Why a top degree won’t top up your salary as much as you’d think
Published by The Australian Financial Review, Monday 13 October
The decision to deregulate university fees is one of the Abbott government’s most radical moves. If the Senate approves this reform, prospective undergraduates will face big decisions. Courses with the same name could have total fees varying by tens of thousands of dollars between universities.
The University of Western Australia is the first university to gamble that students will pay high fees. It says that it would charge all its domestic undergraduates a flat $16,000 a year, regardless of course. Current regulated fees are between $6000 and $10,000 a year, depending on discipline.
UWA’s premium fees are consistent with prices in already deregulated markets for international and postgraduate students. In these markets, UWA and other members of the Group of Eight research-intensive universities such as Melbourne, Sydney and Queensland typically charge the highest fees.
UWA justifies its fees in part by saying that the “pricing is commensurate with UWA’s standing as one of Australia’s leading universities, and one of the world’s top 100 universities”. Effectively, if students attend a high-prestige university they should expect to pay high fees.
Students have many reasons for choosing particular courses and universities, and UWA has selling points other than its international research standing. It attracts high quality students, has a good reputation with employers, and occupies one of Australia’s most attractive campuses. Other Group of Eight universities have similar lists of positive attributes. Nevertheless, if they charge high fees we should ask questions about value for money.
FIRST JOB SALARIES
An under-explored topic in Australia is whether university attended makes a difference to future earnings. In the United States and to lesser extent the United Kingdom, graduates from prestigious universities earn higher salaries than other graduates. If that is true in Australia, it might be worth paying high fees.
New research on first job salaries reported in Mapping Australian Higher Education, 2014-15, a Grattan Institute publication, found no significant salary differences between graduates of various different types of university. Our study took account of graduates’ personal and family background as well as course taken. Previous research using a different data source had similar findings, with small advantages to graduates from Group of Eight universities and the Australian Technology Network universities such as RMIT, QUT and UTS.
If prestige was a major factor in the labour market it should show strongly in first job salaries. Because most new graduates lack professional work experience, we would expect employers to use proxy information like university attended. But there is little sign of this.
For students concerned about value for money on high fees, career earnings matter the most. Grattan research investigated earnings for bachelor-degree graduates of Group of Eight and technology universities, graduates of innovative research universities (IRU) such as La Trobe, Newcastle and James Cook, and other universities that are not members of any of these groups.
PRESTIGE DRIVES FEES
Looking at full-time workers only, Group of Eight graduates earn about 10 per cent more over a 40-year career. However, some of this higher income isn’t due to where they studied. Students at Group of Eight universities typically come from more privileged social backgrounds than their peers at other universities, and have higher prior academic ability. On average, ability especially is likely to lead to higher salaries regardless of university attended.
After adjusting for social background and other factors the income differences between the university groups narrow. Compared with graduates of universities in the other group, graduates of Group of Eight and technology universities earn 6 per cent more over their careers, while IRU graduates earn about 2 per cent more.
That Group of Eight and technology universities add similar income benefits is especially interesting. The technology universities either don’t rate or get low ratings in the global university rankings, while all Group of Eight members are in the world’s top 200 research universities. The Group of Eight are clearly ahead in one of the most-cited measures of university prestige. Yet in the Australian labour market a technology university degree confers as much income advantage as a Group of Eight degree.
Prestige fills an information vacuum about the long-term benefits of attending particular universities, but prices charged in deregulated markets suggest that prestige drives fee inflation.
High fees are costly for taxpayers as well as students, because not all education debt is repaid.
Higher education is a major investment for both individuals and society. We should know how well universities do in providing returns on that investment.