Education and earnings, a New Zealand update
This report draws together the latest New Zealand information on education’s role in people’s earnings. It aims to provide a resource to inform decisions involving education, and to contribute to the evidence base on education’s role in wider wellbeing.
Author(s): David Scott, Tertiary Sector Performance Analysis, Ministry of Education.
Date Published: June 2020
One of most commonly cited benefits of education is that it will improve your earnings. A formal qualification is a signal to employers that you are likely to have knowledge, skills and traits that they want. This report pulls together some of the latest New Zealand information on the relationship between education and earnings, and summarises the earnings benefits people might expect for different types of education. It includes:
- the latest data on what can school leavers can expect to earn for different levels of school achievement
- how much tertiary education adds to this, for different levels of qualification, and different fields of study
- how long it takes to make up the cost of foregone earnings for tertiary study
- how the earnings benefits of education differ between younger and older adults, men and women, and for Māori and Pacific peoples
- the extent and significance of distributional differences, for example, well-qualified people with low earnings, or high earners with no qualifications
- how earnings benefits have changed over time, and whether an increasingly qualified population has resulted in reduced earnings benefits
- how labour market and business cycles affect earnings
- what international comparisons say about the value of education and earnings in New Zealand
- are the costs worth the return on investment in education.
- Getting a school qualification makes a difference to how much you will earn. If you left school with NCEA Level 2, you can to expect to be earning twice as much, nine years later, as someone who left school when you did, but who had no qualifications.
- Staying on at school an extra year and entering the workforce with University Entrance (UE) gives you 25% more earnings, on average, than leaving school with just NCEA Level 2.
Non-degree tertiary qualifications
- So long as your tertiary qualification is higher than your school qualification, you can expect, on average, to have higher earnings. A Level 1 or 2 post-school certificate has the same earnings benefits as NCEA Level 1, on average, but 60% to 70% more benefit than no school qualification, 20% less benefit than NCEA Level 2, and 10% less benefit than a Level 3 post-school certificate.
- Completing a Level 4 certificate makes a difference. Nine years after leaving school, you can expect to earn 10% to 15% more than someone of your age with NCEA Level 2 as their highest qualification. Only those who completed a degree will be earning more per year. A large proportion of Level 4 qualifications are trade-oriented, and demand for trade-related skills and services has been high over the period covered by these results.
- Degree and higher-level education gives you higher annual earnings as well as higher earnings growth. Nine years after leaving school, you’ll expect to be earning 15% to 20% more than someone of your age who finished their education with UE, and 40% to 50% more than someone who finished with NCEA Level 2.
- But having spent less time in the workforce, the total cumulative earnings of people with degrees will still be catching up with those who finished their education with NCEA Level 2, UE, or a Level 4 certificate. The recent data – i.e. during a period of good labour market conditions – suggests it might take 12 years for the cumulative earnings of those that did degrees to overtake those of their peers who did a Level 4 certificate, and 10 or 11 years to overtake those who finished their education with NCEA Level 2 or UE.
- Education contributes more to earnings through its ability to obtain and sustain employment over time. Lower employment accounts for much of the earnings disadvantage of people with no qualifications. But even when comparing just people in employment, there is still a benefit for higher qualifications. For example, those in employment with a degree, nine years after leaving school still earn 25% to 30% more than those in employment with NCEA Level 2 as their highest qualification.
- Field of study has a big influence on earnings. Average annual earnings benefits five years after graduation for a young degree graduate can vary by 30% or more (or around $20,000), depending on their field of study.
- These average benefits of education don’t tell the whole story. There is a large overlap in earnings between the least and most qualified. One in three degree holders, and around one in four doctorate holders, earn less than the median income of those with only school qualifications. One in five 30 to 34 year-olds with no qualifications earn more than the median income for those with a degree.
Where to find out more
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