Archive for the 'Income & wealth' Category

Is an arts degree a good financial investment? #2

Earlier in the month I looked at median weekly income for arts graduates, all graduates, and people with certificate III/IV qualifications, as reported in the 2006 census (note the various data caveats in the first post). I found that arts graduates had similar income profiles to certificate III/IV holders.

The figure below looks at males with income around the 75th percentile for their qualification in 2006, and tells a different story. In their 20s, earnings are fairly similar between the three groups (in the rather crude way I have had to do this, the ‘all graduates’ aged 25-29 just missed out on the next income bracket, and if the test had been ‘all non-arts graduates’ may have made it).

By their 30s, arts graduates in this part of the income distribution are clearly pulling away from the certificate III/IV people. But they are not gaining on all graduates. Indeed, the gap is likely to be larger than shown at the median, because graduates at the 75th percentile are ticking the highest census income category of $2,000 a week or more. We can’t tell from this data source how much they are earning, other than that it must be over $500 a week more than an arts graduate in the same relative position.

Is an arts degree a good financial investment?

Last week I spoke at a seminar on the public funding of the humanities and social sciences. In my presentation I showed a slide of the earnings of male arts bachelor degree graduates compared to all graduates, showing that the median male arts graduate earned significantly less than other bachelor graduates (less than the slide suggests, since I did not extract arts graduates from the total).

What I should also have done is added median earnings for the upper vocational qualifications, which I have now done in the figure below (due to limitations in the way the ABS publishes census data, I have taken median as the mid-point in the income catgory in which the median person appears). Overall it shows a quite similar earnings profile with the arts graduates, with the effects of earlier full-time workforce entry showing in the higher earnings for certificate III/IV qualified workers in their 20s.


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Handouts to support thrift?

The Australian this morning runs a left-field editorial opposing the cut to the discount for paying student contributions upfront.

Completely ignoring the only compelling rationale for the discount, reducing the cost of the HELP scheme, the editorial drifts off into various social policy objectives: encouraging students to use some of their part-time earnings to reduce their debts, and encouraging the ‘responsible behaviour’ of families who assist their students by reducing their debt.

But why is increasing public debt to decrease private debt a good thing?

And if increasing public debt to decrease private debt is a good thing, why restrict it to families with university students?

No wonder we are sinking in a sea of debt when even the most economically rational newspaper resists sensible plans to reduce government spending.

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The editorial also incorrectly states that the change will reduce revenue flows to universities. Instead, universities will get slightly more revenue directly from students and slightly less directly from government. We’ll have to wait for the forward estimates next week to see what the government thinks, but after factoring in some behaviour change I’d estimate a $70-80 million shift.

Paying for uni through effort?

The review of higher education funding has been asked to look at the issue of the relative public and private contributions to tuition costs.

Some people think it is anomalous that law and business students pay more than 80% of the nominal cost of their place, while for example medical and engineering students pay a third or less.

Another perspective is to ignore cost shares and focus on the size of private benefits. Post-1996, this is roughly the perspective that has dominated. The basic idea is that students in disciplines with high incomes can afford to pay more.

Using occupational income data from the ABS Employee Earnings and Hours publication I’ve been playing with another version of the private benefits idea.

The idea here is that graduates pay for their courses in work effort, defined as the number of weeks it would take to repay their debt if they devoted their entire net weekly earnings to doing so. While some courses are much more expensive than others, the higher salaries their graduates earn mean that they can repay more quickly.

The table below shows that for most occupations the time to repay is closer to the average than the $ dollar cost relative to the average (closest number in bold). Mostly the differences are not large, though for arts professionals and medical practitioners there is major correction towards the mean on the time to repay measure (the figures are all based on average earnings for full-time males in May 2010). Read the rest of this entry »

Money as the cure for materialism?

Ever since it became possible for humans to acquire more wealth than was needed for survival social critics have been warning against its corrupting effects. These days the warning even comes with some evidence, as Sacha Molitorisz notes in last weekend’s papers. During the week there was another paper, this time by U of M academic Bruce Headey and others, showing that material with materialistic goals are less happy.

