In full-fee markets, Group of Eight universities charge a large fee premium over their less prestigious competitors. But is this a good investment by students?
According to an article in the latest Australian Economic Review, reported on in the SMH this morning, the answer is no – at least for new graduates.
Using data from the 2003 starting salaries survey carried out by Graduate Careers Australia, UWA academics Elisa Rose Birch, Ian Li and Paul W. Miller found that while choice of industry (mining especially), occupation and having an honours degree all matter, once other factors are controlled for ‘university effects have only minimal impacts on graduates’ starting salaries’.
If this pattern persists as graduates’ careers continue, it would be remarkable: that the brand value of prestige institutions and the presumably higher average innate ability of Group of Eight graduates count for near-nothing in the labour market.
I suspect on personal ability grounds Group of Eight graduates do earn more over the medium to long term, and the starting salary data reflects the unwillingness of employers to pay high salaries to people without track records in relevant employment. For example, the census data I have shows that only 1% of male law graduates under 25 earned $100,000 a year or more in 2006, but in the 25-29 age group 10% earned that much, and in the 30-34 age group 40% had broken the $100,000 a year barrier. The labour market takes a while to sort out who the high earners are going to be.
Nevertheless, the unwillingness of employers to pay any initial premium for a Group of Eight degree is an important finding. It suggests that employers do not use institution attended as a proxy to help them predict which graduates are likely to turn out to be the best employees.
If the Group of Eight universities are to get away with charging premium fees, they may need to prove that their degrees are in fact better investments than degrees from other institutions.
Andrew Norton 
I’ll save everybody having to read the thing and excerpt the important bits:
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“These findings suggest that
instead of enrolling in a university with the expectation
that the institution’s prestige or quality
might fetch a premium in the labour market,
it is better to try to enrol in ‘premium’ disciplines
like engineering, public health, and management
and commerce, or to pursue a career
in an industry or occupation that pays well.”
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(Thank goodness we have economic research to tell us these things – must remember to advise neices and nephews that engineering would be more lucrative than English literature.)
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“The analyses presented below are restricted
to graduates with either a bachelor pass or honours
degree, who were earning a salary through
either full-time or part-time employment in Australia.”
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“The 2003 GDS had 107 436 respondents,
with a response rate of 62.7 per cent (Gradstats
2003).While this is below the 70 per cent target
response rate set by the GCCA, it is well above
the 50 per cent benchmark argued to be required
for reliable analysis (see AVCC-GCCA
2001).”
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“Graduates with missing information
in their surveys regarding salary,mode of attendance
at university, age, disability status, double
degree, occupation, sector of employment,
industry of employment, length of employment
contract, hours of work, mode of study, language
background, residency status, gender, or
self-employment status were excluded from the
study. Following these exclusions, a ‘purged’
sample of 30 529 graduates remained.”
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“The analyses presented below are restricted
to graduates with either a bachelor pass or honours
degree, who were earning a salary through
either full-time or part-time employment in Australia.”
So. Seems like a lot of students not included in the sample. Do we know if students from the prestigious universities found it easier to get employment? And to get it in the organisation they might have particularly wanted – for other than financial reasons? How many were unemployed and what institutions were they from?
What about the students who took off to do higher degrees at overseas universities which recognised their qualifications from a prestigious Australian university?
I could go on and on wondering if this sample and these results mean anything, but most importantly, are you more likely to meet and marry someone rich if you attend one of the Group of Eight?
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Maybe you can find lots of caveats Russell, but if you don’t remember what I suggested from a few posts ago about how important it was to go to a prestigious university in Australia versus other factors, then I’ll just say at this point “I told you so”.
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“If this pattern persists as graduates’ careers continue, it would be remarkable: that the brand value of prestige institutions and the presumably higher average innate ability of Group of Eight graduates count for near-nothing in the labour market”
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I don’t find this remarkable at all (at least in Australia, excluding the really bad unis like UCQ). Many undergraduate courses are standardized by external organizations, and hence teach essentially the same thing, and most of the top echelon of students from any university are of similar quality. This is why good unis take the top students from bad unis into high demand postgraduate courses. It would be great to compare the middle of the distribution on comparable courses, and see how different they were too. My bet is not especially different.
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In fact, my bet is that the graduates paid the most and that have the best employment outcomes for their fields are those that do industry based work experience for one year in their degrees, which is mainly available at small universities.
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Russell – Employment levels were also very similar (p.55).
Yes, a lot of the original survey respondents were excluded, but hard to see why this would systematically favour any uni type, and the remaining number, over 30,000, is still big by social science standards.
People going on to higher degrees might be an issue.
I agree that the results are counter-intuitive; I know that some good firms only interview graduates from the Group of Eight unis, and I would have thought that others informally favour Group of Eight graduates.
As I have long said, we need far more research on this issue, but this research does raise doubts about whether our intuitions are right.
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I too found the results puzzling, but I think they can be explained by the fact that the dependent variable is (the log of) hourly earnings (p.48). So perhaps Go8 graduates get the plum jobs that pay them a higher (total)starting salary but require them to work proportionately harder. This gives them the opportunity to gain the experience that will allow them to earn both higher overall and hourly salaries down the track. This certainly accords with my experience and the experience of my peers.
This doesn’t take away from the fact that non-Go8 graduates can do equally well if they are at the top of their class, do honours, and are well presented, etc. But it would be hard to believe that intuition about the average value of a Go8 degree was as wrong as this study suggests.
