Earnings premium by qualification level

What We Have Found

The earnings premium for people with a bachelors or higher qualification decreased from 2015 to 2016 in terms of median hourly earnings, while it increased for median weekly earnings.  Despite the fall in the hourly earnings premium, people with higher-level qualifications have a substantial earnings advantage.  This advantage appears to be substantially larger for people who declare weekly earnings (to the Household Labour Force Survey) than those who declare hourly earnings.

Date Updated:  September 2017

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.  Median hourly earnings are based on the usual weekly pay from people's main job.  The median weekly earnings are based on the weekly pay information from all jobs held by people.  The numbers of hours worked by people varies.

Why This Is Important

How much people earn as a result of their investment in a tertiary education is an important indicator because the real value of tertiary education lies in the extent to which it helps people achieve 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 very large investment in tertiary education each year - funding tertiary education providers, providing subsidised student loans and granting student allowances.  A major purpose of the government's investment is to help improve the New Zealand economy and society by raising the level of skill in the population - which helps make our society more productive, contributes to the creation of wealth and leads to better social outcomes.

A significant component in assessing the success of a qualification is in the ability of graduates to find sustainable employment, and in the relative average wage of employees with these qualifications.  A substantial body of evidence shows that a graduate with higher levels of education faces a lower risk of unemployment, and has greater access to further training opportunities 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.

Variations in relative earnings reflect a number of factors, including wider changes in the labour market affecting the demand for skills (such as technological change) and rates of pay (such as minimum wage legislation), as well as 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 earnings and aims to illustrate national earnings based on level of education, thus illustrating the economic advantages associated with tertiary study.

How We Are Going

From 2015 to 2016, the earnings premium for people with a bachelors or higher qualification decreased in terms of median hourly earnings, while it increased for median weekly earnings.

The median hourly earnings were 55 percent higher for people with a bachelors or higher qualification than for those without a qualification.  This compared to an hourly earnings premium of 63 percent in 2015 and around 70 percent over the years from 2000 to 2005.  In contrast, the weekly earnings premium for people with a bachelors or higher qualification increased from 2015 to 2016.  In 2016, the weekly earnings of people with a bachelors or higher qualification were 161 percent higher than for those without a qualification.  This compared to a weekly earnings premium of 157 percent in 2015 and 153 percent in 2006.

The latest information from the Household Labour Force Survey suggests that the decrease in the hourly earnings premium for people with a bachelors or higher qualification was the result of a substantial increase in the median hourly rate for people with no qualification, while the median hourly rate for people with a bachelors or higher qualification remained almost unchanged.

Factors contributing to changes in the median hourly earnings may include data measurement errors, changes in economic conditions, and external (to the economy) factors.

Figure 1: Median hourly earnings premium by highest qualification for the population aged 15 years and over (compared to people with no qualification), 2006-2016Figure 1 Median hourly earnings premium by highest qualification for the population aged 15 years and over (compared to people with no qualification), 2006-2016.

Notes:

  1. In June 2013, the qualification question in the Household Labour Force Survey was updated, leading to improved estimates of people with school qualifications.
  2. From 2006 to 2012, tertiary diplomas and certificates included level 7 diplomas and certificates.
  3. From 2006 to 2012, people who did not state their qualification were included with those with no qualification.
  4. Data for 2013 is based on the June, September and December quarters.
  5. From 2013 onwards, the detailed data is not directly comparable with previous years due to the above changes.

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Figure 2: Weekly earnings premium by highest qualification for the population aged 15 years and over (compared to people with no qualification), 2006-2016

Figure 2: Weekly earnings premium by highest qualification for the population aged 15 years and over (compared to people with no qualification), 2006-2016

Notes:

  1. In June 2013, the qualification question in the Household Labour Force Survey was updated, leading to improved estimates of people with school qualifications.
  2. From 2006 to 2012, tertiary diplomas and certificates included level 7 diplomas and certificates.
  3. From 2006 to 2012, people who did not state their qualification were included with those with no qualification.
  4. Data for 2013 is based on the June, September and December quarters.
  5. From 2013 onwards, the detailed data is not directly comparable with previous years due to the above changes.

References

  • Ministry of Education (2017) Profile & Trends 2016: Tertiary Education Outcomes and Qualification Completions, pp 4-5 and p 13, Wellington: Ministry of Education.
  • OECD (2017).  Education at a Glance: OECD indicators 2017.  Paris: OECD.
  • Statistics New Zealand (1991-2016). New Zealand Income Survey.  Wellington: Statistics New Zealand.

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