With far higher numbers of young people attending university than in the past, the value of a university degree is often now questioned.
But a new KPMG report, Is tertiary education worth it? shows the naysayers have got it wrong. Financially at least, a university degree is very much worth having, across a working life.
The research, carried out for KPMG by the National Centre for Social and Economic Modelling (NATSEM)*, analyses ten years of wage rates and earnings, from 2006-2016, for the same group of people according to their highest level of qualification.
It is designed to include ‘controls’ for the effects of non-education variables, such as social class, geography and ethnicity, with the aim of narrowing down the premium specifically attributable to the qualification. So we can compare apples with apples.
In doing so, it reflects the value of ‘investment for life’. While the modelling is not a cost-benefit or Return On Investment (ROI) analysis – as it does not factor in direct and opportunity costs of studying – it clearly shows that in relation to higher education the returns are so marked (on average) that the only reasonable conclusion is that the cost is well worth it.
The study shows that the ‘premium’ for male higher education graduates compared with students leaving after Year 12 across the decade has remained constant at about 20 percent despite the much greater numbers attending university, which might have been expected to reduce the value.
It is of concern that the premium is not the same for female graduates – on average they enjoy only a 15 percent premium.
And perhaps even more worrying, the premium is massively lower for vocational qualifications. For them, the figures are just 2.5 percent for men and zero – or actually a minus figure – for women, on average.
This suggests to me that much more needs to be done in two areas – gender equality and in raising the perceived societal value of vocational education.
It is alarming that the education premium for women may actually be trending downwards in recent years. In KPMG’s recent report, Reimagining Tertiary Education’ we called for a new approach to combine elements of higher and vocational education to close the current artificial divide between them.
Our new study provides further evidence that a rethink, to boost perceptions of the vocational sector, is necessary.
I believe one of the reasons for the higher education graduate premium remaining strong, despite the increased numbers of graduates over the last decade, is that the knowledge economy has expanded sufficiently to take them up. But this is not the same for occupations typically served by vocational education, even though skill shortages remain.
In the absence of an influx of skills into the working population, or an increase in the working population, we risk a two speed society servicing a two speed economy. A complete re-think of tertiary education in Australia is needed.
* The NATSEM modelling uses the Household Income and Labour Dynamics in Australia (HILDA) surveys of 2006, 2011 and 2016 – the latest information available – and applies a model of lifetime earnings, and not just current year earnings.