explains Dr Johnes. “Those additional variables included, for example, the extent to which universities are involved in widening participation by recruiting students from neighbourhoods with traditionally low levels of participation in higher education. We also considered estate costs, as measured by the area of a university’s buildings that were designated as listed.″

Using a series of economic techniques, including stochastic frontier analysis, the researchers then calculated an efficiency score for each institution.

“One of the most important findings in our report was that, once we account for differences between institutions, the variation in efficiency scores across institutions is greatly reduced. We used a score of 1.0 to denote efficiency, and many institutions were scored above 0.9. There were relatively few institutions with low scores, and those were exclusively small and specialist institutions.

“Our results do not therefore support the notion that there are substantial sector-wide gains to be made by using efficiency scores as a criterion for resource allocation.”

The report, Efficiency in the Higher Education sector: A technical explorationwas published by the Department for Business, Innovation and Skills in September 2013. It is available for download on the government website.