The people who write Graduate Careers Australia’s starting salaries report must love their time series of graduate salaries as a percentage of average weekly earnings, because they keep highlighting it in their report and in their media release, even though they are coming close to admitting is is meaningless statistical junk.
I can see why they want to keep it – it goes back nearly 30 years, to 1977 (the data in the report released yesterday is for people employed in early 2006). On surprisingly few topics do we have consistent data going back that far. And for people considering the costs and benefits of university study, it is useful to know their likely earnings compared to the alternatives. But as the Graduate Salaries 2006 report says:
…it is important to note that average weekly earnings may be positively affected over time as more and more graduates enter the workforce. As their careers progress their salaries grow, overall average weekly earnings are pushed up.
The only thing wrong with that is the ‘may’. They have a table showing full-time workers with a diploma and above going from 19.7% in 1998 to 27.8% in 2006. Using only bachelor and above and all workers, ABS Education and Work shows an increase from 14.5% in 1994 to 23.9% in 2006. I’m not sure what proportion of workers had degrees in 1977, but we’ve gone from graduates having a small impact on male average weekly earnings to a large impact – nearly a quarter of all earners. As bachelor degree graduates typically earn half as much again as people with Year 12 qualifications only, the statistical effect is not trivial.
This isn’t the only problem. Right from the start, they compared median starting salaries with average weekly earnings. High-income earners mean that average income is usually higher than median income, so we are not comparing like with like. The starting salary time series is for graduates under 25, yet the workforce is ageing, with income levels that incorporate an increasing experience premium.
In 1977 most graduates were male, but now most are female – and since women consistently have lower starting salaries than men this will affect the overall median. The report does have a section on this – showing that female graduates have higher median starting salaries than female AWE – but doesn’t seem to grasp that this has implications for the headline indicator.
In short, median starting salaries as a percentage of male AWE no longer tells us anything useful – the finding that it is at 79.7% in 2006 compared to 100% in 1977 is of no value to would-be uni students. To the extent it tells us anything at all it says more about AWE than graduate salaries.
Unfortunately, given the prominence Graduate Careers Australia gives this now pointless number, the media picks up on it. The AWE comparison is mentioned in the first paragraph of the AFR‘s report this morning. The SMH held off until paragraph 4 and reported a couple of the caveats, which is good, but they should have omitted it all together.
One of the other reports released by Graduate Careers Australia yesterday, on student satisfaction, is full of detailed methodological discussion. It’s not exciting reading, but it is a model that may save the starting salaries publication from producing misleading data.