Graduate income premium

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.

A rational employer will employ a worker as long as there is a marginal benefit in doing so – that is, while the cost of employing that person is less than the marginal revenue that person generates. Thus, the earnings premium enjoyed by a group of graduates is a reasonable proxy measure for the value of the contribution made by that group to the economy.

Indicator

Graduate income premium

Numerator: (Data Source: Statistics New Zealand: Integrated Dataset on Student Loan Scheme)
Mean annual earnings in 2005 of those who completed a tertiary qualification in 2000, by qualification level.

Denominator: (Data Source: Statistics New Zealand: Integrated Dataset on Student Loan Scheme)
Mean annual earnings in 2005 of those who failed to complete a tertiary qualification in 2000, by qualification level.

Note: the above definition is for a graduate premium after five years.  To calculate the three year premium the mean annual earnings in 2005 of those who completed (or failed to complete) a tertiary qualification in 2000 are used.

Interpretation Issues

This indicator presents data on the earned income in 2005 of Student Loan Scheme borrowers who last studied in either 2000 and 2002 – that is, it analyses income three and five years after finishing study.

Hence, one important limitation of the indicator reported here is that data is available only on those who have used the Student Loan Scheme.

The key statistic in this analysis is the ratio of mean earned income among those who completed a tertiary qualification in their last year of study over the income of those who did not complete. This gives the ‘benefit of completion’ or the premium in earned income that students who complete receive.

Earned income means income that results from employment or self employment. It excludes income from benefits, interest and dividends. The data on income in 2005 was drawn from records in the integrated dataset of income in the tax year to ending 31 March 2006.

All comparisons are made having controlled for the level of study attempted, but no adjustments have been made for other factors such as age, gender and ethnic group. This was done to allow the 'raw' mean incomes to be presented as part of the indicator. Other Ministry publications looking at graduate income premium adjust for those factors and therefore present slightly different premium levels.

For this indicator European/ Pākehā refers to people who affiliate as New Zealand European, Other European or European (not further defined). For example, this includes and is not limited to people who consider themselves as Australian (excluding Australian Aborigines), British and Irish, American, Spanish and Ukrainian.