John FitzGerald: Third level education pays – but at a cost

Across the developed world, the demand for people with college degrees has been rising rapidly. Employment of graduates in the EU15 has grown by an average of 3 per cent a year since 1995.

Even during the crisis years, when so many lost their jobs, employment for graduates continued to rise quite vigorously. In contrast, there has been an oversupply of those with lower levels of education relative to demand. This has resulted in a substantial divergence between graduate and other earnings.

A recent CSO study shows that, in Ireland, those with degrees earn two-thirds more than other workers, slightly higher than the EU-wide differential of 60 per cent.

However, there are significant differences in graduate earnings depending on the field of study, and on whether people have postgraduate qualifications or not.

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The highest starting salaries in 2010 were for those with education degrees, some two-thirds above the average graduate starting salary at that time of €420 a week. After five years, average graduate salaries had risen more than 50 per cent to €640 a week, quite rapid progression as those involved gradually found jobs suited to their qualifications

While starting salaries for teachers were cut after 2010, in 2014, along with IT and health graduates, they nonetheless remained among the highest earners immediately after leaving college. Lowest starter earnings were for arts and social science graduates.

The number of people doing a master’s or doctorate has grown over the past decade. This may have been related to the poor labour market conditions during the recession years. Also, as the numbers with basic degrees rose, having a higher qualification also helped potential job candidates stand out from the crowd. The years of additional study have been rewarded with higher initial salaries – 20 per cent more for a master’s, two-thirds more for a doctorate compared with a primary degree.

Gender pay gap

The CSO data showed similar starting salaries for newly qualified male and female graduates in 2010. Five years after graduation, however, male graduates earned, on average, 3 per cent more than female graduates. It is a small differential relative to that observed for the workforce as a whole, and suggests that the observed economy-wide gender gap in earnings develops later in people’s careers.

A feature of the Irish economy since the late 1990s has been the inward migration of highly educated people from other countries. A 2002 study showed that, while their arrival slowed down the rise in graduate earnings, it also enabled the economy to grow more rapidly. That extra growth boosted the demand for less skilled labour, raising wages in that section of the workforce and leading to virtually full employment on the eve of the crash.

Most of our inward migrants are working, and they have had a very positive effect in enhancing Ireland’s productive capacity. The one dark spot on this success story has been the significantly higher unemployment rates experienced by people from Africa.

With the shift from traditional industry to services and technology taking place across most modern economies, the demand for graduates has risen in the rest of the EU, as in Ireland. However, some EU countries, which have not invested enough in education and in improving human capital, are growing at a slower pace. These countries face difficulties in providing jobs for a large unskilled workforce.

Unequal participation

Following the second World War, Ireland was much slower than most northern European countries to provide universal post-primary education and to expand participation at third level. We have now exceeded our EU neighbours in this regard. Our participation rates in education were further boosted by choices young people made in the recession to stay on in school or college.

However, we still have unequal participation in higher education by those from poorer communities. Improving education participation and outcomes at all levels for these students must be a priority.

While there may be little further headroom to significantly improve overall participation rates, there are questions about the quality of the education that students receive. Between 2005 and 2015 the number of students at third level rose by a third while expenditure on third-level education remained unchanged at just over 1 per cent of GDP.

Across the OECD average expenditure is 50 per cent higher. It must be questioned whether today’s students get the same opportunities at third level as their siblings did a decade ago.

Rather than capping student numbers, as in Northern Ireland, expenditure on third-level education needs to rise by a combination of higher student fees and taxpayer funding to ensure a quality education for all.