A lower graduate premium is no cause for alarm

Australia escaped the worst of the great recession that hit the UK and the US. But over the past decade, new graduates have still found it much more difficult to find work than they did before 2009. New analysis of census data shows that for some graduates, employment problems stretch into their early career years.

This analysis, by my colleagues at the Grattan Institute, compares bachelor’s degree graduates aged between 25 and 34 at the time of the 2006, 2011 and 2016 censuses.

As reported in Times Higher Education, male graduates in this age group saw their median income after tax and student debt repayment increase between 2006 and 2011. However, it then fell, leaving them 3 per cent worse off over the decade after adjusting for inflation.

One reason for this is lower job quality. More male early career graduates are taking sales, administrative or labouring roles that don’t normally require a degree. These pay less than the professional or managerial jobs to which graduates normally aspire. Although the proportion of graduates in lower-skill occupations rose by only 5 percentage points, it is enough to affect median earnings. More part-time employment is also reducing income for male graduates.

Over the same decade, men with no post-school education also experienced a small decline in job quality, but their median earnings remained flat in real terms. For this reason, the graduate earnings premium fell by 6 per cent, to average nearly A$13,000 (£7,000) a year for men in the 25 to 34 age group.  

While early career male graduates saw a real-terms fall in income, outcomes for female bachelor’s degree graduates in this age range were better, with earnings up 4 per cent over the decade. Changes to maternity leave and childcare policies mean that women with children are more likely to work, and female-dominated professions such as nursing and teaching continue to offer high rates of professional employment.

Despite this, a graduate premium for early career women that averages nearly A$14,000 (£7,650) a year is 8 per cent less than it was a decade ago because, like the men, women with no post-school education improved their earnings at a faster rate. As well as benefiting from better maternity leave and childcare policies, they slightly increased their rate of high-skill employment.

Disappointing graduate outcomes are also an issue in the UK and many other countries. The graduate premium has been more consistent in the UK than in Australia, but the median employed graduate earns more in Australia: A$67,600 (£37,000) compared with £33,000.

Deteriorating graduate outcomes prompt questions about whether there are too many university students. But the trends revealed by the census can be given a positive interpretation. Although graduate numbers grew more quickly than graduate jobs, the number of young graduates in professional or managerial jobs increased by more than a third over the decade to 2016. The end of the Australian mining boom was bad news for graduates starting their careers in 2013 and 2014, but employment growth has since recovered. Professional jobs are the fastest growing occupational category for early career workers.

For young people with strong school results, labour market trends mean that higher education is still the safest educational option. The tougher question is what young people with low or mid-range school results should do. Earlier Grattan research found that they are at elevated risk of not finishing a university course. We suspect (but have not yet proved) that if they complete a higher education course they are also at elevated risk of not getting a professional job. Vocational education may provide lower-risk and higher-paid alternatives, especially for the mostly male school-leavers who are prepared to work in the trades.

Although some young people may not be making the best post-school choices, that is not a general case against higher education. Overall outcomes for early career graduates are only moderately worse now than they were five or 10 years ago, despite increasing numbers of graduates and an economic downturn. Most young people who chose university in the past decade made the right decision.

Andrew Norton is higher education programme director at the Grattan Institute. His most recent report is Mapping Australian higher education 2018.