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Does it still pay to get a university education?

  • October 22 2020
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Does it still pay to get a university education?

By Cameron Micallef
October 22 2020

The wage premium for university graduates in Australia is increasing, while in less developed countries it is falling, new research has revealed.

university education

Does it still pay to get a university education?

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  • October 22 2020
  • Share

The wage premium for university graduates in Australia is increasing, while in less developed countries it is falling, new research has revealed.

university education

University wage premium is more likely to increase in countries such as Australia, Switzerland and South Korea, according to the study of Dr Oleksii Birulin and Associate Professors Vladimir Smirnov and Andrew Wait of the University of Sydney’s School of Economics. 

However, in countries such as Argentina and Brazil, the wage premium is less likely.

“There are many good reasons for governments to try to increase the numbers of people attending university. An unintended consequence, however, as our research suggests, could be worsening income inequality and declining average wages for those without a degree,” Dr Birulin said.

“This suggests other policy levers – like progressive taxation and transfers – are required to address issues of income inequality.”

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Countries that have greater income inequality, such as the US, tend to have broader ranges of employee productivity. This is why, in such countries with growing graduating intakes, the university wage premium drops.

“Current studies show a person’s university education acts as a signal of increased workplace productivity. Hence, university-educated employees tend to receive higher wages,” Dr Birulin said.

Among other factors, the value of this premium depends on the number of university graduates: “When relatively few people get a degree, a university education is a very strong indication of high productivity, so the university wage premium is high,” says co-author Associate Professor Smirnov.

“As a greater proportion of the population completes university, the average ability of university graduates is lower, so the wage premium falls.

Countries that have greater income inequality, such as the US, tend to have broader ranges of employee productivity. This is why, in such countries with growing graduating intakes, the university wage premium drops.

“Expanding the number of university-educated people significantly pulls down the average productivity of a graduate,” said Associate Professor Wait.

“In countries with greater income equality and therefore employee productivity, like Australia, it is more likely that university graduates are on the upwards-sloping section of the U-shaped pattern, where the university-wage premium is increasing.

“In these cases, while the average productivity of a graduate still falls, the positive signalling effect of a degree remains dominant.”

Does it still pay to get a university education?
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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