3 - Part A: The output and impact of education

3.1 - The educational attainment of the adult population

The proportion of the New Zealand population aged 15 to 64 years who hold a tertiary qualification is relatively high. At 38 percent, that is above the OECD mean (27 percent), above Australia (33 percent), above the UK (30 percent) and equal to the US. It is lower than Canada where the figure is 47 percent.

Figure 1 - Proportion of the adult population with a tertiary qualification (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A1.1a, p42.

In Education at a Glance 2007, it was our upper secondary attainment that was above average, with tertiary education closer to the OECD average.  The switch between upper secondary and tertiary in this indicator between 22007 and 2008 is due to an improvement in the classification of qualifications by Statistics New Zealand.

In the 25 to 34 year-old age group, New Zealand rates fifth of the participating countries, reflecting the expansion of participation and achievement that has occurred in the New Zealand tertiary system since the early 1990s.

However, while New Zealand rates very high on this indicator, we look do not perform quite as well when one looks at degree-level qualifications, where we sit below the US, Australia and Canada.

Figure 2 - Proportion of the adult population with a degree-level qualification or higher (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A1.1a, p42.

3.2    Graduation rate

The graduation rate in Education at a Glance represents the percentage the country's population completing a qualification for the first time that year. New Zealand has always rated high on this indicator.  The OECD tables show as third (behind Japan and Ireland) at diploma level and third (behind Iceland and Australia) at degree level.  We are also significantly ahead of the OECD mean on both measures.  To some extent, this reading reflects higher tertiary participation in recent years. However, the indicator definition means that there are some biases in the reported graduation rates. The indicator overestimates graduation rates in countries with a high proportion of international students (like Australia and New Zealand).  It also overestimates rates where a country has a high proportion of older students (like Iceland and New Zealand). Just under a quarter of New Zealand's graduation rate at 5A and 5B is attributable to mobile students, while a third of New Zealand's graduation rate at 5B is attributable to students aged 40 and over.  Therefore, while New Zealand would probably still be above average if we were to adjust for these distortions, it is unwise to read too much into the country’s high performance on this measure.

Figure 3 - Graduation rate, degree-level and higher (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A3.1, p86.

Figure 4 - Graduation rate, diploma-level (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A3.1, p86.

Recognising the potential distorting effect of international students in graduation rates, the OECD has included a new table that gives the proportion of international students in the number of graduates – although very few countries have supplied data for this table.  At diploma level, New Zealand is the only country with a significant number of international students in its graduates – 21 percent.  At bachelors degree level, Australia has the highest proportion of international graduates of the countries reporting (23 percent) with New Zealand second (18 percent).  At masters/postgraduate level, Australia, the UK, Germany, Switzerland and Belgium all have higher proportions of international than New Zealand¹.

When looking at graduation rates, what may be more important is the trend.  The two graphs below show the New Zealand graduation rates against the OECD mean at both diploma and degree levels over recent years.

Figure 5 - Graduation rate for selected years, New Zealand and the OECD average

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A3.2, p87.

New Zealand was well above the OECD average in the proportion of graduates who were women (OECD 2008, Table A3.5a, p90).

It is also interesting to look at graduates’ field of study.  The OECD reports on the split by field of study for all degree-level and postgraduate qualifications awarded in 2000 and 2006.  This shows that New Zealand was:

• above the OECD average in 2000 and 2006 in qualifications in health and welfare
• below the average in both years in graduations in social sciences, business and law
• well below the average in both years in completions in engineering, manufacturing and construction
• well below countries like Korea, Japan, Finland, Sweden and Switzerland in the proportion of graduates in engineering (OECD 2008, Table A3.4a, p89).
  

New Zealand was above the average in both years in life sciences, physical sciences and agriculture but appears in the OECD data to have had a substantial fall between 2000 and 2006 in qualifications in those fields.  That fall reflects a change in reporting methodology and therefore is unlikely to be ‘real’.

The graph below compares New Zealand with Australia and the OECD mean in the breakdown of graduates at degree level and above in 2000 and 2006 in selected fields. In engineering, both New Zealand and Australia lag behind the OECD mean.  There has been a relative increase in New Zealand in graduations in social sciences, business and law between 2000 and 2006 at those levels.

Figure 6 - Graduation rate, degree-level and higher, New Zealand, Australia and OECD average by selected fields of study

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A3.4a, p89.

