Earnings premiums by qualification level

Why this is important

How much people earn as a result of their investment in a tertiary education is an important indicator.  This is because the real value of tertiary education contributes to people achieving satisfying lives and productive careers.

Gaining a tertiary education costs a lot, financially and in time. People need to be satisfied that the investment in study is likely to have long-term benefits.

The government is also concerned with how much people earn as it makes a large investment in tertiary education each year.  It funds tertiary education providers, provides subsidised student loans and grants allowances to students.  The aim of government’s investment is to help improve the New Zealand economy and society by raising the level of skill in the population.   This helps make our society more productive, contributes to the creation of wealth and leads to better social outcomes.

One way to measure the success of a qualification is in the ability of graduates to find sustainable employment.  Another way is to look at the relative average wage of employees with these qualifications.  A substantial body of evidence shows that people with higher levels of education face a lower risk of unemployment, have greater access to further educational training and higher average earnings.

Differences in earnings 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. This includes wider changes in the labour market affecting the demand for skills (such as technological change) and rates of pay (such as minimum wage legislation).  Another factor is the supply of skills from education, training and net migration.  Differences in earnings may to some extent reflect differences in the supply of graduates or barriers in access to different levels of education.

This indicator reports on relative national earnings by qualification level and aims to illustrate the economic advantages associated with tertiary study

Indicator description

An earnings premium is the additional amount earned by people with a qualification as a percentage of the earnings of people without a qualification:

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Numerator:

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Median hourly, or weekly, earnings of New Zealanders by qualification level.

Denominator:

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Median hourly, or weekly, earnings of New Zealanders without a qualification.

(Data Source: Statistics New Zealand, Household Labour Force Survey (June Quarter)and New Zealand Income Survey)

Interpretation issues

The median weekly earnings used to calculate the earnings premiums in this indicator are based on the weekly pay information from all jobs held by people.

The median hourly earnings used to calculate the earnings premiums in this indicator are based on the usual weekly pay from people’s main job.

Movements in relative earnings may be a reflection of change in the labour market value of particular skills and levels of education, as well as change in the skill demands of the overall economy.

There are also consistent differences in labour market conditions among genders and age cohorts.  The labour market effects of education need to be considered not just at one point in time, but over the whole lifecycle, and alongside other factors which impact on employment.

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