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Is tertiary education worth it? University is.

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Gender pay inequality prevalent among graduates, study finds. Getting a university degree is still the route to earning the most money across a working life, a KPMG Australia report Is tertiary education worth it?, shows.

But vocational qualifications have a much lower average wage ‘premium’ over Year 12 Certificate-holders, the paper shows. The paper analyses ten years of wage rates and earnings, from 2006-2016, for the same group of people according to their highest level of qualification.

Author of the report, Professor Stephen Parker, National Sector Leader – Education, KPMG Australia, said: “This analysis incorporates the latest available income data and shows that over the past decade the higher education graduate premium compared with students leaving after Year 12 has remained constant – despite the mass expansion in numbers attending higher education during that period.”

“But it is striking – and alarming – that this wage premium is around 20 percent for men, but only about 15 percent for women. Also of concern is that the average return for vocational qualifications compared with a Year 12 Certificate holder is just 2.5 percent for men and zero, or even less, 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.”

He added: “For those students not going into tertiary education, there is also a clear lesson – finish your Year 12! There is a 10 percent premium for men and 8 percent premium for women over those who leave without a Year 12 Certificate.”

The analysis, carried out for KPMG Australia by the National Centre for Social and Economic Modelling (NATSEM) incorporates the Household Income and Labour Dynamics in Australia (HILDA) surveys of 2006, 2011 and 2016. It includes ‘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.

Stephen Parker explained: “The modelling attempts to isolate the effect on someone’s life that their education or training has had, after other factors are stripped away. It applies a model of lifetime earnings, generated by NATSEM, and not just current year earnings, and so 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 shows that in relation to higher education the returns are so marked (on average) that the only reasonable conclusion is that the cost is worth it.

Key findings:

  • The earnings premium for higher education graduates remains strong – and has not diminished noticeably over the past decade despite the significant expansion of the University sector.
  • By contrast, those whose highest qualification is a vocational one earn a far lower premium over year 12 Certificate holders.
  • Male tertiary education graduates earn more than female graduates, and enjoy a higher average hourly wage – despite three decades of female students outnumbering males in universities.
  • There is a 10 percent premium for students finishing Year 12 over those leaving after Year 11.

Stephen Parker said: “It is worrying that the vocational 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.”

The report argues that 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 up them up. But this is not the same for occupations typically served by vocational education, even though skill shortages remain.

Stephen Parker added: “In the absence of an influx of skills into the working population, or an increase in the working population, and a complete re-think of tertiary education we risk a two speed society servicing a two speed economy.”

Source: KPMG

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