Interestingly, the proportion of women graduating in fields like engineering, science and mathematics in New Zealand is above the OECD average, reflecting the high proportion of women among graduates (OECD 2008, Table A3.5a, p90).

While the number of graduations in some of the science and technology fields is relatively low in New Zealand, a relatively high proportion of our workforce holds qualifications in these fields (OECD 2008, Table A3.6, p91).

3.3 - Completion of tertiary education

We have long known that New Zealand has relatively low rates of completion in tertiary education.  We have always argued that this was due, in part, to the fact that we have a high proportion of part-timers in our student body. A new indicator published for the first time in Education at a Glance 2008 provides objective evidence in support of that view.

On average, 31 percent of entrants to tertiary education in 19 OECD countries leave without completing a qualification.  However, the figure for New Zealand is around 45 percent, the third worst of the 19 countries. Conversely, on average, 69 percent of those who start a degree complete on average in the 19 countries, whereas in New Zealand, 61 percent of degree starters complete a tertiary qualification after eight years.

Figure 7 - Completion rate, all tertiary education (2005), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A2.4a, p89.

Figure 8 - Completion rate, degree-level (2005), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A2.4a, p89.

The OECD notes: ‘Non-completion of a degree does not mean that the skills and competencies acquired will be lost and are not valued by the labour market …. This helps explain students’ decisions to leave the education system before graduating’ (page 93).

However, full-time students have better chances of completing qualifications than do part-time students. In the twelve OECD countries for which data are available, on average, 68 percent of full-time students at this level complete. This compares with 73 percent for New Zealand.  New Zealand ranks fourth out of the twelve countries on this measure. Japan has the highest reading – 91 percent – reflecting the intensely competitive entry into universities in that country.

The OECD notes: ‘The largest differences between full-time and part-time students are observed in Canada (Quebec) and New Zealand where completion rates for full-time students that enter tertiary-type A education are at least 25 percentage points higher than for students with part-time status’ (page 93). The graph below shows the completion rates for full-time students in selected countries.

Figure 9 - Completion rate of full-time degree-level students (2005), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A4.2 p99

3.4 - Tertiary education and employment

With its very low unemployment, New Zealand has reasonable results on the OECD’s employment indicators.  However, as much of the recent growth in employment in New Zealand has been among those with low or no qualifications², the level of qualifications held is a less powerful predictor of employment in this country than in some others.

At degree level and higher, the male employment rate is fifth in the OECD (behind Iceland, Switzerland, Japan and Ireland) and above the OECD mean.  While New Zealand research shows that having a degree is significant in opening employment opportunities for women in our labour market, the employment rate of women with degrees or higher is around the OECD mean.

Figure 10 - Employment rates at degree-level by gender (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A8.1a, p151.

However, New Zealand predictably performs better when all education levels are taken into account.  In fact, the difference between the employment rate of New Zealanders with degrees and the employment rate of all New Zealanders is among the lowest in the OECD.

The OECD states: ‘Variations among countries in the female employment rate are a primary factor in differences in overall employment rates. The countries with the highest overall rate of employment for 25-to-64-year-olds – Denmark, Iceland, New Zealand, Norway, Sweden, Switzerland and the United Kingdom – also have among the highest female employment rates’.

A similar picture emerges when one looks at unemployment rates.  New Zealand has the second lowest unemployment in the OECD in 2006 (to Iceland) but, while unemployment is low among tertiary qualified people, the differences between New Zealand and other countries is less (OECD 2008, Table A8.2a p153-4).

3.5 - The economic benefits of education

People with higher qualifications earn more on average than those without.  However, the low unemployment in New Zealand and the tradition of low disparities in earnings in this country means that employers pay a very low wage premium for tertiary qualifications. Among men, the earnings margin enjoyed by men with tertiary qualifications was the lowest in the OECD in 2006.  Among women with a degree or higher, the premium was the fifth lowest in the OECD. (p165).

Figure 11 - Earnings premium for holding a tertiary education qualification (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A9.1a, pp173-174.

Note:  The graph shows the percentage margin in earnings held by a person with a tertiary education qualification, at diploma level (ISCED 5B) or higher.  The population is people aged between 25 and 64.

The OECD data shows that in New Zealand, in higher age groups, higher qualifications tend to reduce the disparities between men and women in the labour market.  Among 55 to 64 year olds, women with a degree or higher earn 80 percent of the earnings of men with comparable qualifications, compared with 58 percent for those with diplomas, 60 percent for those who completed secondary school and 67 percent for others.  However, that is not the case among 30 to 44 year olds, where women with degrees or higher earn only 61 percent of men with the same qualification.

