The economic value of higher education

By Marie-Hélene Doumet
Senior Analyst, OECD Directorate for Education and Skills

Tertiary education has seen spectacular growth since the beginning of the 21st century: on average across OECD countries, 43% of 25-34 year-olds had a tertiary degree in 2016, compared to 26% in 2000. In Canada and Korea, more than 60% of young adults now hold this level of qualification. This marked increase has largely been fueled by the promise of favourable job prospects: better employment opportunities, career progression, and higher earnings have led many to believe that higher education is the best road for a brighter future. But as the number of tertiary graduates increases each year, is having a degree still a competitive advantage?

This month’s Education Indicators in Focus brief investigates the earnings advantage that tertiary-educated workers have over their upper-secondary peers, and how earnings advantage has evolved over generations. On average across OECD countries, the earnings premium associated with higher education for 55-64 year-olds, 70%, is twice that of younger adults, at just 35%. However, although educational attainment increased similarly across both age groups in the past decade, the earnings advantage of young adults with a tertiary degree declined or remained stable, whereas the older generation benefited from a higher premium in many countries.

Of course earnings advantage has evolved differently across countries, and a lot of these variations are dictated by supply and demand. Technological progress and continued globalisation has led to more demand for highly skilled jobs. In Brazil, for example, the earnings advantage for tertiary-educated workers is the highest across all OECD and partner countries, but tertiary attainment is also the lowest. In Korea, the exponential expansion of tertiary education has led to the similarly striking decline in relative earnings of the older generation with a degree, the highest across all countries. However in many other countries, such as Australia and Portugal, the earning advantage linked to tertiary education increased particularly for older adults, despite the strong expansion of higher education in these countries.

“Today’s youth are finding it increasingly difficult to differentiate their qualifications.”

While today’s older generations’ may have benefited from a time when tertiary graduates were in shorter supply, the lower premium for younger adults demonstrates that today’s youth are finding it increasingly difficult to differentiate their qualifications in a market where attaining higher education is progressively becoming the norm. The increased supply of tertiary graduates risks infiltrating occupations that did not traditionally require a tertiary degree, bringing down the premium graduates might have expected upon completing their studies. The strong demand for more skills has put tremendous pressure on educational systems, sometimes at the expense of quality. Yet, the skills valued in today’s economy are not necessarily the academic abilities that were valued in the past. Employers are finding that academic performance does not necessarily lead to performance in the workplace, and are increasingly less inclined to include education qualifications as part of their recruitment criteria, preferring to focus instead on skills.

In some ways, the increasing trends in the earnings advantage of tertiary education for older adults and the more stable advantage observed for younger ones only confirms what employers have known for some time: that although a tertiary education sets strong foundations for individuals to develop new skills later on, the skills most valued in the labour market today are not necessarily those acquired through university, but those gained through professional experience. A tertiary degree will likely remain a pre-requisite for many occupations. For instance, it would be highly unlikely that we start recruiting engineers without any type of formal engineering knowledge.

But our unpredictable world needs more than just academic competencies: we need those capable of thinking outside the box and resolving unanswered questions. We need those that cultivate and embrace change. Unless higher education programmes develop and encourage these skills in students, they risk diminishing the value of their degrees at graduation to just that: simply a job pre-requisite, with the consequence of postponing the earning premium to further down the line in an individual’s career. At a time when the entire funding model of higher education is being questioned, this would be a high price to pay.

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