Opinion & Commentary
Best and brightest can afford to pay more
Natasha Stott Despoja is never slow to make the case against higher education contribution scheme (Hecs) charges. So it was not surprising that she quickly capitalised on news reports earlier this month that the earnings gap between graduates and non-graduates was narrowing. In her press release, she said that "the usual argument that graduates could well afford to pay Hecs fees was being exposed as myth".
On closer examination, however, the gap between graduate and non-graduate earnings is larger than it at first appears, and the policy implications are very different.
Each year the Graduate Careers Council of Australia collects data on graduate starting salaries and compares it with average weekly earnings. In 1977 graduates earned the same as average weekly earnings, but by 2003 they took home only 82per cent of average weekly earnings. This looks like proof of Stott Despoja's hypothesis.
But in the late 1970s the proportion of the labour force with degrees was less than a third of its current 21per cent. Graduates are increasingly being compared with other high-earning graduates, as well as people with school or vocational qualifications. To check on relativities, we need to compare graduates with non-graduates, not average weekly earnings.
The Australian Bureau of Statistics tried to do this in the latest issue of Australian Social Indicators. Based on census data, it concluded that while in 1976 graduates earned twice as much as non-graduates, by 2001 their pay packets were only 50per cent larger. As with starting salaries, this seems to support Stott Despoja's argument.
Again, however, there are serious problems with the data. The census did not record precise incomes, but instead which income range each person fell into. From this, the ABS calculated median incomes for graduates and non-graduates, using mid-point data for all the lower-income groups, and $1500 for all people earning $1500 and above. 70per cent of this latter group are graduates.
As the ABS points out in its fine print, these medians can understate income. This is especially true for the top income group. Statistics published by the Australian Taxation Office show that 5per cent of taxpayers earn more than $1600 a week, and that their average weekly income exceeds $2800 a week. Just because census data cannot show earnings differentials between graduates and non-graduates doesn't mean they are not there.
A better guide to changing relativities is the wage-cost index, also published by the ABS. It tracks trends in wages and salaries across a range of occupational groups. Since 1997 occupations typically requiring degrees have done better than other occupations. From the base index of 100 in September 1997 managers and administrators are up to 124.4, and professionals up to 126.4. The best performing of the non-graduates, tradesmen, are on 123.1, and the worst, 'elementary clerical, sales and service workers', are on 120.8. These figures suggest that the income gap between people in degree-based occupations and other jobs is widening, not narrowing.
The more likely story of the past decade is not so much a narrowing of earnings between graduates and non-graduates compared with the past, as a wider dispersion of earnings among people with degrees.
A significant minority of graduates, between 20per cent and 21per cent over the past few years, are not in jobs normally requiring degrees. Though the proportion of graduates in this situation was also high in the past - 18per cent in 1979 - the big increase in the graduate workforce means that their absolute numbers are much larger. If they are paid according to occupation rather than credential, these graduates will earn non-graduate salaries.
People in jobs using their qualifications, by contrast, are doing well. For example, a study by the Centre for Labour Market Research found that the private rate of return for male law graduates increased between 1986 and 2001, though their numbers doubled in that time. The wage cost index numbers suggest that this trend is widespread.
This dispersion in earnings among graduates means that, though it pushes average differences between graduates and non-graduates down (though not necessarily to lower levels than in the past), these averages don't support the conclusions Stott Despoja draws from them.
For good students even substantially higher Hecs charges will still be the best investment they ever make and easily affordable. It is hard to see the economy becoming less reliant on highly qualified workers. Growth in domestic student numbers in the foreseeable future is likely to be slow, protecting graduates from an oversupplied market.
For the weaker students missing out on these benefits, the question is perhaps not whether they should pay less for university education, as Stott Despoja suggests, but whether they should attend university at all.
Andrew Norton is a research fellow at the Centre for Independent Studies.