Figure 12 - Earnings of women as a percentage of the earnings of men, by qualification level and selected age groups (2006), New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A9.1b, p175.

Note: The graph shows the average earnings of women as a percentage of average earnings by men, by education level.

To some extent, the difference may reflect greater reliance by women on part-time work in the 30 to 44 year age group.

Trend data shows that the earnings gap between men and women began to reduce in 2006, after having grown among the tertiary qualified between 2001 and 2005 (Page 177).

3.6 - Rates of return on investments in tertiary education

Since 2007, the OECD has been calculating rates of return on tertiary education.  This entails their estimating the costs to government and to an individual student of undertaking a tertiary qualification and then putting that alongside the benefits – to the government in the form of additional tax receipts and to the individual in terms of extra earnings – that come over a graduate’s expected life.

This is a complex calculation that requires the OECD analysts to make a number of assumptions and that depends on the quality of the data used to make estimates. And it is narrowly focussed on economic returns – the calculation makes no provision for the non-financial benefits, to individuals and to society, which research shows come from investing in tertiary education³.

Despite these limitations, this rate of return analysis is useful as a contribution to our understanding of the value we get from our investments in tertiary education.

The OECD analysis looks at:

• differences in the returns for men and women
• how returns differ between people who transition directly to tertiary education from school and people who complete tertiary education at age 40 years
• the returns for degree-level study, as opposed to post-secondary non-tertiary study and completion of secondary school
• the private rates of return – that is, the benefits that individuals get from their investment in tertiary education, and
• the public rate of return – that is, the benefits government gets.
  

The methodology used by the OECD generates an internal rate of return (internal rate of return) that attempts to take account of direct costs, such as tuition fees, and also indirect costs, such as the earnings foregone when an individual takes time out of the labour force to study.  It also quantifies the benefit of reduced probability of unemployment and a social contribution effect. Essentially, an internal rate of return is an estimate of what the money spent on the education has returned.  If the internal rate of return is above the risk-free government bond rate of interest, then the investment in education has paid a positive return.

The private internal rate of return for a male who made a direct transition into tertiary education and completed a qualification in New Zealand in 2004 was 8.6 percent.  For a woman, the internal rate of return was higher. The higher return for women reflects the fact that women without tertiary education qualifications experience greater disparities in the labour market.

Figure 13 - Private internal rate of return on investment in obtaining a tertiary education qualification, for men and women entering tertiary education following schooling, New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A10.2, p196.

The internal rate of return to tertiary education for men in New Zealand is relatively low, reflecting the fairly compressed wage differentials in the New Zealand labour market.  The highest internal rate of returns are found in countries where there is a relative shortage of graduates – the Czech Republic, Hungary, Poland and Portugal.

Interestingly, the private internal rate of return to completion of secondary school or of a post-secondary non-tertiary qualification in New Zealand is higher than the private internal rate of return to tertiary education – reflecting the lower cost of obtaining those qualifications and the compressed wage differentials.  The same applies in the UK, the US and Sweden.

The private internal rate of return for those completing tertiary education at age 40 years are obviously lower – as most people re-entering education at an older age are foregoing higher earnings and because there are fewer years left for people to recoup their investment in education.

Figure 14 - Private internal rate of return on investment in obtaining a tertiary education qualification at age 40 years, for men and women, New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A10.4, p197.
 
The public internal rate of returns were set out in the graphs below.  The public rate for men obtaining tertiary education at age 40 years is exceptionally high.

Figure 15 - Public internal rate of return on investment in obtaining a tertiary education qualification, for men and women entering tertiary education following schooling, New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A10.5, p198.

Figure 16 - Public internal rate of return on investment in obtaining a tertiary education qualification at age 40, for men and women, New Zealand and selected OECD countries

Source:  OECD (2008) Education at a glance:  2008 OECD indicators, Table A10.6, p198.

 

 

Footnotes

1. Refer to Table A3.3, page 88. Note also high postgraduate fees for international students in NZ limited enrolments by international students at that level.  This is now changing as a result of the policy change on fees for international doctoral students.
   
2. Ministry of Education (2007) Profile and Trends 2006 – New Zealand’s Tertiary Education Sector.
3. For instance, research has shown that higher qualification levels are associated with better health outcomes.  This benefits both the individuals concerned but also the government that funds health care.