Education at a Glance 2010: How does New Zealand's education system compare?
Every year, the Organisation for Economic Cooperation and Development (OECD) publishes Education at a Glance, a set of indicators that compares the education systems of its member countries, and participating partner countries.
The report How does New Zealand's education system compare? draws on the New Zealand data in Education at a Glance 2010 and summarises the characteristics and performance of New Zealand's education system in an international context.
Author(s): Ministry of Education.
Date Published: September 2010
Chapter 5: The economic benefits of education in New Zealand
As with all countries in the OECD, employment and earnings increase with level of education, but New Zealand has one of the smallest differences in employment or earnings between adults with school and adults with tertiary qualifications. Private and public returns for investing in a tertiary education are also lower, as are labour costs. New Zealand is in a group of countries, including Scandinavian countries and Australia, which have higher levels of tertiary qualified adults, and lower returns.
This has traditionally been the case in New Zealand, and in part, reflects traditionally good outcomes for those with an upper secondary education in New Zealand. These results relate to 2008, largely before the impact of the economic recession on employment and earnings had begun to be felt in New Zealand, and when levels of employment for those with school qualifications were amongst the highest in the OECD. While employment rates are higher for those with lower levels of education, those with tertiary education have employment rates similar to the OECD average.
Employment and earnings
EAG results consistently support the benefits of education in terms of higher employment and earnings with higher education. As with all countries in the OECD, employment rates and earnings increase with education in New Zealand. However, New Zealand has a much smaller difference in both employment rates and earnings between its least educated and most educated.
Figure 7: Employment rate and relative earnings by level of education – New Zealand, Australia and the OECD mean (2008)
In 2008, New Zealand had high employment levels across all education levels and less difference in rates of employment between the least and most educated. New Zealand ranked 6th in terms of the percentage of adults aged 25 to 64 in employment (at 80% compared with the OECD average of 74%). Those adults with tertiary qualifications were employed at a similar rate to the OECD average (85% for those with degrees, and 75% for those with diplomas).
Those with upper secondary qualifications only were much more likely to be employed than similarly educated adults in other OECD countries (83% for those with year 12 or 13 equivalent qualifications). New Zealand had the 3rd highest employment rate for upper secondary educated adults in 2008. Those with year 11-equivalent qualifications (which are not counted as upper secondary) also had relatively high employment (79% compared with 74%).
With at least upper secondary education being the norm now across the OECD, EAG presents many of the employment indicators and all of the earnings indicator results relative to those with an upper secondary education. New Zealand has a much lower difference in earnings than other countries between those with an upper secondary education and those with higher levels of education. The premium for a degree or higher qualified adult in New Zealand was 1.37 compared to the OECD average premium of 1.64. New Zealand ranked 3rd lowest and alongside Scandinavian countries and Australia in the bottom five.
Figure 8: Employment rate advantage for degree educated over upper secondary educated (2008)
Figure 9: Employment rate and earnings advantage for degree educated over upper secondary educated (2008)
Figure 10: Employment rate and earnings advantage for diploma educated over upper secondary educated (2008)
Figure 11: Employment rate and earnings advantage for diploma educated over upper secondary educated (2008)
The premium for a diploma-qualified adult (at 0.93) was second lowest in the OECD (the only country other than Japan where there was no earnings advantage). However, as with Japan, there was a strong gender effect moderating the results for diploma holders. While combined male and female results show a negative premium, when viewed separately, males and females each show a positive advantage over someone of the same gender with an upper secondary education. These combined results for diploma holders are influenced by a large proportion of females, who on average earn less than males. In particular, many diploma holders are women with former nursing and teaching diplomas, whose relative earnings were traditionally lower.
EAG 2010 indicators mostly relate to the year 2008, largely before the impact of the current recession had taken effect on employment. Along with Australia, New Zealand was enjoying relatively high levels of employment, particularly for those with school qualifications, and demand for vocational work was still high. This partly accounts for the relatively lower education gap in employment and earnings.
Data over time on employment, unemployment and earnings shows that business cycles do impact on relative benefits. Those with lower qualifications are affected sooner and more significantly, acting to increase relative benefits for the higher qualified. Between the period 1997 to 2008, unemployment rates for upper-secondary educated adults varied between 2.0% (in 2007) and 5.1% (in 1998) – a change of 160%. Over the same period, unemployment rates for tertiary educated adults varied between 2.2% (in 2007) and 4.0% (in 1998) – a change of 80%.
