Graduate salary premium ‘declining at all levels’ in Australia

People who end up in relatively low-status jobs despite having top-shelf qualifications risk attracting a “negative” salary premium from their university studies, according to Australian statistician Tom Karmel.

Dr Karmel, who compared census data on qualifications and average full-time weekly earnings in 2011 and 2021, found that the graduate premium – the boost in lifetime earnings that people garner from tertiary education – had declined at every qualification level, with the highest credentials most affected.

In 2011, master’s and PhD graduates on average earned 93 per cent more than people without higher school or tertiary qualifications. By 2021, this margin had fallen to 72 per cent. For bachelor’s graduates, the salary advantage had slipped from 57 per cent to 53 per cent. For people with diplomas and trade qualifications, the margin had declined by about 2 percentage points.

The analysis also unearthed evidence that university education potentially reduced the earnings of people who found themselves in unsuitable jobs. Degree-qualified people who ended up working as machinery operators or drivers earned up to A$90 a week less than uncredentialled people in similar positions.

Dr Karmel, director of the Mackenzie Research Institute at Holmesglen Institute, said this probably reflected the “opportunity cost” of years spent in study by people who could have used the time more productively demonstrating their worth on the job.

He said that while some people took the view that “education is wonderful for its own sake”, most expected a return from their studies. “The big salaries are in the professional and managerial occupations. If you get yourself a highfalutin qualification and you don’t get that sort of job, then you’re getting a very bad return. In some cases, that actually shows as a negative.”

Dr Karmel said the findings highlighted the potential downsides of the Australian Universities Accord’s push to double domestic university enrolments by 2050. “You can’t just keep expanding these things without consequences. If you’re undertaking a degree to get a good job, and there’s been over-expansion in the number of people with degrees, then it’s much harder to get a job that’s commensurate with your qualifications.

“For example, nurses with higher degrees get paid more than nurses with ordinary degrees. But if you expand the number of nurses with higher degrees, you’re going to run out of those specialised jobs which pay more.”

The analysis separated salary premium into two broad components: “within occupation” effects, where qualifications boost people’s earnings relative to less-qualified workers in the same fields, and “across occupation” influences, where credentials increase the prospect of securing work in high-paying areas.

On the whole, the “within occupation” effects accounted for the larger share of the salary premium and most of its decline over the past decade. “This suggests that the mix of qualifications within occupations is too weighted towards higher credentials,” Dr Karmel said. “It’s a story about supply growing more than demand.”

This did not mean that credentials offered no personal pay-off whatsoever outside the managerial and professional spheres. Dr Karmel said there was evidence that degree-qualified people in administrative, sales and community and personal service roles were better paid than their unqualified co-workers.

“If you get a degree and you end up with a clerical job that really doesn’t need a degree, your extra qualification may give you some advantage. But it’s still not going to be paid very well.”

john.ross@timeshighereducation.com