Headey’s work has been particularly important because it uses longitudinal studies, in this case a German study, to see long-term effects. He’s particularly concerned with challenging the setpoint theory of happiness, that people have a ‘natural’ level of happiness linked strongly to their personality type, and that few people will move beyond their setpoint for prolonged periods of time.

The figure below, taken from the article in the second link, shows that using 5-year averages of life satisfaction and comparing it with successive 5 year periods from 1984-89 to 2004-08 that substantial minorities do undergo significant long-term changes in their self-reported well-being. Read the rest of this entry »

Money and the emotions

Most happiness research is based on questions which ask respondents about how happy they are or how satisfied they are with their lives in general. A number of papers over the years have explored the links between these overall ratings and people’s day-to-day emotional states and found that (at least in the survey period) there are only modest correlations between them.

The most recent paper, by Daniel Kahneman and Angus Deaton, using a massive 450,000 person US sample over 2008-09 (bad years economically in the US), again finds that the statistical relationship isn’t strong.

They used three measures of daily emotional well-being: positive affect (reports of happiness, enjoyment and frequent smiling), blue affect (reports of worry and sadness) and stress the day before the survey. The life satisfaction question asked respondents to rate their lives from 0, worst possible life, to 10, best possible life. None of the correlations between emotional well-being and life satisfaction were higher than .31 (0 would be no relationship, 1 would be a complete association). Read the rest of this entry »

The financial benefits of higher education

The ABS has an interesting new publication out today on the financial benefits of higher education.

ABS anlayst Hui Wei uses data from the 1981, 1986, 1991, 1996, 2001 and 2006 censuses to provide estimates of rates of return for investment in higher education. In the figure below, the rates are based on post-tax earnings of graduates compared to someone who finished their education at year 12 (say a Year 12 completer earned $800 a week and a graduate $1,200 a week – the graduate premium would be $400). The graduates are aged through the census of the stated year (eg it assumes that a 1996 graduate would at age 40 earn what a 40 year old graduate earned in 1996).

The costs are assumed to be the opportunity cost of four years out of the workforce with no earnings in that time, plus direct costs such as HECS.

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‘Working families’ not so stressed after all

A report this morning that some people with ‘mortgage stress’ are living on rice reminded me of those days back in 2007 when Kevin 07 was constantly going on about that and the general financial pressures on ‘working families’.

While of course through bad luck and imprudence there are always some households doing it tough, some of us were always sceptical about Labor claims on financial stress (eg here and here) .

The latest HILDA statistical report on trends in financial stress over 2001-2007 confirms that these 2007 Labor claims were gross exaggerations, and that the overall trend was clearly towards less financial stress.


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Family finances under the ‘new familism’

The IPA Review has published an article by me on what I call the ‘new familism’. The article tracks how since the 1970s the left and right have each developed their own ideologies of the family. Despite significant differences of intellectual justification and policy detail, left and right converge on significantly increased state support for people with children.

The table below from the latest HILDA statistical report highlight just how much those with dependent children improved their financial position in the 2000s.


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Actual versus perceived income

Andrew Leigh is reporting on 1999 research showing that many high income earners wrongly place themselves in lower income deciles and many low income earners place themselves in a higher income decile than is justified by their actual income (also cross-posted at Core Economics).

In the past (p.16) I have used this data to suggest that some people who agree to survey propositions that above-average income earners pay more tax – as 41% of people are in the latest Essential Research survey - may get a nasty shock when they find the taxman raiding their wallets.

While I still think this is likely to be the case, asking people to put themselves into the correct income decile is a big ask. I would expect more general questions such as average, below average, or above average would yield more accurate results. Using data from the 2005 Australian Survey of Social Attitudes and comparing it to 2006 census household family income data I found that accuracy improved but significant discrepancies remained.


(The image is not entirely clear: the three horizontal axis labels are below median <$52,000; median $52,000-$77,999, and above median <$78,000) Read the rest of this entry »