Does attending a prestige research university reduce earnings?

The latest HILDA statistical report has a finding that the AFR says:

threatens to undermine the prevailing view that it’s worthwhile for students sweat out a high ATAR score in year 12 so they make it into one of the elite Group of Eight universities.

What the report says is that Group of Eight graduates in their sample earn less than graduates who went to universities in the Australian Technology Network or Innovative Research Universities groups.

In my view the finding is not so much wrong as misleading. We did similar research at Grattan last year, using the same HILDA data source. We found a salary premium for the Group of Eight and Australian Technology Network universities of about 6 per cent, after controlling for various personal attributes and, most importantly, discipline.

I believe that the main reason the HILDA report is getting its result is that Group of Eight universities have enrolment skews towards relatively low paid disciplines such as arts and to a lesser extent science. As can be seen in the chart below, these tend to have lifetime earnings in the lower half of the income distribution.

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Source: Grattan analysis of ABS Census 2011 data. It shows the median lifetime private financial benefit of holding a bachelor degree in the stated discipline, compared to the median person of the same gender who finished their education at Year 12.

Just taking 2013 completions, 31 per cent of Group of Eight completions were in the ‘society and culture’ field that includes humanities compared to 23 per cent of IRU graduates and 14.5% of ATN graduates. For science, this field includes 16 per cent of Group of Eight graduates but only 8 per cent of IRU and 6 per cent of ATN graduates.

All this said, past research that does control for discipline has consistently found that the financial advantage of attending a Group of Eight university is less than we might expect, given their relatively high prestige. Despite some anecdotal evidence to the contrary, employers of new graduates don’t seem to pay a Group of Eight salary premium. And Grattan’s work using HILDA data found only a fairly small advantage in the long run. As we did not control for prior ability, even that small advantage might be over-stated due to partly reflecting the higher prior academic ability, as measured by school results, of the students who attend Group of Eight universities.

If a prospective student wants to maximise their income, the key advice is that what they study matters more than where they study it.

But for Group of Eight universities to come out worse in the long run on a discipline basis they would have to be doing significantly worse in adding human capital during their courses, bad enough to cancel out the positive effects of higher prior ability and whatever proxy value their brands have in the labour market. That seems pretty unlikely. I think if the analysis was done again including discipline we’d see a finding more consistent with theory and past research: a small Group of Eight advantage.

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