Measuring economic returns to post-school education in Australia
This report was originally published 21 January 2016.
It is widely acknowledged that education plays a crucial role in producing human capital, arguably the most important asset of any country. In particular, investment in university bachelor degrees is the most important form of human capital formation by post-school education (Wei 2008). Economic return to investment in education is an important factor in determining schooling activities of individuals and their educational attainment. In addition, the information on returns to higher education is useful for education policy settings and individuals in making decisions in schooling choices.
In 2010 the ABS released a research paper titled “Measuring Economic Returns to Post‐School Education in Australia”. That paper presented estimates of the economic returns to post-school education, with a focus on the rates of return to investment in university bachelor degrees. At the time of its publication, the paper attracted attention among policymakers, in particular from those working in the field of public education. The estimates of the paper were based on the Australian Census data 1981-2006. With the availability of the 2011 Census data, this paper updates those estimates to meet the needs of policymakers in public education and the general user community.
During the period 2006-2011, the defining feature of the Australian economy is that Australia experienced the biggest mining boom in history, with the Mining industry’s share in the economy growing from 5% to about 10%. This structural change has significant impact on the demand for mining labour and associated construction workers. The mining boom-led expansion saw unemployment rates at historical lows and labour force participation rates at historical highs. The increased demand for less educated workers narrowed wage gaps between the more and less educated workers and reduced rates of return to education. This is why the rate of return for males is significantly lower since 2006 after it peaked at 25.3 percent in 2001. With the mining boom being over, the reverse is possible for years ahead. Indeed, as technical progress is the key driver for long term economic growth, demand for more educated workers will remain high. Meanwhile, with the economy becoming increasingly knowledge based, job opportunities and choices for the less educated are limited and hence their labour earnings.