Higher education inequality: do graduate outcomes differ by socioeconomic status?

In earlier posts in this series on inequality and higher education, I have suggested that the SES participation differences are largely driven by prior academic performance and that different SES groups seem to experience higher education in much the same way, but low SES students are less likely to complete their degrees. In this post, I will look at outcomes for the students who do complete their degrees.

First, are there differences in rates of getting a job? The 2017 Graduate Outcomes Survey finds that there are small differences. About four months after completing their bachelor degree, 73.6 per cent of high SES graduates who were looking for full-time work had found it, compared to 70.3 per cent of low SES graduates. However, of those who were working full time low SES students were slightly less likely to report not fully using their skills at work than high SES graduates (27.1 per cent compared to 28.9 per cent). It is difficult to say whether there is any direct SES effect in these results, as employment outcomes differ substantially by field of education, and SES differences in discipline choices could explain the results.

The Graduate Outcomes Survey also looks at starting salaries in the first full-time job after completing an undergraduate degree. Again, we find a small SES difference: the median starting salary for high-SES graduates in 2017 was $61,000, and for low SES graduates it was $60,000. This does not tell us whether there is any direct SES effect (such as not being able to access social networks to find professional jobs) or whether other factors such as discipline explain the result. A study using an earlier first year out survey had a limited control for discipline, as well as controls for weighted average marks, gender, and various other factors. It found no negative salary effect for low SES students, using a geographic measure of SES.

One possible cause of SES differences is that low SES students tend to attend the less prestigious universities, reflecting the school results issues reported in an earlier post. For example, 7.5 per cent of the University of Sydney’s students are low SES on a geographic measure, compared to 26.2 per cent of Western Sydney University students.

In theory, university attended should affect starting salaries. There are well-known differences in entry requirements between universities, which employers make take as a more reliable measure of ability than university marks, and employers may assume that the more prestigious universities have better teaching (can attract better staff, have more to spend – although student satisfaction surveys don’t support this conclusion). The first full-time job is when employers have to make greatest use of proxy indicators of potential, since most new graduates lack a track record in full-time skilled employment. Consistent with this, nearly 40 per cent of graduate employers say they have preferred institutions, mostly Group of Eight universities.

In practice, however, many studies have found no or small starting salary differences by university or university grouping (eg here, here, here, here and here). What course you take matters much more to your income than what university you attend.

So at least initially, the Australian higher education system is not strongly converting prestige into money.

In the medium term, last decade’s Graduate Pathways Survey found that after five years there were differences in salary by university groups, with the ATN universities at the top followed by the Group of Eight. This may have something to do with the more vocational nature of the courses taught at ATN universities. They also found that disadvantaged students, using a parental status measure, were 5 percentage points less likely to be working full-time or to be in a professional or managerial occupation five years after graduating. However, this still represents social mobility – 59 per cent of students from a disadvantaged background were in a professional or managerial occupation, when the original definition of disadvantage ruled out anyone with a parent in those occupational categories.

Postgraduate study can increase future earnings potential, and the Graduate Outcomes Survey reports that low SES students, on a geographic measure are less likely to continue with their studies (19 per cent) than high SES students (22.6 per cent).

At Grattan a few years ago we used HILDA data to examine postgraduate attainment by parental occupation. The chart below shows the results. The pattern looks to be more white collar/blue collar than strictly SES, but it suggests that long-term patterns are similar to straight out of university decisions.

Chart 1: Proportion of bachelor degree graduates with postgraduate qualifications, by occupation of father at age 14

Very long term outcomes are more rarely investigated. At Grattan, using HILDA data we have looked at income by university grouping. Looking only at graduates who work full-time, we estimated that Group of Eight graduates earn about 10 per cent more than non-Group of Eight graduates over their careers. After a regression analysis, we found a lifetime earnings premiums for Group of Eight graduates (6 per cent), ATN graduates (6 per cent) and IRU graduates (2 per cent) compared to graduates from all other universities. Another HILDA study by other researchers came to a similar conclusion.

In the regression analysis, unsurprisingly, field of education is important. But our interest here is more in SES-related variables. Parental occupation did not affect the results in any material way, but there was a small long-term advantage associated with parental post-school education. There were larger advantages to having attended a Catholic or Independent school. Critically, however, we don’t have any direct controls for prior academic ability. If we did, the differences between the university groups might have been smaller.

So it looks like that in Australian labour market there might be some modest long-term SES advantages in income, as showing in the school and parental education variables. But consistent with the graduate starting salary data, university prestige seems not to produce more than modest financial benefits.

Some UK research and various US studies (see literature summary in this paper) suggests that the income gaps by parental background and university prestige might be larger in those countries than here, although exact comparisons are hard to do. But I can think of some reasons why outcomes in Australia might be less unequal.

In Australia, higher education policy has deliberately kept status differences between tertiary institutions limited. In the late 1980s and early 1990s, most of the public colleges were converted into universities, partly in response to college status sensitivities. While research funding favours the older universities, public teaching funding does not. Attempts to introduce deregulated fees have been blocked in the Senate.

The top research universities are mostly large by international standards, and certainly large in their local markets, diluting their selectivity. Despite the attempts of Group of Eight universities to poach high-performing school leavers from other states, none of them are genuinely national institutions that recruit the best students from across the country. We have nothing like the grip of Oxford and Cambridge on power and prestige in the UK, or the Ivy League in the USA. So while higher education is one way of generating unequal access to the top positions in society, where you go to university may matter less in Australia than in other English-speaking countries.

Australian higher education deserves reasonable marks on outcomes. While the research has limitations, much of the theoretically expected high SES advantage is either not there or small. 7.5/10 for this one.

Clearly, SES background has a significant effect on education-linked long-term outcomes in Australia. But the negative effects seem to mostly occur during the school years. From the end of Year 12 the SES effects are substantially diminished or gone in participation, performance and outcomes. For many people from low SES backgrounds, higher education is the path to a better career and higher income. Higher education probably isn’t doing anything to reduce snapshot-in-time income inequality, but it is a force for social mobility.

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