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Now this is interesting…
“Graduates from science courses
were at a 7 per cent wage disadvantage from
the benchmark group of management and commerce
graduates. This is consistent with Chia
and Miller’s (2008) analysis, which reported
that University of Western Australia science
graduates had starting salaries about 10 per cent
lower than those who hold economics degrees.
To the extent that the lower ceteris paribus
hourly earnings of science graduates is a good
reflection of their labour market prospects, attempts
to increase the supply of science graduates
through lower tuition fees is likely to be
counterproductive in the long run (see Chia and
Miller 2008).”
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Conrad – yes I do accept what you have written on this previously, although this standardisation caused by external organisations thing wouldn’t apply as much to the humanities.
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Still not convinced with the sample – if you don’t know why you haven’t got the data from the overwhelming majority of students, you can’t know if the reason for it would affect your hypothesis.
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Another anecdote – when my niece graduated from UWA there weren’t any music teacher jobs in private schools, so for a year she taught in the state system. The next year there was a job in a top, elite school and she (not really very experienced) got it. But then, how you discount the fact that she also went to an elite private girls school?
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“But it would be hard to believe that intuition about the average value of a Go8 degree was as wrong as this study suggests”
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I just don’t believe this is true Rajat. My impression was that most of the difference is imagined by people (excluding for postgraduates with academic research skills), and that people with the real experience (i.e., employers), are really the only people to ask. As a proxy, you can see what employment fares they go to and how many graduates they take from each uni. On this note, I now work at an average university with a big industry based learning program, and it certainly promotes the university above other competition, because not only do you have graduates work at places before they graduate (who of course employers give jobs to when they come around if they liked them), but employers get direct feedback on the course and a good feeling for the standard of the average graduate — if they don’t like what’s going on, they are only too happy to tell you! Having previously worked at one of the top places in Asia, where none of this happened, it is easy to see the difference. If you’re an employer, and you get lots of graduates that you always like from a particular place, who have been trialled via industry based learning for a year, who would you employ?
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This reminds of when I did my degree at the start of the 90s. I remember that at the time, people doing computer science at Melbourne were learning useless things like Prolog, algebraic calculus etc., people at Monash were learning really good stuff for computer science research, and people at all the other universities were learning how to program C, C++ and how to do database stuff (i.e., what everyone did when developing systems at the time). I’d love to see the outcome stats of the Melbourne graduates from that era — my bet is that they’d look awful — despite being the most prestigious uni in Vic. In my books, it’s easy to see why things can be variable enough across courses to account for the small effects across universities.
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Conrad, all I can say is that our firm has a guy who studied Comp Sci and Elec Eng from Melb Uni in the early 90s and he is an absolute gun. He developed a model that enables us to model Cournot-Nash bidding in the National Electricity Market between multiple participants with multiple strategies. No other firm has a model like it. In addition, his ability to think through and solve problems is unmatched. I’m biased, but I strongly doubt that anyone from a non-Go8 uni could come close, simply on TER/IQ grounds.
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“only 1% of male law graduates under 25 earned $100,000 a year or more in 2006, but in the 25-19 age group 10% earned that much”
Unless there are a lot of graduates under 19 shouldn’t that second figure be 25-29? =)
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Two Words:
Assortative mating
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Robert – Indeed, corrected.
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Been trying to tell you,I admire your honest treatment of the data, I only had gut feeling.
The next question is, does doing a research degree at any university pay. My gut feeling is, no. And if the answer is no, why do we spend so much money on sandstone university research?
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“does doing a research degree at any university pay”
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It depends on the field and university. I imagine it pays off a lot in some fields (some hard sciences such as biology and probably most social sciences) and less in others (engineering, computing).
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I guess, it is worth thinking about the future here too — since degree quality has declined a fair bit over the last decade or so, I also imagine that in the future the pay off will be more than now. This will be especially the case if the government expands student numbers, which will mean courses will become further dumbed down for duller students, or if we get even more females than males than now, which will have the same effect, as it reduces the potential pool of smart students universities can choose from (i.e., they will have to take really dull females to make up the numbers if smarter males won’t go).
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The median salary for a new PhD graduate in 2007 was $64,000, but hard to know how much of that is related to the PhD.
I would argue that salaries are not especially useful guides to whether the PhD programs are worthwhile – very few people principally motivated by money would enrol in one. When I started mine (which of course I never finished) I knew I was cutting my earnings by 50% compared to graduate employment, in order to get into a career (academia) that paid less than my most realistic alternative, law.
I would be far more interested in detailed occupational analysis of PhD employment, to see whether people with PhDs are typically in jobs that might benefit from a research qualification.
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The fact that universities don’t (or can’t) charge fees for research degrees must be indicative of something.
As for my own situation, I don’t anticipate that a masters in applied mathematics is going to benefit my teaching career at all, although it might prove useful if I ever decide to leave teaching. I am doing it purely out of intellectual curiosity.
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Gordon Brown seems to going for the ‘Melbourne Model’ :
“The changes which take place on April 1 affect those applying for highly skilled migrant visas. In less than a fortnight, it will no longer be possible to qualify for one of these visas unless you have a masters degree. The details are all terribly complicated and messy but it is fair to say it could spell bad news for professionals – whether we’re talking engineers or lawyers, physiotherapists or accountants – who have spent four, five or six years at university, obtained double degrees, honours degrees, professional accreditation and industry experience, but not a masters.”
http://www.smh.com.au/opinion/on-your-surfboard-bruce-x2026-britain-gives-jobhungry-visitors-the-third-degree-20090320-94dh.html?page=-1
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Overcoming bias has a good post on why college prestige matters.
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