Does Australia have too many graduates?

Over the past few decades, the number of Australians obtaining a degree has increased dramatically, with nearly 140,000 domestic undergraduates each year.[1] Past Census data reveals that the percentage of Australians with a bachelor’s degree or above has increased significantly over the past 3 Census periods and will likely increase further in the upcoming 2021 Census.[2]

However, the large number of Australians obtaining a degree also begs the question: is Australia producing too many graduates? We consider this question in the context of the labour market, and briefly from the perspective of society.

Labour Market Outcomes of Graduates

The number of yearly graduates raises concerns as to whether this has impacted labour market outcomes for graduates. Unsurprisingly, it has become increasingly difficult to even find entry-level jobs as a graduate due to the intense competition within the labour market.

The 2019 Graduate Outcomes Survey revealed that 72.2% of undergraduates available for full-time work were in full-time employment within 4 months of graduating.[3] This is substantially lower than pre-GFC employment rates of 85.2%, though it has recovered from the lows of 68.1% in 2014. This includes employment that may not be relevant to the degree. Furthermore, there are significant variations between degrees, such as creative arts having a 52.9% full-time employment rate, business and management with 76.6%, and medicine with 91.1%. These variations highlight the stark differences between labour market outcomes across degrees.

The reality is that some degrees are more desirable to employers than others. There is a large oversupply of graduates in areas where employment rates are low. Graduates with these degrees are likely to face greater difficulty in securing a job relevant to their studies. These outcomes explain the Government’s recent changes in university fees, as they were aimed at incentivising greater demand for degrees with greater job opportunities. Whether this is reasonable or effective is another issue.

Despite this, obtaining a degree remains the best and often only way for Australians to achieve their desired career path. Furthermore, the wage premiums earned by those with a degree are significant. In 2010, the Productivity Commission estimated that the average marginal effects of having a bachelor’s degree on hourly wages, relative to those who completed only year 12, was roughly 25%.[4] However, these are averages and variations will exist across degrees and graduates.

Note that while graduates have it tough, those without a degree are struggling even more. These individuals earn lower wages and have substantially higher unemployment rates.[5] With Australia’s economy becoming more skilled in nature, obtaining a post-school qualification is increasingly necessary for success in a modern economy. In this sense, there is not necessarily too many graduates overall, but rather the distribution of graduates across different degrees do not align with the demands of employers.

Signalling Theory

The famous Job Market Signalling paper by Michael Spence discussed the use of education by workers to ‘signal’ to firms that they were high ability. However, a degree alone no longer provides a good signal. For many top employers, having a degree is merely a checkmark. A good example is the Big 4 Professional Services firms where in many streams, your GPA is arguably the least important component of your application. Firms largely look for other elements such as leadership, great communication and teamwork skills that are signalled by work experience and other extracurricular activities. A degree on its own does not necessarily develop these skills, nor help with succeeding in video interviews and assessment centres. While a degree is still a signal, the sheer number of graduates and applicants that a firm receives requires the use of other signals to stand out from the crowd as standards increase.

Societal Benefits

A large number of graduates implies a highly educated society which brings many societal benefits. These benefits form the basis for the Government’s significant expenditure on education, as it would not be economically justifiable otherwise.

Education improves the knowledge and skills of labour such that it promotes faster technological advancements and productivity improvements.[6] This extends to wage growth which is strongly associated with productivity growth. As discussed, graduates earn higher wages, leading to greater lifetime taxes paid that can be used to fund other social policies.

Furthermore, higher education is strongly associated with greater levels of civic engagement, health, life expectancy, tolerance, and lower likelihood of committing crime.[7] This suggests that having more graduates is great for social cohesion, diversity, lower crime, and stability.[8]

Conclusion

From a societal perspective, we want as many graduates as reasonably possible. Having more educated citizens helps to promote productivity and improves society such as through social stability and lower crime rates. However, there is a clear oversupply of graduates in the labour market which has reduced the signalling value of a degree and worsened the overall employment outcomes of graduates. Given the variations in outcomes across degrees, this issue ultimately lies in the mismatch between the degrees obtained by graduates and the skills demanded by employers.

[1] Mizrahi, J. (2020, February 12). What you need to get a job. AFR. Retrieved from https://www.afr.com/work-and-careers/education/what-you-need-to-get-a-job-20200211-p53zs7

[2] Australian Bureau of Statistics. (2017, October). Educational qualifications in Australia (Catalogue no. 2071.0). Retrieved from https://www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/2071.0~2016~Main%20Features~Educational%20Qualifications%20Data%20Summary%20~65

[3] QILT. (2019, October). 2019 graduate outcomes survey. Retrieved from https://www.qilt.edu.au/docs/default-source/gos-reports/2019-gos/2019-gos-national-report.pdf

[4] Forbes, M., Barker, A., & Turner, S. (2020). The effects of education and health on wages and productivity. Retrieved from Productivity Commission website: https://www.pc.gov.au/research/supporting/education-health-effects-wages/education-health-effects-wages.pdf

[5] National Skills Commission. (n.d.). Education and Employment. Retrieved from https://www.nationalskillscommission.gov.au/education-and-employment

[6] Deloitte. (2015). The importance of universities to Australia’s prosperity. Retrieved from Deloitte website: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/deloitte-au-economics-importance-universities-australias-prosperity-011015.pdf

[7] Taylor, C., Fox, S., Evans, C., & Rees, G. (2019). The ‘civic premium of university graduates: the impact of massification on associational membership. Studies in Higher Education, 45(7). 1351 – 1366. https://doi.org/10.1080/03075079.2019.1637837

[8] Deloitte. (2015). The importance of universities to Australia’s prosperity. Retrieved from Deloitte Website: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/deloitte-au-economics-importance-universities-australias-prosperity-011015.pdf