What’s going on with graduate earnings?

Jenny Macklin is using the latest OECD Education at a Glance to give the Howard government a ‘F’ for higher education. She says that:

??The Report … shows Howard Government HECS hikes mean Australian university students are now paying the second highest fees in the world.

Fees paid by Australian students are now second only to the United States ??? a higher education system which John Howard is hell-bent on copying here.

But if, as Labor MPs are fond of pointing out when it is taxpayers’ money being spent, education is an ‘investment’ then what matters here is not just what students spend, but what they get in return for their money. One reason US universities have been able to charge relatively high sums is that the income premium from having a degree is high in America compared to other countries. In Education at a Glance it is put at 81% more than people with ‘upper secondary and post-secondary non-tertiary education’, while Australian graduates in 2001 earned only 43% more. Australia’s high minimum wage is part of the explanation, but perhaps also a disinclination by Australian employers to pay too much for the standard-product Australian graduate.

Without any politicians noticing, the ABS has recently issued the latest Education and Training Experience survey, which we can compare with earlier surveys. Intriguingly, this suggests that the income premium for bachelor degree only holders over people with Year 12 education only (I can’t replicate the OECD comparison on the published figures) went down between 2001 and 2005, from 50% to 47%. Using the RBA’s handy inflation calculator I estimate that average full-time bachelor degree holders’ income went up in real terms by a miserable $4 a week in those years, compared to $21 for people with a Year 12 education only (2005 $).

What could be causing this sluggish performance in a strong economy? It is true that universities and the immigration department continue to push up the number of graduates in the economy. As the ABS Education and Work survey shows, the share of the workforce with a degree increased by about two percentage points in those years. And while the absolute number of graduates working in jobs that are very unlikely to require degrees increased by about 40,000, that was a slight decline in the overall percentage.

One possible explanation is not that under-utilised graduates are pulling bachelor-degree average earnings down, but that higher-income earners are being increasingly counted elsewhere, among those with a postgraduate degree as their highest qualification.

Like that other deregulated ‘US style’ market, overseas students, postgraduate enrolments have boomed over recent years. As DEST’s data shows, postgraduate course completions more than doubled between 2000 and 2004. And unlike bachelor degree holders, their weekly income did increase significantly between 2001 and 2005, by $86 a week.

This is probably not just the return on their human capital investment; it is also likely to be related to experience. Compared to 2001, the proportion of 45-54 year olds in 2005 with a bachelor degree as their highest qualification went down, while the proportion with a postgraduate degree went up. In the 35-44 age group both groups went up as a proportion of the total, but the postgraduate degree group grew more. So weak bachelor degree only earnings growth is partly because compared to the past they are, on average, a younger, less experienced, and perhaps less able population.