Category: Income & wealth

Do graduates from private schools earn more?

~ Andrew Norton ~ 10 Comments

In The Sunday Age yesterday, there was another article about private school students struggling at university. It was based on the numerous studies (I mention a couple here) which have found that, for a given ENTER score, kids from private schools, and also selective government schools where they have been examined, average slightly lower first-year university marks than kids who have been to government schools.

Though this finding has been repeated frequently enough for it to be regarded as a valid social science generalisation, it is also widely misunderstood as saying that private school students get lower grades at university. I haven’t seen that question specifically answered in research, but given that private school students have much higher median ENTERs that is unlikely to be the case. Though private school students are not as academically prepared as government school students who get the same grades as they do, disproportionately few government school students actually get those matching grades at the end of Year 12.

There is also the problem that the studies are all of first year students. It would not be surprising if the differences narrowed in subsequent years, as private school students adjust to the more self-directed study style at university and learn that university life doesn’t offer quite the same freedom compared to school at they might have first thought.

As an ACER study I blogged on in April found, private school students have a higher rate of actually completing university, though once starting ENTER scores are taken into account there are no significant differences betweens school sectors.

One issue we don’t know much about is the differences between government and private school students after university. I have been trying to do a little research on this using the 2005 Australian Survey of Social Attitudes.
Continue reading “Do graduates from private schools earn more?” →

Affluence grows, poverty shrinks

~ Andrew Norton ~ 34 Comments

The Age‘s take on yesterday’s ABS Household Income and Income Distribution 2005-06 was predictable: ‘Rich are richer, while the have-less struggle’ read its headline. Yet what was more interesting was how little impact on overall inequality the growing number of high-income households is having.

Since 1994-95 the number of households in Australia has increased by 21%. But the number of those households with gross household incomes exceeding $3,000 a week, after adjusting for inflation, is up by 172%. The proportion of households in this group has gone from 2.6% to 5.9% (though the earlier figure will be understated somewhat, as salary sacrifices are now included).

Yet the Gini coefficient is not changing much. It is a measure of inequality, where 0 would indicate every household has the same income and 1 would indicate a single household has all the income. Over the 1994-95 to 2005-06 time period the Gini coefficient has only gone from 0.302 to 0.307.

One reason is that the number of poor households, with weekly incomes below $400, is dropping. Continue reading “Affluence grows, poverty shrinks” →

Are graduates earning less compared to other workers?

~ Andrew Norton ~ 10 Comments

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. Continue reading “Are graduates earning less compared to other workers?” →

How ’stressed’ are households with mortgages?

~ Andrew Norton ~ 23 Comments

The Age this morning led with a story about record mortgage and rental ‘stress’:

THE number of Australians under financial stress from housing costs has soared to a historic high, with more than a million households now spending at least 30 per cent of their income on loan repayments or rent.

Adding fuel to a potentially explosive election issue, census figures show that the number of households officially declared under “mortgage stress” has almost doubled in five years — to 547,054. At the same time, the number of households above the “rental stress” threshold — spending more than 30 per cent of their income in rent — has climbed to 520,598. (emphasis added)

According to an ALP press release (seemingly the source of this story) that’s equivalent to 27% of households with mortgages.

It is of course unsuprising that high property prices are flowing through to people spending more of their income on housing. But ‘stress’ in this context is a subjective rather than objective indicator, so it is not clear that we can really say that spending 30% of income on mortgage or rent payments is an ‘official’ indicator of financial stress.

Other measures of financial stress, for example, come up with lower estimates of financial problems among households with mortgages. The 2006 General Social Survey found that 16.5% of households with mortgages had experienced a cash flow problem in the previous 12 months (defined as not being able to pay a bill on time), which was slightly lower than the national average.

So where does the 30% of income figure come from? Continue reading “How ’stressed’ are households with mortgages?” →

The winners and losers from tax and spend

~ Andrew Norton ~ 33 Comments

Yesterday the ABS released the latest of its surveys of the winner and losers of Australia’s taxing and spending, covering the 2003-04 period.

And the winners are…unemployed single parents with children under 5, taking in on average $878 more a week in income transfers and welfare services than they pay in tax, most of which is indirect tax (it has a statistical caution on the number, but despite low overall tax this group scores the highest payment on ‘tobacco products’, consistent with previous research showing the poor pay a disproportionate share of ‘sin’ taxes).

And the losers are…the top 20% of households by income, who pay on average $571 a week more in tax than they receive back in benefits and services.

As with previous surveys, this one finds that the bottom 60% of households are net beneficiaries of the tax and welfare system, ie they receive more in income transfers and welfare services than they pay in tax. The Australian gave this aspect its lead story, with the heading ‘Tax take helping Howard battlers’. The poorest 20% get more than 40% of all social assistance, and the richest 20% only 9%.

But the redistributive aspect of policy is driven by income transfers rather than government services. Continue reading “The winners and losers from tax and spend” →

Can business students do their sums?

~ Andrew Norton ~ 9 Comments

This morning’s Higher Education Supplement in The Australian gave the lead story to various interest groups complaining about the Budget decision to reduce Commonwealth subsidies to commerce students by about $1,000, with universities being allowed to increase student contribution amounts by about $1,200.

“It is hard for us to see how this is going to attract more people into doing those courses. In fact, it might turn them away.”

… said Geoff Rankin, chief executive of CPA Australia, which represents 112,000 finance, accounting and business professionals. …

It is a great worry to us,” University of Western Sydney vice-chancellor Janice Reid said.

“It will be a significant disincentive for students who might have seen a bachelor of business or bachelor of commerce as a viable alternative to a bachelor of arts or a general degree in the humanities.

As usual, these arguments assume that prices have a big impact on which courses students choose. Yet a study (pdf) released a couple of years ago put the average income premium from a business undergraduate degree, compared to a Year 12 qualification, at $542,000. The maximum extra cost that could be imposed on a student would be 0.66% of that. Prospective business students who can’t work out that the course is still a good deal have no aptitude for financial reasoning and – as Janice Reid suggests – should perhaps do Arts instead.
Continue reading “Can business students do their sums?” →

What’s going on with graduate earnings?

~ Andrew Norton ~ 10 Comments

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.