New Zealand traditionally, however, has had a lower difference in employment and earnings between those with school and tertiary qualifications. Between 1997 and 2008, the biggest difference in employment rates between tertiary and school-qualified adults was 3.6 percentage points, while the premium for tertiary qualified adults ranged between 1.15 and 1.23.
Age is also likely to be a factor in the poorer results found for diploma holders. Recent Ministry of Education research10 found, in terms of annual income, that those with diplomas were not significantly different in annual income from those with a level 2-3 school qualification. But among older respondents, those with non-degree tertiary qualifications had lower annual income than those who completed secondary school. This may reflect differences between the expectations for education in the last twenty years, and those in the 1960s and 1970s, when expectations of tertiary participation were lower. When hourly earnings for 15 to 24 year-olds with a non-degree tertiary qualification are compared with those of 15 to 24 year-olds with an upper secondary qualification, New Zealand Income Survey data shows a 15% hourly premium for the tertiary qualified group in 2008.
New Zealanders born overseas also have an influence on the results. People born overseas have poorer outcomes than those born in New Zealand with the same level of qualification. In part, this reflects the fact that the overseas-born group includes many people for whom English is not a first language. Reflecting immigration policy, recent immigrants are more likely than New Zealand-born to hold tertiary qualifications, and the higher proportion of overseas-born in the tertiary qualified group lowers the earnings of the tertiary group relative to those with upper secondary qualifications.
Adults without any school qualification remained at a significant disadvantage across all OECD countries. New Zealand adults with no school qualification fared a little better than other countries in 2008, with employment rates above the OECD average (68% compared with 62%) – some 18 percentage points less than those with a degree or higher. Their earnings were, on average, 82% of those with upper secondary as their highest attainment, again a little better than the OECD average.
New Zealand females with a degree or higher were 1.15 times more likely to be unemployed than New Zealand males with a degree or higher. This difference was larger than that of Australia, the United States, the United Kingdom or Canada, but less than the OECD average 1.24. There was no difference in unemployment rates between men with diplomas and women with diplomas. New Zealand women with less than year 12 school qualifications were 1.25 times more likely to be unemployed than equivalently educated men. This was the second lowest gender difference across OECD countries for adults with less than year 12 school qualifications.
Returns on investment in tertiary education
Individuals and governments invest in education in the promise of a positive financial return. The measure used in EAG to compare returns is the Net Present Value approach, which provides an estimate of the present value of an investment's future cash flows net of the initial investment, discounted at a 3% real interest rate.11
Figure 12 shows that, on this basis, both private and public returns to education are positive across all OECD countries. Figure 12 also shows that compared with other countries, returns are lower in New Zealand. The net present value in US dollars of the private return from an investment in tertiary education was the second lowest in the OECD, while the public return was 4th lowest.
Figure 12: Private and public returns for investing in a tertiary education (2008)
Figure 13: Private and public returns for investing in a tertiary education – relative to average OECD returns (2008)
New Zealand is grouped with a set of countries that compared to the OECD average have both high levels of tertiary attainment in their population and lower private and lower public returns (Figures 13 and 14). These countries include most Scandinavian countries, Spain and Australia.
Figure 14: Tertiary education attainment and private returns for investing in a tertiary education – relative to average OECD returns (2008)
A new indicator in EAG 2010 compares the labour cost for employing a full-time full-year worker. In line with relatively lower earnings, labour costs for a tertiary educated full-time full-year worker are also low. Figure 15 shows the cost for a recent graduate (at $41,700 US, ranked 9th lowest) versus a more experienced graduate (at $54,600 US, ranked 5th lowest). The graph also shows that New Zealand, along with Australia, has a relatively smaller difference between the cost of a recent graduate versus a more experienced tertiary graduate.
Figure 15: Annual labour cost employing a recent versus experienced male tertiary graduate (2008)
EAG 2010 also compares levels of attainment in the population with labour cost (Figure 16). Again, New Zealand is closest to a block of countries including the Scandinavian countries, and to a lesser extent Australia. There is a strong negative association between attainment and labour cost, which along with Figure 14 is suggestive of a relationship between the supply of tertiary educated individuals and lower earnings and lower labour cost. While high supply may be reflected in lower, but still positive, returns, very high returns can indicate undesirable skill shortages.
Figure 16: Labour cost ratio and attainment levels for adults aged 45-54 (2008)
- Scott (2010) Social and Economic Indicators of Education.
- For a full description of the approach used see EAG, chapter A8, in particular, page 141.
Sources and further information on this section:
Education at a Glance 2010: OECD Indicators, Chapters A6 (Employment), A7 (Earnings), A8 (Returns), A10 (Labour costs).