Impact of education on income

What We Have Found

Average earnings are 18% higher for those with a tertiary education compared to those with only upper secondary and post-secondary non-tertiary education.

Date Updated: August 2011

Indicator Description

Relative earnings by educational attainment.

Why This Is Important

The success of an education system is manifested in, among other things, the success of individuals in finding sustainable employment as well as the level of wages that employers are willing to pay for the skills and knowledge that the individual brings to a job.  There is a substantial body of evidence that shows that those with higher levels of education are more likely to participate in the labour market, face lower risks of unemployment, have greater access to further training and receive higher earnings on average.

These labour market advantages are an important outcome of education.  They may even be the primary economic and social outcome, because earned income enables people to achieve a higher standard of living and many of the other individual and national outcomes associated with education may accrue either directly or indirectly from higher incomes.

How We Are Going

This section on relative earnings endeavours to show how much more or less one group of society earns compared to another.  This indicator shows the earnings advantage associated with tertiary education.
 
In New Zealand in 2008, for 25 to 64 year-olds in paid employment, average earnings were 18% higher for those with any tertiary education compared with those with only upper secondary or post-secondary non-tertiary education.  This differential is lower than that for Australia (31%, the latest data for Australia was from 2005 only) and considerably lower than the OECD average across 25 countries of 58%.  In 2008, both the United States (77%) and the United Kingdom (54%) had very high premiums for tertiary education over these lower levels of education.

Figure 1: Earnings premium for attaining a tertiary qualification compared with upper secondary and post-secondary non-tertiary education for those aged 25-64 (2008)

New Zealanders with a tertiary type-A education (equivalent to bachelors degree or higher qualifications) earn 31% more on average than those with only upper secondary or post-secondary non-tertiary education.  This compares with the average of OECD countries of 64%.  This differential is lower than in most other OECD countries, suggesting that there is less advantage, in terms of higher earnings, to having a higher level tertiary qualification in New Zealand compared with other OECD countries.  However, these figures have not been adjusted for other factors that vary between countries, such as the age structure of those with different qualifications.

Earnings differentials are a measure of the premium paid for the likelihood of enhanced skills and/or higher productivity.  They also reflect the financial incentives in a particular country for an individual to invest in further education.  International variations in relative earnings reflect a number of factors, including wider changes in the labour market affecting the demand for skills (such as technological change) and rates of pay (such as minimum wage legislation), as well as the supply of skills from education, training and net migration.  Earnings differentials may to some extent reflect differences in the supply of graduates or barriers in access to different levels of education.

Figure 2: Real median hourly income by highest qualification for people aged 15 plus (2010 dollars)

An analysis of median hourly earnings by highest qualification confirms that people with tertiary education earn more than those with other qualifications.  In 2010, the median hourly earnings for those with tertiary degrees was $26.85, approximately 1.6 times higher than those with school qualifications only.


Figure 3: Median hourly earnings (NZ dollars) by ethnic group and highest qualification for those aged 25 to 34 (2010)

To compare the relative earnings of Māori and Pasifika with other ethnic groups, we focus on the median hourly earnings for those aged 25 to 34 in 2010. Because Māori and Pasifika tertiary graduates are predominantly situated in younger age groups (and hence with less work experience), focussing on the population aged 15 and over would not enable a robust comparison of relative earnings with other ethnic groups.

In 2010, the median hourly earnings for Māori aged 25 to 34 with tertiary qualifications were lower than for Europeans in the same age group. However, Pasifika with a bachelors or higher qualification had higher median earnings than the European/Pākeha ethnic group.

References

• Maani, S. (2002).  Education and Māori Relative Income Levels over time.  Wellington: The Treasury.
• Maloney, T. (2002a).  Ethnicity and Early Labour Market Experiences in the Christchurch Health and Development Study.  Wellington: The Treasury.
  
• Ministry of Education (2011).  Māori Economic outcomes from Tertiary (factsheet).  Wellington: Ministry of Education.
  OECD (2010).  Education at a Glance: OECD indicators 2009.  Paris: OECD.
  
• Statistics New Zealand (1998-2010).  New Zealand Income Survey (June Quarter).  Wellington: Statistics New Zealand.